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NOTICE In Property Law

Notice in property Law


Meaning of Notice

‘Notice’ means knowledge of a fact. In law, knowledge of a fact, affects one’s legal rights and liabilities. Sec. 3 of the T.P. Act, 1882, enumerates three kinds of notices —

A person is said to have “notice” of a fact:—

  1. when he actually knows that fact {actual or express notice); or

  2. when, but for wilful abstention from an enquiry or search which he ought to have made, or gross negligence, he would have known it (constructive or implied notice).

The imputed notice (notice to the agent imputed to his principal) is provided for in Explanation III to this section.

Kinds of Notice 

  • Actual Notice

Actual notice, also known as express notice, occurs when a person has direct knowledge of a fact. For actual notice to be legally binding, it must involve clear and specific information provided by someone with an interest in the subject matter, and it must be communicated within the same transaction. Vague reports, rumours, or mere suspicions about a fact do not qualify as actual notice.

The party alleging notice must demonstrate that the other party possessed knowledge significant enough to influence the decisions of a rational individual or a person conducting business, prompting them to take action based on the information received.

  • Constructive Notice

Constructive notice, a principle rooted in equity, operates on the premise that individuals are held accountable for facts they should have known, even if they did not actually possess such knowledge.

Essentially, it attributes to a person the knowledge they would have gained if they had conducted reasonable inquiries. Constructive notice is a legal fiction that imputes knowledge to an individual based on a strong presumption that they should have been aware of certain facts.

The legal presumption of knowledge can be triggered under five circumstances: deliberate failure to conduct an inquiry or search, extreme negligence, registration of relevant documents, physical possession of property, and communication of information to an agent acting on behalf of the individual.

Registration as Constructive Notice

According to Explanation I to Sec. 3, when any transaction concerning immovable property is mandated by law to be, and has indeed been, carried out through a registered instrument, any individual acquiring such property shall be presumed to have notice of said instrument from the date of registration.

For the registration of an instrument to serve as notice of its contents, three conditions must be met:

1. The instrument must be compulsorily registrable, as registration operates as notice only when it is mandatory, not optional.

2. The registration of the document must adhere to the procedures outlined in the Indian Registration Act.

3. The instrument (or its memorandum) and the relevant transaction particulars must be accurately recorded in the registers and indices maintained under the Registration Act.

Registration of a document makes it public, obliging any property interest acquirer to verify the title by checking the Registrar’s office. Failure results in constructive notice. However, improper registration or maintenance voids notice attribution. Compulsory registration cases give constructive notice, while optional ones, like property under Rs. 100, gifts, etc., don't. Registration only affects subsequent transferees, not prior ones. For example, if A sells to B and later to C, B's prior transfer won't be affected by C's registration.

Actual possession as a Notice 

According to Explanation II to Sec. 3, actual possession, also known as de facto possession, of property by another individual must serve as a warning to the purchaser of said property. Possession, therefore, constitutes notice of title in another person.

Hence, any individual acquiring immovable property (or any share/interest in such property) is deemed to have notice of the title (if any) of any person who is currently in actual possession of the property.

This provision establishes that the fact of possession acts as notice. Consequently, if a third party is in actual possession of a piece of land instead of the vendor, an intending purchaser of that land will be considered to have constructive notice of the third party's claim to the land.

For example, if A contracts to sell land to B for Rs. 5000 and B takes possession of the land, then A sells it to C for Rs. 6000 without B's interest being disclosed, C will be deemed to have notice of B's interest due to B's possession, and B may enforce specific performance of the contract against C.

In Abdul Mazid v B. Ahmed (AIR 1980 Gau 44), the defendant landlord leased out the suit property to the plaintiff and later agreed to sell it to him. Although possession was delivered to the plaintiff, the deed was not executed. Subsequently, the defendant sold the property to other defendants.

It was ruled that the plaintiff, lacking title to the property as the sale deed was not executed, was not intended to be noticed as a stakeholder and thus could not obtain a decree for specific performance.

However, the plaintiff would be entitled to defend his possession. Notice under Explanation II, Sec. 3 is limited to the title only. It's important to note that notice does not extend to possession that is merely of a constructive nature.

For example, if A contracts to sell land to B, who then puts his tenant in possession in accordance with the contract, and A sells the land to C, C is not affected by notice of B's interest.

Imputed Notice: Notice to Agent

Explanation III to Section 3 establishes that notice to an agent is considered notice to the principal. This is based on the principle of Qui facit per alium facit per se, meaning actions of an agent are actions of the principal.

Notice is imputed to the principal if the agent learns of it while acting on behalf of the principal, in the relevant business, and if the fact is material to the business.

However, if the agent fraudulently conceals the facts, the principal is not bound by notice to anyone aware of the fraud. Notice is imputed to the principal regardless of whether the agent communicates it.

Exceptions apply if the agent is not acting for the principal, not in the relevant business, and the fact is not material.

For example, in Mohori Bibee v D. Ghosh, the agent's knowledge was imputed to the absent principal. In Coote v Mammon, the principal was bound by the agent's knowledge because the principal later ratified the purchase. However, if the agent fraudulently conceals the facts, and the other party is aware but does nothing, the principal is not bound by the agent's knowledge.

Wilful abstention from an inquiry or search 

The term "wilful abstention" refers to a conscious and deliberate decision to refrain from making an inquiry or search, indicating a lack of good faith regarding a specific transaction. Courts have established instances where individuals are deemed to have constructive notice due to their failure to inquire when they should have:

- If A intends to sell property to B, who knows that rent for the property is paid to a third party, X, B will be deemed to have notice of X's rights [Hunt v Luck (1902) lCh.429].

- When A mortgages a house to B without B investigating the title deeds, and there is a charge on the property held by C, B will be presumed to have knowledge of the charge.

- If A rejects a registered letter containing property-related information, which A intends to purchase, A will be considered to have notice of the letter's contents [Joginder v Dwarkar, 15 Cal 681].

- If A buys a house from B and is informed beforehand that the house belongs to B due to a partition, A must inspect the partition deed, which gives C a right of preemption. A is deemed to have notice of C's preemption right.

It's important to note that the decision to refrain from inquiry must be purposeful and driven by a desire to avoid gaining knowledge. This often occurs when a person believes they have found a favorable deal and wants to expedite the purchase before others can compete.

A prudent buyer should not rely solely on a mutation entry in land records, especially if it doesn't cover the entire land being purchased. They should verify the entries in the Record of Rights and ensure the vendor has full proprietary rights. Failure to do so demonstrates a lack of diligence or intentional avoidance of inquiry.

Leading Case Laws

AHMEDABAD MUNICIPAL CORPN. v  HAJI ABDUL GAFOOR  (AIR 1971 SC 1201) -  In this instance, a person was declared insolvent, and his property vested in the Official Receiver appointed by the court.

The Receiver received a tax bill from the municipality and sought court permission to sell the property to settle the taxes, which was granted. 

However, neither the Receiver nor the municipality took any action regarding the tax payment thereafter. Consequently, the municipal taxes for five years remained outstanding due to the oversights of the Receiver, who was responsible for the property.

During an auction, a purchaser bought the property without being aware of the municipal charge. Despite making inquiries to the Receiver about any outstanding charges, the purchaser received no information about the tax arrears. The question arose whether a person could be deemed to have notice of past municipal tax arrears.

The municipality argued for the attachment of the property in question, contending that in auction sales, there is no guarantee of title, and the purchaser assumes responsibility for all title defects, subject to the principle of caveat emptor. However, this principle did not apply in this scenario, as it involved a judgment debtor.

Additionally, it was asserted that when a person acquires property in a municipal area and is aware that taxes are payable to the municipality, they are deemed to have constructive notice that arrears might be due, making it their obligation to settle them.

The Supreme Court ruled that constructive notice depends on the facts of each case. There's no inherent presumption of notice for municipal taxes.

The decision in Naval Kishore v Municipal Board of Agra was overturned. Prospective purchasers aren't obligated to inquire about past tax arrears unless notified by the municipality.

Constructive notice arises from willful abstention or gross negligence. It's not about whether one had the means to know but whether it was reasonable to pursue it.

In this case, the plaintiff couldn't have assumed the municipality neglected tax payment, given rent was received by the Receiver. The municipality demonstrated more negligence than the plaintiff, so no constructive notice applies.

MD. MUSTAFA v HAJI MD. ISA (AIR 1987 PAT. 5) - Md. Mustafa, claiming to be a tenant in part of a large house owned by Md. Isa, alleged they had an agreement for purchase, but Isa didn't execute the sale deed.

Later, defendants obtained a sale deed from Isa. Plaintiff argued it was fraudulent and void. Defendants claimed they bought without notice of any prior agreement.

Main issue: Were defendants bona fide purchasers without notice of the agreement? Plaintiff's possession was deemed insufficient notice due to occupying a small portion.

Court referred to Sec. 3 of the T.P. Act, which doesn't extend notice to cases where the claimant only occupies a small part. Previous cases supported this. 

The burden initially lies on subsequent purchasers to prove lack of notice. The court found defendants had no prior knowledge of the agreement. Therefore, they couldn't be bound by it, and the plaintiff couldn't enforce it against them. Thus, the plaintiff wasn't entitled to specific performance.

H.N. NARAYANASWAMY NAIDU v DEVEERAMMA  (AIR 1981 KARNT. 93) — The plaintiff claimed to have bought the properties under a conditional sale agreement from the sellers, who later agreed to release the reconveyance rights. After obtaining the release deed, she made significant repairs.

However, the sellers sold the reconveyance rights to another person (defendant 3) without disclosing the release. Defendant 3, claiming to be a bona fide purchaser without notice, sought to enforce the rights.

The main issue was whether defendant 3 was a bona fide purchaser without notice of the plaintiff's right to reconveyance.

Observations and Decision — 'Notice,' as defined in Sec. 3 of the T.P. Act, 1882, includes actual knowledge or knowledge that would have been obtained but for wilful abstention or gross negligence. Explanation II states that any person acquiring property shall be deemed to have notice of the title of any person in actual possession.

The plaintiff argued that defendant 3 had both actual and constructive notice, as per Explanation II. The court noted that the circumstances warranted any prudent person to inquire with the plaintiff, who was in actual possession.

Documents revealed that the plaintiff had rights over the property, including the right to receive payment for major repairs. Given these facts, it was reasonable to inquire about the plaintiff's rights before purchasing the reconveyance rights.

RAM NIWAS v BANO  (AIR 2000 SC 2921) — The appellant (“the tenant”) brought forth a suit for specific performance of an agreement to sell a shop against the vendor and the purchasers.

The tenant claimed to have entered into an agreement with the vendor to purchase the shop but later discovered that the shop had been sold to the purchasers.

The trial court ruled in favor of the tenant, but the High Court reversed the decision, finding that the purchasers were bona fide purchasers without notice of the tenant's agreement.

The appellant argued that the purchasers should be deemed to have notice of the tenant's agreement under Explanation II to Section 3 of the Transfer of Property Act. The Supreme Court emphasised that the term “notice” encompasses actual knowledge, constructive notice, or imputed notice.

The Court noted that while the purchasers might not have had actual knowledge of the tenant's agreement, they could still be deemed to have notice under the law. The Court highlighted the importance of Explanation II to Section 3, which presumes notice of any title held by a person in actual possession of the property.

The Court held that the purchasers, despite acquiring a legal right through the sale deed, could not escape notice of the tenant's agreement if they had relied on the vendor's assertions or neglected to inquire further about the tenant's possession.

Therefore, they would be deemed to have notice of the tenant's agreement if it was found to be valid. The Supreme Court ruled that the purchasers would be deemed to have notice of the tenant's agreement if it was proven to be true and valid.

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