CONSTRUCTIVE TRUST

A constructive trust is a trust that is not created by a formal agreement but is imposed by a court
to prevent unfairness. It occurs when someone wrongfully holds property that, in fairness, should
benefit someone else. The court orders the person holding the property to manage it for the rightful
beneficiary to prevent unjust enrichment.
The instances of constructive test are as follows:
1. Transfer pursuant to rescindable contract- Section 86 of the Indian Trust act provides
that where property is obtained by one under a contract which is liable to rescission, or
induced by fraud or mistake, he must hold the same for the transferor `s benefit provided
the transferor is prepared to do equity and return the consideration actually paid.
2. Debtor being creditor`s representative – Section 87 of the Indian Trust act provides that
where a debtor becomes the executor or any legal representative for his creditor, he must
hold all the debt for the benefit of the persons interested therein
3. Advantage gained by fiduciary- Section 88 of the Indian Trust act provides that when a
person standing in fiduciary position with another, instead of protecting the interest of that
other, gains as such for himself or enter into dealings whereby he gains for himself and
where therefore his duties and interest conflict, he must hold pecuniary advantage in trust
for that person.
4. Advantage gained by Undue Influence- Section 89 of the Indian Trust act provides that
when any person gets an advantage is gained in derogation of interests of another, then the
person who gains advantage must hold the advantage for the person whose interest is
prejudiced.
5. Property acquired with notice of existing contract- Section 91 of the Indian Trust act
provides that when someone acquires property knowing that it is subject to an existing
contract enforceable by specific performance, they must hold the property for the benefit
of the party to that contract, as needed to honor its terms. This ensures that the rights of the
original party to the contract are protected, even after the property's transfer.
6. Purchase by person contracting to buy property to be held on trust- Section 92 of the
Indian Trust act provides that when a person contracts to buy property which is later to be
hold by trust, then he should hold the property for the beneficiaries of the trust.
7. Advantage gained by Compounding creditors- Section 93 provides that where various
creditors compound the debt due to them, and one of such creditors by secret arrangement
with debtor makes undue advantage over his co creditors, then he must hold benefit of such
creditors so gained.

DUTIES OF CONSTRUCTIVE TRUSTEE

Section 95 of the Indian Trust act provides that the duties, disabilities and liabilities of constructive
trustee is same as that. This section also provides that :
(a) Where trustee rightfully cultivates the property, he is entitled to reasonable remuneration.
 (b) where he holds the property by virtue of a contract with the person for whose benefit he
holds it, or with any one through whom such person claims, he may, without the permission
of the Court, buy or become lessee or mortgagee of the property or any part thereof

RIGHT OF BONA FIDE PURCHASER

There are several rights incorporated in TP Act. and these rights are now discussed below-
1.) RIGHT OF BONA FIDE PURCHASER AGAINST THE SALE BY OSTENSIBLE
OWNER - This rights is dealt by Section 41 of Transfer of Property Act, 1882, which says
that Where, with the consent, express or implied, of the persons interested in immoveable
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
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.

This right is an exception to the rule of Latin maxim “nemo dat quo non habet” and Section
27 Sales of Goods Act, which says that a man who himself not possess a better title, cannot
transfer a better title to other person. The present right is based on the principle that where
two person i.e. Real Owner and the Bonafide Purchaser, suffers from the fraud of a third
person or party (ostensible Owner) , the loss must fall on the person who has created or
who was having the last opportunity to prevent the fraud, that is the real owner , and the
ownership will pass to the innocent person trapped by the fraud (Bonafide Purchaser) .
2.) RIGHT AGAINST THE TRANSFER MADE BY AN UNAUTHORIZED PERSON
WHO SUBSEQUENTLY BECOME AUTHORIZED TO TRANSFER THE
IMMOVABLE PROPERTY- This right is dealt by 1st para of Section 43 of Transfer of
Property Act, 1882, which says that:- The right provided to the Bona fide Purchaser in the
instant section is against the person, who fraudulently or erroneously represents to Bona
fide Purchaser, that he is absolutely authorized to transfer the property , and at the same
time professes to transfer the property for consideration, and entered into one contract of
sale but in reality at this time he himself is not authorized to transfer that immovable
property, but subsequently at any time in future becomes authorized to transfer by any
reason.

But the consequence of such right to the Bonafide Purchaser is that, even such transfer will
not become void or voidable but at the option of transferee becomes operative, on any
interest which the transferor acquires subsequent over that immovable property at any time
before the quashing of the contract of the sale/transfer, thereby preventing the interest of
the Bonafide Purchaser. The reason for such protection or the principle on which this
section is based is Feeding the estoppels. The principle on which this section is embodied
calling upon transferor who represents fraudulently or erroneously to Bonafide Purchaser
to deliver the disputed property to Bonafide Purchaser, lies on doctrine of estoppels. The
principle is based partly on the common law doctrine of estoppels deed and partly on the
equitable doctrine that a man who has promised more than he can perform must make good
 his contract when he acquires the power of performance. Law of estoppels here compels
the transferor who made the representation to deliver the immovable property to the
Bonafide Purchaser on his becoming of subsequent real owner.

3.) RIGHT OF COMPENSATION FOR THE IMPROVEMENTS MADE BY BONAFIDE

HOLDERS UNDER DEFECTIVE TITLE - This right is dealt by the Section 51 of the
Transfer of the Property Act, 1882, provides aid to the transferee of certain land, on which
the transferee has prepared some improvements bona fide under a wrong assumption that
he himself has a good title over that property. If this Bona fide transferee is later on evicted
by the person having a good title over that property he can claim his right for the
compensation of all the improvements which he had made over that property under a bona
fide believe. If a person purchases a property under good faith and with the notice that he
has now become the real owner, the person is certainly entitled to make any improvements
over that property but if in reality his title is not good and subsequently is evicted by a
person having good title over that property, purchaser can take the plea of his right that is
right to get the compensation for the improvements made under good faith under defective
title and will become entitled to the compensation which must be equal to the market value
of the improvements so made at that time .

But if a person makes the improvement with the knowledge that he has no authority or title
to the property, he is not entitled to the payment for the improvement. The right
incorporated in section 51 is based on the maxim He who seeks equity must do equity
meaning is quite apparent. Thus, a person cannot be allowed to enrich himself at the cost
of another. It means that if you purchase any property from any benamidar in good faith
and in a bona fide intention, then you are certainly entitled to make any improvements, you
like in that house.
4.) RIGHT OF THE BONA FIDE PURCHASER , WHEN PROPERTY IS TRANSFERRED
TO HIM WITH INTENT TO DEFRAUD OR DELAY THE CREDITORS OF THE
TRANSFEROR - The right is dealt by section 53 of TPA and has two parts:- a. 53 (1) b.
53 (2) (a) This Right of the Bona fide Purchaser is incorporated in Section 53(1) which
says that if a property is transferred by a person who is heavily indebted and transfer the
property for consideration to a Bona fide purchaser with good faith and without notice,
with intent to defraud or delay the creditors, the rights over the property transferred to that
Bona fide purchaser will not be hampered. But if the transferor and the transferee engaged
together in the work of defrauding or delaying the creditors, transferee will be stopped from
taking the defence of this right and the transaction will be voidable at the option of the
creditors but require that such a suit must be instituted either in a representative capacity
or for the benefit of all the creditors

It will be seen that the rights of a transferee in good faith and for consideration are not
affected even though the transfer is made with intent to defeat the creditors. The right is
based on the principle of equity, is just to prevent the rights of the Bona fide purchaser over
the property transferred to him for consideration and under good faith without notice of
 transferor’s fraudulent intention of defrauding or delaying the creditors. If the transferee
participated in the transferor’s intention then the transfer will be set aside at the option of
creditor even if it is for consideration.

Where the transferor has fraudulent intention, the transferee will only be protected if he
proves that he acted in good faith and he has paid consideration for the transfer. Non-
participation in the transferor’s fraudulent intention constitutes good faith on the part of
transferee. (b) This right is dealt by section 53 (2 ) of TPA, every transfer of immovable
property made without consideration with intent to defraud a subsequent transferee shall
be voidable at the option of such transferee, but it is provided that such transfer should not
be deemed to be fraudulent by reason only of any subsequent transfer for consideration.
This section says that when a person transfer a property gratuitously to a person with an
intent to defraud any subsequent transferee, on the option of this subsequent transferee the
gratuitous transfer can become voidable.

DOCTRINE OF CYPRES
The Doctrine of Cy-Près is derived from the French phrase "cy près comme possible,” which
means as far as possible. This legal principle is generally used for charitable trusts. This principle
allows the court to modify or adapt the original purpose of the charitable trust if the objective of
the trust becomes impossible, impractical or illegal to carry out.
The essentials of doctrine of cypres are:
1. Charitable Purpose- The foremost essential for the applicability of the doctrine of cypress
is that the trust is created for the purpose of doing charity. If the trust is not made for the
purpose of charity then it will not attract the doctrine.
2. Impossibility or Impracticality- The second essentials for the applicability of this
doctrine is that the purpose of trust becomes impossible, impractical or illegal.
3. Close Proximation- The third essential is that the court should modify the terms in a way
that aligns as closely as possible with the original intention of trust.
Non applicability- This doctrine cannot be applied for justifying the diversion of waqf funds
dedicated for one purpose, to another purpose
Case- N.S. Rajabathar Mudaliar v. M.S. Vadivelu Mudaliar1 - In this case it was held that the
doctrine of cypres is applicable when the ovject of trust becomes impossible, impractical or illegal
to carry out.

TRUST HOW EXTINGUISHED

Section 77 of the Indian trust act defines the ways in which the trust can be extinguished such as:
(a) When purpose is completely fulfilled or

1
AIR 1970 SC 1839
 (b) When purpose becomes unlawful or
(c) When fulfilment of purpose becomes impossible due to destruction of trust property
(d) Trust is revoked.

PYQ
Q. What is doctrine of Cypres(2016) 1 marks
Q. Define fiduciary relationship(2016,2018,2019) 1 marks
Q. What do you mean by rights of bonafide purchaser(2017) 1 marks
Q. How does an express trust differ from constructive trust(2018) 1 marks
Q. What do you mean by Cypres(2018, 2019) 1 marks
Q. Explain various kinds of fiduciary relations(2017) 4 marks
Q. When a trust is extinguished(2018) 4 marks
Q. Write a note on cypress doctrine(2022) 4 marks
Q. Explain kinds of fiduciary relations(2018) 8 marks