Doctrine of Notice
Kinds of Notice
1. Actual Notice
2. Constructive or Implied Notice
3. Notice to Agent
Notice
There are 3 important
thing notice mentioned as per section 3 of the Transfer of Property Act
1. Actual Notice
– when giving legally sufficient assurance that actual knowledge of the matter
has been conveyed to the recipient. For e.g: Landlord-Tenant example, agreement
to sale, Landlord sell the property to another person C, if C knows actually
about the deal of Landlord and Tenant then it is actual notice.
2. Constructive
Notice or Implied Notice - when we impute knowledge upon the person is called
as constructive notice. For e.g: You will be imputed with notice in certain
conditions, checked in registrar office, whether you crosschecked or asked from
the tenant, there should be some due diligence from the side of C. Court will
impute the notice on C because he does not exercise due diligence from his
side, and this is called constructive notice.
3. Notice to Agent - Any information or notice given to the agent as appointed by the principal. It will be deemed as if the information is given to the principal itself by the courts and bear the same legal consequence as well subject to certain exceptions. It is provided under section 229 of the Indian Contract Act.
Situation:
There is an agreement to sell signed between A and B, where A is selling the property to B. B has also paid the token money to A. The final Sale deed was agreed to be signed after period 1 month and B takes the possession of the property. But meanwhile, A sell to the property to C. To which B will file suit for Specific Performance of the Contract.
The Court will apply the doctrine of notice and the court will see whether the
constructive notice can be imputed upon C. The court will say that C was deemed
to have notice about the fact that B was already having the possession of the
property.
Because it is the duty of the buyer to make an inquiry form the sub-registrar
office to check all the transactions related to the very property and also
check who is in the actual possession of the property at the time being. This
is laid down u/s 3(c) of the Transfer of Property Act.
And because the buyer has neglected upon his duty and he did not apply the due
diligence then the court will have deemed assumption that C was having the
knowledge of the very fact of the possession and the sale agreement between A
and B.
But, C also has other remedies available, for e.g. he can sue A for cheating or
fraud or whatsoever the case may be.
"'a person is said to have notice' of a fact when he actually knows that fact, or when, but for willful abstention from an enquiry or search which he ought to have made for gross negligence, he would have known it. "
5 situations when Constructive Notice can be imputed:
1. When there is a willful abstention from making an inquiry.
For e.g., If C has asked for any particular documents from A and it is provided by A, and in that document, there is a noting which read as 'there is an agreement to sell'. Now if C has not read the noting on the property document, then the court will impute constructive notice upon C.
2. Gross negligence
For e.g., If C has not checked all the documents related to the property itself, then it would amount to gross negligence. The court expects a reasonable man to go through all the basic documents thoroughly before purchasing the property. This is a voluntary disregard of the need to use the reasonable care.
3. Registration of the document
It means recording the information of the documents with a registering officer and also preserving the copies of the documents for the purpose of conserving the evidence, assurance of title and prevention from fraud. Provided u/s 3(c) of the Transfer of Property Act.
4. Actual possession
When a person is physically residing at the property himself, then the court will impute certain knowledge upon him, even if he is genuinely unaware about it. It is specifically given under section 3(c) of the Transfer of Property Act in Explanation II.
5. Notice to agent
Any notice given to the agent as duly appointed by the principal will deemed as if the notice is served to the principal itself.
Ahmedabad Municipal Corporation v Haji Abdul Gafur Haji Hussenbhai[1]
Facts
Owner of a property
adjudged insolvent and sell his property to the receiver. the property was
rented out during the time of sale, though the receiver got the rights in the
property.
in 1951 the receiver received a bill of Rs. 630 pertaining to municipal taxes.
Receiver sought the court's permission to sell the property in order to pay the
municipal bill.
When the prospective buyer inquiries from the receiver regarding the pending
taxes, then the receiver provided with no such information. So as soon as
prospective buyer purchases the property he gets the notice about the municipal
bill, along with the warning that if the bill is not paid, the property will be
sold to recover the bill. And because of which he files a suit asking the
following relief:
1. He is the owner of the property
2. Permanent Injunction against the municipal from attachment
Contentions
Purchaser
(prospective buyer)- He said that he was a bona fide purchaser with no actual
and constructive notice of the fact that the tax arrears were present on the
property and therefore he should not be made liable.
Municipality- They stated that in auction sales there is no warranty of title
and the purchaser take the property is subjected to all the defects of the
title. So, if any person is purchasing a property in the Municipal area and
knows that the taxes are to be paid to the Municipality, he will be deemed to
have constructive notice of the fact that arrears might be due.
Judgement
Supreme Court held that Constructive notice cannot be imputed as a prospective
buyer has made an inquiry to the receiver and the municipality as well but was
not provided with the adequate information. The prospective buyer has no
reasonable ground for assuming that there might be arrears as a prospective
buyer has already inquired from the Municipal Corporation, but the particulars
were not given.
The property was in occupation of the tenant and therefore the prospective
buyer has reasonably assumed that dues if any might have been paid out of the
rent. The court held that purchaser was not negligent and hence not liable to
pay arrears of taxes. The court commented that it was rather Municipal
Corporation was more negligent and blameworthy than the purchaser.
Ram Niwas v Bano[2]
The appellant rented a shop and was
paying Rs. 35 per month. He claimed that he entered into an agreement with the
vendor and purchased a suit shop for Rs. 9,200 and already paid Rs. 3,200 for
the same. Respondent purchased the shop for Rs. 20,000 later. But later the respondent
file suit for specific performance against vendor and appellant. The respondent
claimed that he is a bona fide purchaser and didn’t knew about the agreement between
the appellant and vendor.
Issue before the court is to decide
whether respondent had full knowledge about the alleged agreement to sell or
not.
The court said that respondent is abstaining from making an inquiry into the real nature
of the possession of the tenant. So, now he cannot escape from the consequences
of the deemed notice under explanation II of Section 3 of the Transfer of
Property Act. And hence the right of respondent over the property is subordinate
to that of appelant's right.
Explanation 2 of section 3 of the Transfer of Property Act is very important, which read that if the buyer does
not check the capacity that in which he is buying the property from the seller
and does not apply the due diligence, the court can impute constructive notice.
Right of Re-conveyance
When the seller is
selling his property to the buyer. However, the seller can keep the right
of re-conveyance with him. That is the seller is selling all right except
the right of re-conveyance. For e.g: after supposing 2 years seller will have a
priority to get back the property after paying the requisite amount which has
been agreed. The seller can impose boundation on the buyer that within
specified time i.e. '2 years' the buyer will not part away with the
property.
Such right is mostly used for the purpose of mortgaging the property when the
seller is in dire need of liquid money. All such sales are distress sales, in
which the prices are relatively low than the market price or with whatsoever
conditions agreed between the parties.
The principle of constructive notice does not apply in cases where the person who claims on the basis of the prior agreement is in possession of a small portion of the property[4]. But there is a limitation to this rule as laid down in Daniel v Davison case.
Md. Mustafa v Haji Md
Isa[5]
In this case, there
were a number of tenants residing in the property and 7 portions were divided
in that property. Here the buyer of the property is not bound to inquire the
capacity of their rent agreement from each and every tenant, but rather a mere
asking question form the owner would be sufficed. The bona fide buyer purchaser
after having made inquiries from the owner was not duty-bound to inquire from each
and every tenant in occupation of a fraction of the property. No constructive
notice could be implied upon such buyer.
Also read - Drafting a Force Majeure Clause in EPC/ Turnkey Contracts
Also read - From Emptiness to Happiness
[1] (AIR 1971 SC
1201)
[2] (AIR 2000 SC 2921)
[4] Daniel v
Davison
[5] (AIR 1987 Pat 5)
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