Doctrine of constructive notice.

                          1. Concept.

 ·       ‘’That doctrine is deals within the relation of the third party and the company like when the third party make the any kind of contract with company then that is presumed that the third party is read or understand the all documents of the company because these are the public documents otherwise in the case of loss third party suffer the consequences because of its negligence ‘’

      In short it safeguards the company from the third party.

 2. Origin.

·    this doctrine evolve  after the passing of the limited liability act so, as the result of it  the unlimited liability of the shareholder end

·    so ,to safeguard the company that is the need of the time

·    So 1^st evolve in UK.

       3. meaning

Here constructive notice ‘’meaning ‘’ that is the legal fiction that in which presumed that person has the knowledge which he has not.

 

      4. Definition.

according to this doctrine that is presumed that when the 3^rd party make any dealing with company so that is presumed that 3^rd party must read all major document of company and knowledge about all document of company other 3^rd party would be liable of loss for its negligence .

                       5.Case reference.

            1. Kotla venkataswams v china Ramamurthy.

                        a. Facts.

Mr. Swami Take loan from company by signing mortgage deed and mortgage his property

And this mortgage deed is just sign by the secretary and the working director of the company.

Even the article of association of company clearly mentions that the every mortgage deed must sign by the working director, managing director and the secretary.

So company sells this mortgage property further.

b. Issue.

Is the action of selling of mortgage property is valid.

       c.Judgment.

Yes, that is valid because involve the negligence of third party /plaintiff

                2. Rama Corporation v. Proved Tin and General Investment Co. (1952)

                A. facts.

·          the director of the plaintiff company made an agreement with the director of the defendant       company according to which that provide funds to them and they use that finance to sell the goods that produce by the 3^rd company .

·       But that is mentioned in the article of the association of the defendant company that just director has the authority to receive cheaque form many behalf.

·       The plaintiff company unaware from this fact and don’t read the AOA OF Defendant Company.

              B. issue

             Is the agreement between both companies are bound on defendant company.

              c. Decision

       Under this doctrine of constructive notice that is the matter of negligence of the plaintiff company so that agreement is not bound on the defendant company.

     6. Significance /purpose.

     1. Safeguard company.

·       company is in the intermediate position between its members and the third party so its deals with two parties at the same time

·       so if at one time   company earn benefit from both sides also has the consequences of the loss from both sides

·       so if one side the doctrine of ultra vires and lifting the corporate veil safeguard company by its members like directors etc. in the same way that doctrine safeguard company from third party by making it personal liable for its negligence .

    2. Advertise MOA AND AOA as public documents.

That doctrine safeguard company by making personal liable 3^rd party for of its negligence of not awareness/reading of public document of company that are

1.    MOA

2.    AOA

Ø Reason why MOA AND AOA are considered as public documents.

·       Because both of these documents are registered to registrar at the time of the incorporation of the company and now these are duty of registrar to provide their copies to persons like 3^rd party  for investigation so as are public document and easy in access so 3^rd party fault are consider not the company .

3.         3.Impose Personal liability on 3^rd party.

       That is because of three reasons.

1.    Caveat bewares.

That is the rule that buyer must be aware before buying anything otherwise he would be liable of consequence of loss same in the case on that analogy 3^rd party here liable because of its negligence of not access of public documents.

2.    Volunti fit non injuria .

That is the rule of injury with consent

And on the base of this maxim analogy liability impose on 3^rd party here because company documents are access of him but 3^rd party show negligence so liable of the consequence of loss

3.    MOA AND AOA ARE public documents.

As both are public documents and easy to access so liable for its negligence.

 

 

 

 

       7. Consequences of applicability.

       Before of the implementation of that doctrine 2 things are keep in notice

1.    Negligence of third party.

this doctrine of constructive notice has the lot of resemblance ‘’caveat emptor ‘’ -buyer be aware rule like same if buyer by negligence buy the false items then liable to the loss same in that case if  the third party by its negligence not any idea about the documents of company then bear the loss .

2.    Knowledge of irregularity.

This doctrine is also applied in the matter when the third party has knowledge about the company documents information but show negligence so they only liable to loss not company.

 

          8. Exception.

a.              Forgery.

 If the company members fraudantly make amendments in the article of association to make    liable the third party for loss so in that criminal act the third party is not liable and that doctrine is not apply.

9. .modern applicability.

1.    1.Abrogated in many acts.

This doctrine is very harsh side effects because to impose all the liability of loss on third party is seems to be unjust ice because that is not possible for the third party to inquire information about all with the documents of the company because of two reasons.

1.    Firstly ,The third party deals contract to company by director dealings not by documents so if the claim is made that is the responsibility of the third party to inquire company documents because these are the public one so actually that is the responsibility of registrar to give information of these .

2.    Secondly , the third party may be involve of many agreements of many companies so not possible for it to have information about all of it .

On these consequences these doctrine is abrogated by section 9 of European communities’ act 1972, and further incorporated in section 35 of companies’ act 1985.

b.    2.Origin of doctrine of indoor management.

the doctrine of constructive notice result in the evolution of the doctrine of indoor management in such a way because if the third party has require to have information about all of the documents of the company but in the same side the members of company by amendments in the article of association did criminal acts to make liable to 3^rd party so there is the need of the time to have one doctrine which regulate the powers and limitation of company members moreover this action is supported by the section 35 of the companies act 1985 where the party must before to enter contract to company has knowledge about the powers and limitation of its members .

10. Legal consequences.

1. Safeguard company by making personal liable to 3^rd party.

That doctrine safeguards company by imposing personal liability on company because of three reasons.

That is because of three reasons.

1.   a. Caveat beawares.

That is the rule that buyer must be aware before buying anything otherwise he would be liable of consequence of loss same in the case on that analogy 3^rd party here liable because of its negligence of not access of public documents.

2.    b.Volunti fit non injuria .

That is the rule of injury with consent

And on the base of this maxim analogy liability impose on 3^rd party here because company documents are access of him but 3^rd party show negligence so liable of the consequence of loss

3.    c.MOA AND AOA ARE public documents.

As both are public documents and easy to access so liable for its negligence.

 

 

1.    Conclusion.

·       After all of the above discussion we can conclude that as doctrine of lifting the corporate veil and ultra vires safeguard company from its members and directors in the result of non their non-favorable action similarly doctrine of constructive notice safe company interest against 3^rd party by making 3^rd party personally liable of its negligence of not reading public document of company.

·       But before to avail that doctrine advantage that must sure that is negligence and knowledge of irregularity is found from 3^rd party side otherwise in the case of forgery and knowledge not any fault impose on 3^rd party .

·       Moreover, currently that is not possible for 3^rd party to have knowledge of about all public documents of all company because 3^rd party also possibility of made investments in many companies at same time so that is the duty of Registrar and members of company to give knowledge about of their document to 3^rd party especially AOA because that document is deals to internal affairs of company and that all are the reasons because of which doctrine of constructive notice evolved.