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Doctrine of Notice: Actual and Constructive Notice

Doctrine of Notice

The foundation of the doctrine of notice is knowledge of a fact. Knowledge here is not restricted to absolute certainty but is inclusive of such a belief in the existence of the fact in question as would make a reasonable and prudent man act, in the ordinary affairs of life. This knowledge can either be actually possessed by a person or may be imputed to him by law. The doctrine of notice necessitates either knowledge of a fact or proof that under the given circumstances, one must have had knowledge of that fact. However, it is pertinent to note that knowledge is not synonymous to notice. There can be a notice without express knowledge of that fact and there can exist situations where knowledge of the fact does not amount to notice.

Thus, notice may be briefly defined as the legal cognizance of a fact.[1] In the Transfer of Property Act, 1882 the doctrine of notice is essential to determine the claims of two or more persons (against each other) who are involved in an unconscionable transaction. When knowledge of a fact is actually possessed by the party, it is called actual notice and when knowledge of a fact is not expressly given but can be imputed to the party under certain circumstances, it is constructive notice.

Actual Notice

Direct or express knowledge or intimation of a fact to a person is said to be an actual notice of the fact to that person. Actual notice is express or formal communication of a definite fact relevant to the transaction to one party by another party interested in the transaction. An actual notice is said to be binding upon a person only when the following procedural requirements[2] are fulfilled:
  1. Definite knowledge, it should not be hearsay or rumours.[3] The notice must be of such a nature that it is expected out of a reasonable to take the notice seriously. It must be the result of a formal communication and not a casual conversation between individuals.
     
  2. Given by a party interested in the transaction, it is a settled rule that a person is not bound to attend to vague rumours or statements by mere strangers, and for a notice to be binding, it must proceed from some persons interested in the transaction.[4]
     
  3. Relevant to the transaction, knowledge must be in relation to the transfer in question, not general or irrelevant to the transaction. Also, the notice must relate to the same transaction[5], as any information imparted as part of any other transaction may be forgotten and doctrine of notice being based on equity does not allow such.

Constructive Notice

When there is no express information, but knowledge of a fact is presumed owing to the existence of certain circumstances, it is constructive notice. A person under constructive notice is not in actual possession of the knowledge about a fact. In case of a constructive notice, the court presumes that under the given circumstances, the person ought to have had knowledge of the fact, and so the person is deemed to have knowledge of the fact, and a notice of the fact is imputed on him.

Constructive notice is a legal presumption. In accordance with the provisions of the Transfer of Property Act, 1882 a constructive notice is said to be imposed upon a person under the following circumstances:
  1. Wilful abstention from inquiry or search:

    This presents a situation where a person deliberately avoids taking notice of a fact which a reasonable man would have taken in the ordinary affairs of life. The principle underlying a presumption of notice in this situation is that the existence of means of acquiring knowledge is equivalent to actual knowledge.[6] This suggests that there existed circumstances which ought to have put a person upon enquiry and if such enquiry had been reasonably prosecuted, it would have led to the discovery of that knowledge. Wilful abstention is thus construed to mean lack of a bona fide intention.[7] A constructive notice will not be inferred, unless it is brought to the courtís view that the situation offered a starting point of an inquiry, which if prosecuted would have led to the discovery of the fact.
     
  2. Gross Negligence:

    Negligence simply means want of care. Negligence involves either the doing of an act which a reasonable man guided by prudence which regulate the general conduct of human affairs would not do, or the omission of such an act. However, mere negligence to take cognizance of a fact does not result in a presumption of notice. It is when the negligent act is so grave that a man of ordinary prudence can never be expected to act in that way, it amounts to gross negligence. A presumption of notice on account of gross negligence is taken when the negligence is of such an aggravated nature that it is indicative of a mental indifference to obvious risks.[8] It is to be noted here that in wilful abstention, opportunity of knowledge might be an important factor, but under gross negligence, it is not relevant.
     
  3. Registration as Notice:

    Explanation I to section 3 of the Transfer of Property Act, 1882 provides for drawing a presumption of notice of all the facts stated in a document or which can be reasonably inferred from the contents of the document, when that document is registered. The legislative intent behind this explanation was to make it clear that only for those documents in which registration is a compulsory requirement, constructive notice of the document is to be inferred on registration, as a general rule. On registration, the facts in the registered document come in the public domain, so a reasonable notice to parties interested in the transaction concerning that document is construed.

    For registration of a document to serve as constructive notice, following requisites must be fulfilled:

    • The documents must be of a nature that they are compulsorily registrable, for example, gift of immovable property is always done through a registered deed under the Registration Act. Registration of documents concerned with transfers where registration is optional, a mere registration will not serve as constructive notice to the interested parties.
       
    • A registration serves as constructive notice only when it has been completed in accordance with the procedural requirements of registration under the Registration Act.
       
    • Registration serves as constructive notice only in a transfer done after the registration has been completed, i.e., only to a subsequent transferee. Any transfers made prior to the registration are not presumed to be guided by constructive notice of the documents registered.
       
  4. Actual Possession as Notice of Title:

    Under Explanation II to section 3 of the Transfer of Property Act, 1882, actual possession of an immovable property is considered to be constructive notice of such title or that much interest which the person in possession may have. It is to be noted that title (here) is not indicative of an ownership, instead it merely suggests a right to possess. In order to operate as constructive notice, possession must be actual possession. Constructive possession does not give rise to a presumption of notice.[9] When an actual or physical possession is proved, the transferee cannot take the plea that he had no knowledge of the title held by the possessor.
     
  5. Notice to agent an Imputed notice to Principal:

    Explanation III to section 3 of the Transfer of Property Act, 1882 deals with the situation where a notice to an agent is treated as an imputed notice to the principal. The underlying principle governing such inference of notice is that he who acts through another, is deemed to act in person (qui facit per alium facit per se).

    The doctrine of notice is based on the principle of equity. And thus, the presumption of notice to agent being constructive notice to the principal is to ensure that no principal avoids an unfavourable notice by simply appointing an agent.

    The applicability of notice to an agent being an imputed notice to the principal rests on the following conditions:
    • Notice should be obtained by the agent in his capacity as an agent. Existence of a principal-agent relationship is an essential condition for a presumption of notice in this case.
       
    • The agent should have been appointed for that specific transaction to which the notice relates to. If the agent is appointed for transaction A and the notice is pertaining to transaction B, for which he is not appointed, any notice to the agent pertaining to transaction B will not be imputed notice to principal.
       
    • The agent must have acquired the notice in the course of his employment as an agent to the principal. Knowledge of any fact prior to appointment as an agent and after the termination of appointment is not imputed notice to the principal.
       
    • Notice acquired by the agent must be material to the transaction or relevant to that particular transaction for which the agent is appointed. Knowledge of facts not related to the particular business for which the agency exists does not result in an imputed notice to the principal.
       
    • There must not have been any fraudulent concealment of facts from the principal by the agent. When the agent, with a dishonest intention deliberately conceals information from the principal, a notice of that fact is imputed on the principal so long as the third party to whom the principal is accountable, is not a party to the fraudulent concealment by the agent.

Actual and Constructive Notice: A Comparison

Nature: An actual notice is in the form of an express intimation whereas a constructive notice is an assumption. In actual notice the person having notice is said to be consciously aware of the existence of the fact, there is no assumption but an assurance of information on the part of the person having an actual notice. Whereas, in case of a constructive notice, knowledge of a fact is assumed on existence of certain circumstances.

There is no absolute conscious awareness of the fact, rather the knowledge is imputed to the person. In accordance with Section 3 of the Transfer of Property Act, 1882 a constructive notice upon the parties is deemed when there were means of acquiring knowledge and had the means been rightly exhausted, the person would have received a conscious awareness about the fact. Further, a similar notice (constructive) is deemed when the party has been grossly negligent.

Formal Communication:

Actual notice should not be based hearsay or rumours.[10] The notice must be of such a nature that it is expected out of a reasonable to take the notice seriously. It must be the result of a formal communication and not a casual conversation between individuals. There is no such requirement in case of a constructive notice. A constructive notice is imputed to a person and is not a result of a formal communication of any information. Such a notice is assumed based on the circumstances under which the knowledge could have been acquired and thus rules out any requirement of a formal communication.

Bearer of the Notice:

An Actual notice must be given by a party interested in the transaction. It is a settled rule that a person is not bound to attend to vague rumours or statements by mere strangers, and for a notice to be binding, it must proceed from some persons interested in the transaction.[11] There is no such requirement in the case of a Constructive Notice. So, when there is no requirement of an express intimation, there arises no question of who shall give the information.

A constructive notice is assumed after an assessment of the circumstances, and do not necessarily need to arise from the side of any party to the transaction. For instance, registration of a document is considered as a constructive notice of its contents. Here, the notice is imputed through the fact that the document after registration, is in the public domain. No party to the transaction gives any notice to the other directly.

Rebuttable:

A constructive notice is based on a presumption in law and such presumptions are not rebuttable. Once the presumption is raised based on the existence of the circumstances required for assuming a notice of the fact, it is a constructive notice, and the presumption is irrefutable in law. Whereas, an actual notice is definite knowledge, since there is no presumption, there is no question of rebuttal of a presumption.

Equity looks on that as done which ought to be done. The Doctrine of Notice is an equitable doctrine In other words, it ensures that no party to a transfer is treated in an unfair manner.
In essence, what basic structure is to the constitution, the Doctrine of notice is to Property law.

End-Notes:
  1. Bispham, Principles of equity, p 263
  2. Ashiq Husain v. Chaturbhuj, A.I.R. 1928 All 159.
  3. Llyods v. Banks, (1868) L.R. 3 Ch 488.
  4. Barnhart v. Green-Shields 1854 (9) Moore's P. C. 18.
  5. Warwick v. Warwick (1746) 3 Atk 291.
  6. Balakrishna Pramanik v. Bhawanipur Banking Corp., A.I.R. 1932 Cal 521.
  7. Joshua v. Alliance Bank, (1895) I.L.R. Cal 185.
  8. Lloyds Bank Ltd. v. P. E. Guzder and Co., A.I.R. 1930 Cal 22.
  9. Birabaro Raut v. Dulabh Rout, (1972) 38 Cut L.T. 161.
  10. Llyods v. Banks, (1868) LR 3 Ch 488.
  11. Barnhart v. Green-Shields 1854 (9) Moore's P. C. 18.

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