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(2019) PL (CL) June 74

Question Marks on Efficacy of the Principle of Constructive Notice

QUESTION MARKS ON EFFICACY OF THE PRINCIPLE OF CONSTRUCTIVE NOTICE

by
Bhumesh Verma* and Abhisar Vidyarthi**
The doctrine of constructive notice is often criticised for being used extensively and
harshly against the parties, particularly in property related matters. In certain
situations, the parties might not have the means or resources to inquire or acquire
knowledge about the title of a property and other related information.
In India, it is a major problem to prove the title of a property. This is because in
India the system of “presumptive titles” is prevalent where title documents are not
certified by the State. They remain private documents and do not get the status of
public records.1 This is because the present

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system under the Registration Act, 1908 only provides for registration of deeds and
documents. Moreover even though the Transfer of Property Act, 1882 mandates
compulsory registration of transfer of immovable property, there is still lack of proper
documentation in this regard. More often than not, this contributes to unsatisfactory
state of affairs in conveyancing the transfer of legal title of a property from one person
to another.

Due to the lack of clarity in the title of ownership, the onus to inquire and confirm
about the ownership and other title related facts lies with the buyer. It is difficult for a
buyer to ascertain such facts due to the existing ambiguity and lack of conclusive
ownership. A conclusive title may be defined as an unassailable and conclusive proof
of ownership of property.2 The Ministry of Rural Development had prepared a Model
Land Titling Bill, 2011, wherein it proposed to set up a Title Registration Authority and
an Appellate Tribunal. The conclusive title system provides for certainty of title to land.
The proposed system registers the title gives finality and indefeasible rights which
cannot be overturned or annulled. Therefore, it does away with repeated, imperfect
and costly examination of past titles which is often a problem to the parties while
acquiring all the information related to the property.
The court imputes constructive notice on parties in cases of failure to find out all
facts related to the title of the party. In certain situations the implication of the
doctrine of constructive notice can be harsh and unreasonable on the parties as this
notice is implied irrespective of the difficulties in acquiring complete knowledge of the
title deeds. The title documents are not certified by the State and therefore remain
private, making it very difficult for the parties to locate the documents and find out all
the information. The doctrine of constructive notice, however fails to recognise the
ground realities and practical difficulties and tends to arbitrarily impose notice on the
parties on their failure to ascertain and verify certain facts for safeguarding his one
interest.
Conclusive title of ownership removes the scope of bona fide mistakes as to the
past titles or existing burdens affecting the subject property. It also removes the ever-
present possibility of fraud by duplication or suppression of deeds, and gives State-
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guaranteed safety. A conclusive title system requires a single agency to handle

property records. Moreover, such single agency should at any given moment mirror the
ground reality of the property records. This is known as the mirror principle. In
addition, the curtain principle should also be applicable. This principle requires that
the record of a title should depict the conclusive ownership status and probing into
past transactions and titles of the property should become unnecessary.3
Once a property is registered with the aforementioned land titling centre, there
shall be a detailed title search including probing into past ownership, transactions and
litigation history (if any) to establish non-encumbrance on the land. Thus, before
purchasing a property, the buyer would have a clear understanding of the ownership
issues and past record. Hence, granting of conclusive title of ownership will make the
doctrine of constructive notice redundant and inapplicable to the parties because then
there shall be no ambiguity with regard to the title of a property and a court shall not
have to impute constructive notice on any party due to their failure to acquire the
desired knowledge. This system is followed in Australia, Canada and the United
Kingdom wherein one has to prove conclusive title of the property which is thereafter
registered. Thereafter, the titleholder registered with the State cannot be
dispossessed.

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Constructive notice is the equity which treats a man who ought to have known a
fact, as if he actually does know it. It presupposes, that in property transactions, a
transferee ought to ascertain and verify certain facts for safeguarding his one interest.
These facts may relate to the property or the transferor. The basic objective behind
these inquiries and verifications is to find whether the property sought to be
transferred is free from any charges or encumbrances and whether the transferor is
eligible to convey a valid title to the transferee. The rule that applies here is that when
a prudent man enters into the market, he would like to take the property free from any
charge or encumbrances. Therefore, the rule of “caveat emptor” or “buyer beware”
applies here and the transferee has to make inquiry about (a) whether the transferor is
competent to make the transfer; (b) whether there is a charge due over the property;
and (c) whether any person has temporary or permanent claim over the property.
Constructive notice is only imputed in situations where a person has means of
knowing a particular fact but has failed to do so. There exists circumstances which
ought to put him on an inquiry, which if prosecuted would lead to discovery of it.4
However, if the person has no means or opportunities to obtain information about
something, notice cannot be imputed on him about that thing. Thus, when the
purchaser does not have the slightest idea or suspicion about any earlier agreement
entered into, far away from the place where the property is situated, it cannot be said
that there was any wilful abstention from the party.
Therefore, the theory upon which courts proceed in holding possession to be
constructive notice of whatever rights the occupant may have in the premises is that
possession, being prima facie evidence of some interest in the land by the tenant,
should normally place a purchaser upon guard and lead him to investigate the extent
and nature of such interest. Any failure on his part to make inquiry is, therefore
regarded as an exhibition of negligence or bad faith which ought to place him in no
better position than that of a purchaser with full knowledge of the adverse claim.5
However, in certain situations, this doctrine has been extended to cases hardly
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within its jurisdiction. For instance, in a case it was held that possession by one tenant
in common is constructive notice of an unrecorded conveyance to him from his co-
tenant as against subsequent mortgagee of the latter who had no actual notice. As the
object of registry system is to facilitate transfers of property, the purchaser ought,
unless there is some potent reason to the contrary, to be able to rely upon the
registered records.
In company law parlance, the effect of the doctrine of constructive notice is harsh
on the outsider who is entering into a contract with the company because that person
is deemed to have a constructive notice of the contents of the documents of the
company. In case of default of any condition, the outsider cannot claim relief on the
ground that he was unaware of the powers of the company in case of ultra vires of the
company.
Moreover, this doctrine does not take notice of the realities of business life because
people know a company mostly through the reputation of its promoters and officers
and not through its documents. As an antithesis, a new theory called the doctrine of
indoor management has been evolved by the courts.6 The doctrine of constructive
notice seeks to protect the company against the outsider; whereas the doctrine of
indoor management operates to protect outsiders against the company. The rule of
indoor management is based upon obvious reasons of convenience in business
relations.
Firstly, the memorandum and articles of association are public documents, open to
public documents. However, the details of internal procedures are not thus open to
public inspection. Therefore, as per the application of this theory, an outsider is
presumed to know the constitution of a company but not what may or may not have
taken place within the doors that are closed to him. Moreover, as discussed above the
passing of the Land Titling Bill proposed in 2008 shall provide conclusive title of
ownership which would in turn reduce if not remove the ambiguity surrounding the
information related to the past and present titles.
A shift from the presumptive titling system to the conclusive titling system for
recording land titles will make the use of the doctrine of constructive notice redundant
as the buyer will only have to prove the conclusive title of the property.
———
*
Managing Partner, Bhumesh Verma is Managing Partner at Corp Comm Legal and can be contacted at
bhumesh.verma@corpcommlegal.in. Abhisar Vidyarthi is a Student Researcher with Corp Comm Legal (4th year
student of Maharashtra National Law University, Mumbai).
**
Student Researcher, Corp Comm Legal

1 Why You May Never Prove Ownership of Your Land, <http://www.indiaspend.com/snapshots/why-you-may-

never- prove-ownership-of-your-land>, last accessed on 20-4-2019.
2 Dr Madalasa Venkataraman, What is Title Guarantee Worth in Land Markets, IIMB-WP N0. 473,
<https://iimb.ac.in/ research/sites/default/files/WP%20No.%20473.pdf>.
3Rita Sinha, Moving Towards Clear Land Titles in India: Potential Benefits, A Road Map and Remaining Challenges
<siteresources.worldbank.org/INTIE/Resources/R_Sinha.docx> last accessed on 29-8-2017.

4 Ram Coomar Coondoo v. Mcqueen, (1872) 11 Beng LR 46.

5Limitations of the Doctrine of Constructive Notice by Possession. Harvard Law Review 18, No. 3 (1905): 218-
19. 33 Royal British Bank v. Turquand, (1856) 6 E&B 327.
6 Royal British Bank v. Turquand, (1856) 6 E&B 327.

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