Transfer by Ostensible owner

Transfer of property by ostensible owner (Section 41 Transfer of Property Act 1882)

Who is ostensible owner? Discuss the Law regarding transfer of property by an ostensible owner?
Under what circumstances is a purchaser of immovable property from an ostensible owner protected?
Ostensible owner under T.P act with case law studies
Introduction:
One of the general principles of Law of Transfer of Property is enunciated by the maxim that no man can transfer to another a right or title greater than what he himself possesses and he gives not who hath not. But to this general principle this Section 41 provides an exception. The principle underlying the provisions of the section is “whenever one of the two innocent persons has to suffer by the act of a third person he who has enabled the third person to occasion the loss must sustain. Therefore, if the true owner of the property permits another to hold himself out as the real owner as by entrusting him with the documents of title or in some other way, a third person who bona fide deals with that other may acquire a good title to the property as against the true owner.

RELEVANT PROVISIONS:

(1) Section 41 of the Transfer of Property Act regulates the transfer by ostensible owner. 
(2) Article 115 of the Qanoon e Shahadat Order (Law of evidence) enacts the principle of estoppel, which estops the real owner from agitating the transfer by ostensible owner when he consents to such transfer previously.

Text of Section 41:

Transfer by ostensible owner. Where, with the consent, express or implied, of the persons interested in immovable property, a person is the ostensible owner of such property and transfers the same for consideration, the transfer shall not be voidable on the grounds that the transferor was not authorized to make it; provided that the transferee, after taking reasonable care to ascertain that the transferor had power to make the transfer, has acted in good faith. 

MEANING AND DEFINITION OF “OSTENSIBLE OWNER”:

The term has not been defined in the Act. However, the following references may be helpful in understanding the conception of ostensible owner.”

ACCORDING TO CORPUS JURIS SCUNDUM:

The word ostensible means apparent; avowed; declared; exhibited; professed; shown. The word “ostensible” often though not always, implies a concealment of or divergence from the real fact, and is often used as opposed to “real” or actual, and use of that word sometimes carries a suggestion that the thing labelled ostensible is not the real or actual thing. Ostensible has 'been held synonymous with colorable and has been distinguished from “actual” (Vol. 67, P. 906) 

ACCORDING TO BLACK’S LAW DICTIONARY 

Ostensible ownership means “apparent ownership derived from conduct or words, Theory of ostensible ownership estops an owner of property who clothes another with apparent title from later asserting his title against an innocent third party who has been induced to deal with apparent owner.” (6th Edition)

CASE LAW DEFINITION OF OSTENSIBLE OWNER:

An ostensible owner is a person who has got the indicia of ownership, such as title, possession, or entries and records which go to show ownership. AIR 1952 Kutch 55

WHAT IS “INDICIA” OF OWNERSHIP?

What is an indicia of ownership will depend upon the circumstances of each case. Possession is an indicia of ownership. Exercise of acts of possession is an ostensible act of ownership, but not always, For the true owner may not himself manage his own property. He may employ a manager to manage his estate. Management implies possession, but the manager may be employed to perform other acts of management, such as giving out leases, collection of rents and general supervision of the estate entrusted to his care.

ILLUSTRATIONS:

(a) Possession for 25 years. 

A son remaining in possession of the daughter (his sister’s) share as well as his own for twenty-five years, when all the property had been entered in the revenue papers in his sole name. ILR 45 A 520

(b) Widow in Possession:

The widow in sole possession of an estate allowed by the other heirs, who lived in another village, to deal with it as if she was solely entitled to the whole property. 63 IC 125

Followings are not ostensible owners:

  • a professed agent or manager. 
  • a servant in occupation of property
  • a mortgagor, being the owner of a limited interest. 
  • a co-sharer in occupation of a joint family residential property.
  • the trustee or manager of an idol, since the idol is not a sentient and being capable of giving consent.

PRINCIPLES/CONDITION S FOR TRANSFER BY OSTENSIBLE OWNER:

The essential conditions for the valid transfer by an ostensible owner are that: 
  1. a person must be the ostensible owner of a property. 
  2. he must be such owner with the consent express or implied of the real owner;
  3. the transferee must purchase the property from such ostensible owner for consideration. 
  4. before taking the transfer, the transferee must take reasonable care to ascertain that the transferor has power to make the transfer in other words, he must act in good faith.
If any of the above conditions is missing, the transferee would not be entitled to the benefit of this section. And if all the above conditions are fulfilled, the real owner shall be deprived of his interest.

EXPLANATION OF CONDITIONS/PRINCIPLES:

1. TRANSFEROR MUST BE OSTENSIBLE OWNER 

If it is proved that the transfer was made with the consent of the true owner, the true owner would be estopped even though the transferee made no inquiries to ascertain that the transferor had power to make the transfer, a condition which is essential for the application of this section. Therefore, it is not necessary for the application of this section that the transfer itself should be made with the consent of, the real owner. It is enough if at the time of transfer, the transferor is the ostensible owner with the consent of the real owner. AIR 1980 SC 553.

2. SUCH OWNERSHIP MUST BE WITH CONSENT OF REAL OWNER:

The real owner will not be barred under this section, unless the apparent ownership of the transferor has been created or permitted or acquiesced in by him. The real owner creates or permits the appearance of ownership or acquiesces in it either by:
  • (a)express words of consent, or
  • (b)acts or conduct which imply consent.
(a) Express Consent:
The consent is express when:
(1) the owner expressly declares by words, spoken or written:
(a) that he had no interest in the property or
(b)that another person has an interest in that property, or
(2) the owner does any act which goes to show that he has no interest in the property, as when he attests a deed which states that he has no interest in the property, or that a third person has an interest in the property, as when he gets the property mutated in the name of another and disclaims his own interest therein. Mere inaction or silence is not material unless there is a duty to speak, or the inaction or silence is equivalent to speech. AIR 1931 Nag 194

Illustration:
Where A has, with his consent, allowed his property to stand in the name of B, and intentionally induces C to take a transfer from B and C takes such a transfer after taking reasonable care to ascertain that B has power to transfer the same, Section 115, Evidence Act and Section 41 T.P Act will both operate to estop A from asserting against C that the property is his own. 1957 2 MLJ 603 (DB)

(b) Implied Consent:

The expression implied consent means consent which is to be inferred from the act or conduct of a person. If the real owner knows another person is dealing with his property and acquiesces, his inaction may imply consent. But before such consent can be inferred it must be proved that the person giving the consent was aware of his right, title or interest in the property, and that in spite of that knowledge he gave the consent his act or conduct, at a time, when he was not conscious even of his own right, does not debar him from urging his own claim against a transferee.

Illustration
On the death of their widowed mother, the daughters succeeded to the property of their father. But, thereafter, they allowed a paternal agnate, who was treated as a member of the family, to take possession of the property, and allowed him to enter into an agreement of sale of a portion of the property and they allowed him to do this, despite the fact that the eldest of them was living with him, others were not far away and they had relations to watch their interest. It was held that the paternal agnate was the ostensible owner of the property by the implied consent of the daughters. AIR 1952 Kutch 55 

(c) Consent must be free and intelligent:

The consent must be:
(i) a free consent, as defined in Section 14 of the Contract Act, and 
(ii) an intelligent consent, i.e. not one brought by a misapprehension of legal rights,3 ALJ 534

3. TRANSFER MUST BE FOR CONSIDERATION:

The benefit of Section 41, T.P. Act can only be obtained by a transferee when he duly proves that he had acquired the property in lieu of some consideration.

4. REASONABLE CARE MUST BE TAKEN BY TRANSFEREE:

The section lays down that a transfer by an ostensible owner shall not be voidable on the grounds that the transferor was not authorized to make it, provided that the transferee has.
  • (a) taken reasonable care to ascertain that the transferor had power to make the transfer, and
  • (b) acted in good faith.
A transferee can get the protection of this section if he did not have constructive notice of the title of real owner, and nothing to put him on enquiry to find out who has the title to the property.(1872) IA Supp.Vol. 40

(a) Degree of care:

With respect to the degree of reasonable care requisite for ascertaining whether the transferee has power to make the transfer, following criteria should be satisfied:

(i) Ordinary Prudence and Reasonability:
The question, whether a transferee took reasonable care to ascertain that the transferee had power to make the transfer, has to be determined with reference to the circumstances of each particular case; the test being, whether he acted
  • (a) like a reasonable man of business, and
  • (b) with ordinary prudence. AIR 1948 Mad. 320
(ii) Standard of diligence:
The ordinary standard of diligence, for ascertaining whether the transferee had power to make the transfer, is calling for the title under which he claims and inspecting them; if in the document itself, that is produced as the title deed for the inspection of the transferee, there is any indication-anything to put the transferee, on notice or enquiry with regard to the existence of some other document, having regard to which any infirmity in the title of the transferor may be regarded as indicated, then the matter might be investigated further. AIR 1928 Mad. 778

(b)Transferor must show he has made usual inquiry into title:

It is an essential condition for the application of the section that, as stated in the proviso, the transferee must, have taken reasonable case to ascertain that the transferor had power to make the transfer. The transferee must, therefore, show that he had made the usual inquiry into the title. If he had not done this, he would not be entitled to the benefit of the section.
Illustration:
The purchase in this case cannot be considered to be bona fide, in that the sale certificate expressly carried a prohibition against alienation for 10 years and had the petitioner consulted the sale certificate, would have come to know of the said restriction. 1986 Punj. LJ 668

(c)No enquiry called for if title be clear.

If the title is clear, no particular enquiry is called for. So, where a person is found in possession of property, recorded as owner, and holds the title-deeds of the property, and deals with a third party in respect of it, in such a case, there is nothing to suggest a want of good faith in such third party in dealing with him in respect of the property. ILR 26 A 490

(d)Effect of want of reasonable care.

If this element of reasonable care, to ascertain the true fact, is missing, the transferee cannot have the advantage of Section 41.

5. TRANSFEREE MUST ACT IN GOOD FAITH:

The proviso requires that the transferee must not only take reasonable care to ascertain that the transferor has power to make the transfer, but he must also act in good faith. It is possible that there may be enquiry without good faith and good faith without enquiry. In neither case would the. Real owner be affected by any transaction with the ostensible owner. The “good faith” required by this section is honesty. A man may make a mistake or a blunder, but then he must do so honestly. A transferee cannot obtain the protection of this section, merely on the grounds, that he had no notice of the real owner’s title. He must not shut his eyes and purchase recklessly from an ostensible owner without taking reasonable care to ascertain, if the transferor had the power to make the transfer. The mere fact that the buyer’s name was recorded in the revenue papers at the relevant time will not enable the purchaser to plead that he was a bona fide purchaser. He must make reasonable enquiry both:
  • (a) into the title of the transferor, and 
  • (b) his right to sell.

Illustrations:
(i) A person cannot be said to act in good faith if he takes the transfer with knowledge of the infirmity of the title of the transferor. ILR 4 Luck. 597
(ii) In a case where delivery of possession to landlord in an eviction proceeding was illegal and while there was a restitution proceeding pending a new tenant was inducted, the latter cannot be a bona fide transferee because delivery to the landlord was illegal. AIR 1982 Raj. 269
(iii) A Burmese husband from the very outset allowed his wife and children to hold themselves out as sole owners of the property and to deal with it as if they were its owners. They mortgaged the property to the mortgagee who acted in good faith and without notice of the title of the husband. It was held, that the husband could not impugn the mortgage as the mortgagee did not act in bad faith. AIR 1933 Rang. 361 
6. CONCLUSION:
The general principles of the law of transfer enunciated by the maxims: 
  • 1. Nemo plus juris ad alium transferee potest quam ipsa habet (no man can transfer a right or title greater than what he himself has).
  • 2. Non dat qui non habet (he gives not who hath not)
There are several exceptions. One of them is, that, if the true owner permits another to hold himself out as real owner a third person who
  • (a) deals with that other after taking reasonable care to ascertain that the transferor had power to make the transfer, and
  • (b) acts in good faith, such third person acquires a good title to the property as against the true owner.
The ground of this except was stated by the Judicial Committee of the Privy Council in Ram Coomar v. Mc Queen, in the following words:
“It is a principle of natural equity which must be universally applicable, that where one man allows another to hold himself out as the owner of an estate and a third person purchases it, for value, from the apparent owner in the belief that he is the real owner, the man who so allows the other to hold himself out shall not be permitted to recover upon a secret title, unless he can overthrow that of the purchaser by showing, either that he had direct notice or something which amounts to constructive notice, of the real title; or that there existed circumstances which ought to have put him upon an enquiry, that, if prosecuted would have led to a discovery of It. (1872) IA Supp. Vol. 40
This principle has been enshrined in Section 41, Transfer of Property Act, 1882.
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