14.5 Transfer by Ostensible Owner (S. 41), Feeding the Grant (S. 43), Charges, Exchange & Actionable Claims

14.5 Transfer by Ostensible Owner, Feeding the Grant, Charges, Exchange & Actionable Claims

Sections 14.1 to 14.4 covered the general principles, perpetuity, the four great doctrines of election, lis pendens, fraudulent transfer and part performance, and the specific transfers of sale, mortgage, lease and gift. Four important clusters remain, and each is a reliable source of one-mark objective questions.

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Section 41: Transfer by an 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 ground that the transferor was not authorised 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."

Section 41 is the statutory form of the rule in Ramcoomar Koondoo v. John and Maria McQueen (1872), and it embodies the equity that where one of two innocent persons must suffer by the act of a third, he who has enabled the third person to occasion the loss must sustain it.

The Four Conditions — All Must Be Satisfied

1. The transferor is the ostensible owner — one who has all the indicia of ownership without being the real owner.
2. He is so with the express or implied consent of the real owner. Consent must be free and given by a person competent to give it; the consent of a minor, or consent obtained by fraud, will not do.
3. The transfer is for consideration. A gift by an ostensible owner is not protected.
4. The transferee has taken reasonable care to ascertain that the transferor had power to make the transfer, and has acted in good faith.

• Reasonable care means enquiry proportionate to the transaction: examining the title deeds, checking the revenue and municipal records, and inspecting the property to see who is in possession. A purchaser who accepts the seller's word without looking at the record of rights fails the test.
• Section 41 does not apply to involuntary transfers such as a court sale in execution, and it does not protect a transferee from an ostensible owner who is a benamidar where the Benami Transactions (Prohibition) Act applies.

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Section 43: Transfer by an Unauthorised Person Who Subsequently Acquires an Interest

"Where a person fraudulently or erroneously represents that he is authorised to transfer certain immovable property and professes to transfer such property for consideration, such transfer shall, at the option of the transferee, operate on any interest which the transferor may acquire in such property at any time during which the contract of transfer subsists."

This is the doctrine of feeding the grant by estoppel — nemo dat quod non habet yields to the equity that a grantor who later acquires the very interest he purported to convey must make good his grant.

Essentials and Limits

• There must be a fraudulent or erroneous representation of authority. If the transferee knew the true position at the time of the transfer, he was not misled and Section 43 does not assist him.
• The transfer must be for consideration; a gratuitous transfer is outside the section.
• The section operates at the option of the transferee, and only while the contract of transfer subsists. If the contract has been rescinded or has become void, there is nothing to feed.
• The proviso protects a competing purchaser: the rule does not impair the right of a transferee in good faith for consideration without notice of the existence of the option.
• Jumma Masjid, Mercara v. Kodimaniandra Deviah (AIR 1962 SC 847) settled the long conflict with Section 6(a), which makes the chance of an heir apparent (spes successionis) non-transferable. The Supreme Court held that Sections 6(a) and 43 operate in different fields: Section 6(a) strikes at a transfer where both parties knowingly dealt in a bare chance of succession, while Section 43 protects a transferee who was misled by the transferor's representation that he had a present title. The transferee's knowledge is therefore the dividing line.

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Section 100: Charges

"Where immovable property of one person is by act of parties or operation of law made security for the payment of money to another, and the transaction does not amount to a mortgage, the latter person is said to have a charge on the property."

• All the provisions applicable to a simple mortgage apply, so far as may be, to a charge (second paragraph of Section 100).
• Examples arising by operation of law: a vendor's lien for unpaid purchase money under Section 55(4)(b), and a maintenance charge decreed in favour of a Hindu widow.
• Section 101 — no merger: where the owner of a charge or other encumbrance becomes absolutely entitled to the property, the charge is not merged unless he so declares; the doctrine of merger is not applied to his prejudice against a subsequent encumbrancer.

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Sections 118-121: Exchange

• Section 118 — when two persons mutually transfer the ownership of one thing for the ownership of another, neither thing or both things being money only, the transaction is called an exchange. A transfer of property in completion of an exchange can be made only in the manner provided for the transfer of such property by sale — so an exchange of immovable property worth ₹100 or upwards requires a registered instrument.
• Section 119 — right of a party deprived of the thing received: if any party to an exchange, or any person claiming through or under him, is by reason of any defect in the title of the other party deprived of the thing received by him in exchange, then, unless a contrary intention appears, he is entitled at his option to compensation or to the return of the thing transferred by him, from the other party or his representative, if that person is still in possession.
• Section 120 — save as otherwise provided, each party has the rights and is subject to the liabilities of a seller as to that which he gives, and has the rights and is subject to the liabilities of a buyer as to that which he takes.
• Section 121 — exchange of money: on an exchange of money, each party thereby warrants the genuineness of the money given by him.

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Sections 130-137: Transfer of Actionable Claims

Section 3 defines an actionable claim 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 movable property not in the possession, actual or constructive, of the claimant, which the civil courts recognise as affording grounds for relief, whether the debt or beneficial interest be existent, accruing, conditional or contingent.

• Examples of actionable claims: a book debt, arrears of rent, a claim for the return of earnest money, the right to the proceeds of a business, a claim under an insurance policy, and a partner's share in a dissolved firm. Not actionable claims: a decree, a claim for unliquidated damages, a copyright, or a debt secured by mortgage or pledge.
• Section 130 — mode of transfer: the 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 transferor or his duly authorised agent, and is complete and effectual upon such execution. No notice to the debtor is necessary to complete the transfer, though Section 131 requires that any notice given must be in writing signed by the transferor, and until the debtor receives notice he may safely pay the transferor.
• Section 132 — the transferee takes subject to all the liabilities and equities to which the transferor was subject at the date of the transfer.
• Section 135 — assignment of rights under a policy of insurance against fire; Section 136 — an officer connected with a Court of Justice, such as a Judge or a legal practitioner, is incapable of purchasing an actionable claim, and no action lies on such a purchase.

[!TIP] The distinction the examiner reaches for is between Section 41 and Section 43. Section 41 turns on the real owner's consent and the transferee's enquiry; the transferor has no title at all and never acquires one. Section 43 turns on the transferor's representation and the transferor's subsequent acquisition of the very interest he purported to convey.