The Transfer of Property Act,

1882

Assignment topic:-

“actionable claim and

constructive notice”

Submitted to:-
DR. PRIYANKA
Submitted by:-
Apoorv Chopra
813
LL.B.(4TH SEM.)
 Actionable claim
Introduction
The term actionable claim is that every kind of claim in a movable property which would be
enforced through the courts. But such a wide meaning created confusion. For example, under this
meaning all debts whether secured or unsecured were actionable claims whereas a debt secured by
mortgage of immovable property is, strictly speaking, an ‘interest in land. Similarly, under this
meaning any claim of money whether the amount was fixed amount or uncertain, was an actionable
claim. Because of such confusions there used to be conflicting decisions and the law was neither
clear nor uniform.

Actionable claim is defined in Section 3 of the Transfer of Property Act as a ‘claim to any debt other
than a debt secured by mortgage of immovable property or by hypothecation or pledge of movable
property or to any beneficial interest in the movable property not in the possession, either actual or
constructive of the claimant which the civil courts recognize as affording grounds for relief, whether
such debt, or beneficial interest be existent, accruing, conditional or contingent 1.

Significance of Actionable Claim

Actionable claim means a claim to any debt other than a debt secured under a mortgage or
hypothecation or pledge on any immovable or moveable property, possession of which is given to
person or institution which gave the loan. An Actionable Claim is a plain unsecured debt which
can be claimed by a person against another person and which can be enforced in civil courts
according to law. .

An Actionable Claim is transferable and inheritable and it is deemed to be a property in the hands
of the person who has the claim.

Conditions of actionable claim

Two conditions of actionable claim is that:

( 1)Unsecured Money Debt:

A debt is an obligation to pay a liquidated or definite sum of money. Such debt may me: (1)
existent, (2) conditional, (3) contingent. If it is now due and owing it is existent. If it is a present
debt but payable in the future it is accruing. A debt which will be due only if a condition be
fulfilled or if a certain specified thing happens is a conditional debt. Contingent debts are debt
which are payable on a certain contingency, e.g., an amount due under a policy of insurance.

1
Types of Debts
Existent Debt: Where a debt or sum of money has already become due and is payable
(enforceable) at present, the debt is existent.

Accruing debt: Where a debt or sum of money is at present due but it is payable not now but on a
future date, the debt is accruing. Accruing debt is due at present but becomes payable only on a
future date

Conditional or Contingent debt: Where the claim for a sum of money exists but the payment
depends upon the fulfilment of any condition, the debt is condition.

Illustrations

(1) A owes Rs. 1000 to B. B’s claim is an actionable claim.

(2) A borrows Rs. 1000 from B and mortgages his house to him. The mortgage debt is not
actionable claim.

(3) A contracted to buy goods from B. On the due date, a fails to take delivery and B sells the
goods in the open market at a loss Rs. 10000. B has a right to claim the damages from A but this
claim is not an actionable claim.

( 2) Claim to Beneficial Interest not in Possession of the Claimant

Right of a person to take the possession of a movable property from the possession of the another,
is the actionable claim of that person provided claimant has beneficial interest(i.e. right of
possession) in that property.

Following condition are necessary for an actionable claim: (a) The claim is in some movable
property. (b) The movable property is in possession of another person. (c) The beneficial inters or the right
of the possession of the claimant is recognized by the court.

According to section 130 which is also about a transfer of actionable claim

 Transfer of an actionable claim whether with or without consideration shall be effected only by
the execution of an instrument in writing signed
 By the transfer or or his duly authorized agent, shall be complete and effectual upon the
execution of such instrument
  All the rights and remedies of the transfer or, whether by way of damages or otherwise, shall
vest in the transferee, whether such notice of the transfer as is herein after provided be given or
not.
 Right to benefit of a contract falls within the definition of Actionable Claim

Examples of “Actionable Claim:-

“The following claims are “actionable claims”:-

1. Claim for arrear rent;

2. Claim for rent to fall due in future.
3.

An option offered to repurchase the property once sold.

4. Benefit of a contract giving option to purchase the land.
5. When a contract for purchase of goods is endorsed by the purchaser, by writing on the
back of the contract under his signature, that he has sold all his rights and interest in the
goods purchased under the said contract to a certain person who is named and properly
identified in such endorsement.
However the following claims are not “Actionable claims”:-

1. A claim which is decreed.

2. Relinquishment of interest of a member retiring from joint Hindu Family business in
favour of the members who continue to be co-partners of the same.
3. “Right to Sue”, though it is a right but not an actionable claim.
4. A claim for main profits.
 Case Law
Jugalkishore Saraf Vs. Raw Cotton Co. Ltd.

Legal Crystal Citation: legalcrystal.com/638544

Court: Supreme Court of India

Decided On: Mar-07-1955

Reported in: (1956)58BOMLR517; [1955]1SCR1369

Judge : Bhagwati,; S.R. Das and; Imam, JJ

Acts : Code of Civil Procedure (CPC), 1908 - Sections 47 and

146 - Order 21, Rules 11, 11(2), 16, 17 and 17(1) - Order
22, Rule 10; ;Transfer of Property Act - Sections 3, 5, 8,
130 and 132

Appellant: Jugalkishore Saraf

Respondent: Raw Cotton Co. Ltd.

 Constructive Notice
The word ‘Notice’ means knowledge of a fact. Section 3 of the Transfer of
Property Act, 1882, specifies three kinds of notices; actual, constructive and
imputed notice. “A person, therefore, is said to have ‘notice’ of a fact when he
actually knows that fact or when but from wilful abstention from an enquiry or
search or gross negligence, he ought to have known it.”

Constructive notice is a notice which treats a person who ought to have known a
fact, as if he actually does know it. It is the knowledge which the court imputes
to a person upon a legal presumption so strong that it cannot be allowed to be
rebutted, that knowledge must have been obtained by the person had he made
all the relevant inquiries.

Presumptions

The presumption that the party had constructive notice can be applied in the
following cases:

Wilful Abstention from an inquiry or search-

The words ‘wilful abstention’, both conscious and deliberate are imply
abstention from inquiry or search which a prudent person would have otherwise
wanted in a bona fide transaction. In other words a person is to be fixed
with constructive notice for having abstained from making an inquiry which he
ought to have made.

It may be noted that the ‘wilful abstention from inquiry’ must hold a purpose or
design to deliberately avoid an inquiry which would have led to the ultimate
knowledge of the fact. For instance, if a prudent purchaser in order to not miss
the bargain of a property sale wilfully abstains from seeking complete
knowledge about the proprietary rights and merely relies on a mutation entry(in
the land records), he fails to do the necessary and will be served with a
constructive notice in case of a dispute.
Gross Negligence–

The doctrine of constructive notice applies where a prudent person, due to his
gross negligence fails to have knowledge of a fact. Negligence means omission
to take such care as a prudent person would have taken. Gross negligence is a
higher degree of such neglect. “Gross negligence does not mean mere
carelessness but means carelessness of so aggravated a nature as to indicate an
attitude of mental indifference to obvious risks.” Hudston v Viney (1921) 1 Ch.
98]

Jones v Smith [(1841) 1 Hare 41] It is not mandatory that the party committing
gross negligence is an active participant of fraud. Fraud means active dishonesty
while negligence means disinclination. The court held that the degree of Gross
negligence is higher enough for it to be treated by a court of justice as evidence
of fraud, ascribe a fraudulent motive to it and visit it with the consequences of
fraud, despite the possibility of the party being perfectly innocent.

Llyod Banks Ltd. v P.E. Guzdar & Co. (1929) 56 Cal 868- In this case a person
(A) deposited title-deeds of his house with the bank to secure loan.
Subsequently, he represented to the bank that he wished to sell house to clear
the loan, and the intending purchaser wanted to see deeds. The bank did not
follow the usual procedure of delivering the deed to their solicitors to arrange
for the deal, as A said that he would not geta good price if the purchaser came to
know that the bank had the deeds, where upon the bank returned the deeds to
him. A mortgaged his house to another bank by depositing title-deeds with it.
Held that the bank is guilty of gross negligence in surrendering the title deeds to
‘A’. Similarly, in Imperial Bank of India v U. Raj Gyaw (1923) 50 IA
283,where a purchaser was informed that the title-deeds were in possession of a
bank for safe custody and omitted to make any inquiry from the bank, it was
held that he was guilty of gross negligence and was deemed to have notice of
the rights of the bank which had the custody of the deeds.

Alwar Chetty v Jagannatha (54 Mad LJ109) – B borrowed money from C, and
by way of an equitable mortgage, deposited with C, the sale deed by which he
had purchased his property from X. There was a recital in this deed that part of
the purchase money had been retained by B to meet X’s debts, which B had not
paid, and of which C made no inquiries. Upon these facts, the court held that C
had constructive notice of X’s lien forthe unpaid purchase money. However,
notice to a purchaser by his title documents in onetransaction will not be notice
to him in a subsequent and independent transaction.

Thus, even though gross negligence as explained is of an amplified nature, the

question of constructive notice depends upon facts and circumstances of each
case.

Registration as a Notice-.

Registration serves as notice under the Transfer of Property Act whenever any
person fails to inquire about a legal instrument/transaction that ought to have
been registered. Any transaction related to immovable property is effected by a
registered document, in order to be a legally acceptable transaction. If any party
fails to inquire registration, he ought to be served with a constructive notice.

In order that registration of an instrument may operate as a notice of its

contents, the following three conditions must be satisfied:

(1) The instrument must be compulsorily registrable. Thus, registration is notice

only where the instrument is required to be registered compulsorily, and not
where the registration is optional.

(2) The registration of the document must be completed in the manner

prescribed by the Indian Registration Act.

(3) The instrument (or its memorandum) and the particulars regarding the
transaction to which it related must be correctly entered in the registers and
indices kept under the Registration Act.

When a document is registered, it becomes a public document and any person

acquiring interest in a property can and ought to confirm the title of person by
looking at documents in Registrar’s office. For instance, A sells the house by
registered document to B. He later enters into a contract with C to sell him the
same house. Law imposes a duty upon C to inspect the registers at the
Registrar’s office, and if he does that, he would come to know about the sale in
favour of B. Failure to inspect the register will be detrimental to the C’s
interests, as he would be imputed with constructive notice of the registered
transaction. It is also a logical corollary that if such registration is improperly
done, or if the documents are not properly maintained, a person could not have
found out even if he made an inquiry. In such case, notice cannot be imputed to
him. Thus wherever registration of a document is not mandatory but only an
option, registration would not operate as a constructive notice.

In Backer Khoransanee v Ahmed Ismail (AIR 1928 Rang 28) it was held that
though the mortgage deed is registered, it being a subject of movable property
whose registration is not compulsory, the registration does not amount to
constructive notice. Similarly, A mortgages her jewellery to B, through a
registered deed and later sells it to C for full consideration. Though the
mortgage deed is registered, it won’t amount to constructive notice as
registration of movable property is not compulsory.

Actual possession as a notice-

Actual possession, ie.de facto possession, of property by another must put the
purchaser of such property on his guard. Possession, therefore, amounts to
notice of title in another. It is, therefore, laid down that any person acquiring
any immovable property is deemed to have notice of the title (if any) of any
person, who is for the time being in actual possession thereof.

In Abdul Mazid v B Ahmed (AIR 1930 Gau 44), the defendant landlord leased
out suit property to the plaintiff on rent. Later, the defendant entered into an
agreement with the plaintiff to sell the suit property to him; received an advance
and agreed to execute a sale deed. The possession was delivered to the plaintiff
but the deed was not executed. The defendant in the meanwhile sold the
property to other defendants, and hence a suit for specific performance of the
contract was filed.

It should be noted that notice is not extended to possession which is merely of a

constructive nature, as it would be too much to expect a man to find out every
possible person who though not on the spot, but might be on it from behind.
Imputed Notice: Notice to Agent –

The doctrine of Imputed notice is based on the maxim Qui facit per alium facit
per se i.e. he who does by another does by himself. A person is deemed to have
had notice of any fact if his agent acquires notice thereof: (i) whilst acting on
his behalf (ii) in the course of business, and (iii) to which business, that fact is
material.

The general rule that the knowledge of the agent is the knowledge of the
principal has certain limitations. Thus if the notice is obtained while the agent is
not acting on behalf of the principal and not in course of the business in
question and the factum of notice is not material to the business in hand, his
knowledge will not bind the principal. Moreover, in cases where the agent acts
dishonestly or fraudulently conceals facts from his principal, the principal
cannot be held imbibed by a notice. [8] In Mohori Bibee v D. Ghose ((1903) 30
Cal539), it was held that although the principal was absent from Calcutta and
personally did not take part in the transaction, his agent in Calcutta undertook
all the transactions on his behalf. Thus the principal will be affected by a
constructive notice, with the assumption that he was aware of all the facts.

In Coote v Mammon ((1724) 5 Bro PC 355), without B’s authority, A

purchases, as agent of B, immovable property with notice of an encumbrance.
Later, B pays the price and ratifies the purchase. In these circumstances, if any
dispute occurs the law will hold B responsible for all the acts of A , even though
A acted initially on his own behalf.

Illustrations

1. X mortgages his house to Y, who omits to investigate the title deeds relating
to the house. Z has a charge on the property mortgaged. Y will be presumed to
have notice of the charge.

2. A refuses a registered letter, which contain certain information relating to

property which A proposes to purchase. A will be deemed to have notice of the
contents of the letter.
3. A rented a small portion of his house to B, and later on died after selling it to
C for a full consideration. A laid charge over the small portion of the house, C
will not be imputed with a notice as the principle of constructive notice does not
apply in cases where the person who claims on basis of prior agreement is in
possession of a small portion of the property.

4. A purchases a house from B. A is informed before the purchase that the

house has fallen to B’s share on the partition. A omits to inspect the partition
deed which gives a right to C to purchase the house in case it is sold. A is
effected with the notice of C’s right of pre-emption.

5. X is Y’s agent. X purchases a house on behalf on Y knowing Z’s charge over

it and fraudulently conceals it from Y and acts along with Z. X will not be
imputed with the notice of Z’s charge over the property.

Conclusion

Constructive notice as elaborately explained above reflects the understanding of

notice to be of much wider import than mere knowledge of a fact. Thus,
purchasers will be deemed to have notice of earlier ‘agreement to sell’ should it
be found to be true and valid. 

Frequently Asked Questions:

1. What does the term ‘notice’ imply?

The term implies knowledge of a fact.

2. What are the types of notice?

There are three kinds of notice; actual, constructive and imputed.

3. What is the difference between ‘knowledge’ of a fact
and ‘notice’ of a fact?

The word ‘notice’ is of wider import than the word ‘knowledge’, a person may
not have actual knowledge of a fact but he may have notice of it.

4. What impact does ‘registration’ serve in being

constructive notice of a fact?

Registration serves as constructive notice only in transactions where the subject

in question requires compulsory registration. For instance in cases of movable
property where registration is not compulsory, registration does not impute
constructive notice.

5. What is the implication of equitable right in a bona

fide purchase? Will it amount to a constructive notice?

The foundation of an equitable right is based on a preference given to B over A

for having made a bona fide purchase without knowledge of A. No, a bona fide
purchaser for valuable consideration who obtains a legal estate at time of his
purchase without notice of a prior equitable right is entitled to priority in equity
as well as in law.

Thank you