Constructive Trusts from a Fiduciary Position, Undue Influence and Qualified Ownership (Sections 88 to 90)

A constructive trust is imposed by law, regardless of anyone's intention, to prevent a person from keeping a benefit that it would be unconscionable for him to keep. Sections 88 to 90 contain the three most important constructive obligations in the Act. They catch advantages gained by fiduciaries, advantages gained by undue influence, and advantages gained by qualified owners such as life tenants, co-owners and mortgagees at the expense of others interested in the same property. Together they extend the trustee's duty of loyalty to a much wider circle of people.

1. Advantage Gained by a Fiduciary (Section 88)

Section 88, Indian Trusts Act, 1882 (advantage gained by fiduciary)

Where a trustee, executor, partner, agent, director of a company, legal adviser, or other person bound in a fiduciary character to protect the interests of another person, by availing himself of his character, gains for himself any pecuniary advantage, or where any person so bound enters into any dealings under circumstances in which his own interests are, or may be, adverse to those of such other person and thereby gains for himself a pecuniary advantage, he must hold for the benefit of such other person the advantage so gained.

Who is a fiduciary

The section names trustees, executors, partners, agents, company directors and legal advisers, and then extends to any other person bound in a fiduciary character to protect another's interests. Courts have applied it to guardians, managers, employees in positions of confidence and others who have undertaken to act for someone else. The list is illustrative, not closed.

Two limbs

Limb	When it applies
Availing himself of his character	The fiduciary uses his position, or information or opportunities obtained through it, to gain a pecuniary advantage for himself
Dealing with conflicting interests	The fiduciary enters into dealings in which his own interest is, or may be, adverse to that of the person he must protect, and gains a pecuniary advantage

In either case he must hold the advantage for the person protected. The rule is strict: it does not matter that the fiduciary acted honestly or that the principal suffered no loss (Topic 24). The illustrations to the section give examples:

An executor who buys a legatee's claim for less than its value holds the difference for the legatee.
A trustee who uses trust property in his own business holds the profits for the beneficiary.
A trustee who is paid to retire in favour of another holds the payment for the beneficiary.
A partner who buys land with partnership money in his own name, or secretly obtains a payment from someone dealing with the firm, holds it for the partnership.
An agent employed to obtain a lease for his principal who takes it for himself holds it for the principal.
A guardian who buys up encumbrances on his ward's estate at an undervalue holds them for the ward, subject to repayment of what he paid.

Section 88 is the Indian statutory expression of the principle in English cases such as Keech v Sandford (1726) and Boardman v Phipps (1967). It is broad enough to cover secret commissions, bribes, diversion of business opportunities and undisclosed profits by company directors, alongside the duties now stated in Section 166 of the Companies Act, 2013.

2. Advantage Gained by Undue Influence (Section 89)

Section 89 (advantage gained by exercise of undue influence)

Where, by the exercise of undue influence, any advantage is gained in derogation of the interests of another, the person gaining such advantage without consideration, or with notice that such influence has been exercised, must hold the advantage for the benefit of the person whose interests have been so prejudiced.

Undue influence has the meaning given in Section 16 of the Indian Contract Act, 1872: one party is in a position to dominate the will of the other and uses that position to obtain an unfair advantage. Relationships such as parent and child, guardian and ward, spiritual adviser and devotee, doctor and patient, and relationships with persons weakened by age, illness or distress, commonly give rise to such domination.

Who is bound: the person who gains the advantage without consideration (a donee), or with notice that undue influence was exercised. A purchaser for value without notice is protected (Section 96).
Effect: he holds the advantage for the person whose interests were prejudiced.
Relation to the Contract Act: a contract induced by undue influence is voidable under Section 19A of the Contract Act; Section 89 adds a proprietary remedy that reaches the advantage itself, including in the hands of third parties who took without value or with notice.

3. Advantage Gained by a Qualified Owner (Section 90)

Section 90 (advantage gained by qualified owner)

Where a tenant for life, co-owner, mortgagee or other qualified owner of any property, by availing himself of his position as such, gains an advantage in derogation of the rights of the other persons interested in the property, or where any such owner, as representing all persons interested in such property, gains any advantage, he must hold, for the benefit of all persons so interested, the advantage so gained, but subject to repayment by such persons of their due share of the expenses properly incurred, and to an indemnity by the same persons against liabilities properly contracted, in gaining such advantage.

A qualified owner has an interest in property that is shared with, or limited by, the interests of others: a tenant for life (with remaindermen after him), a co-owner (with other co-owners), or a mortgagee (with the mortgagor's right to redeem). Section 90 prevents such a person from using his position to take an advantage for himself at the others' expense.

Qualified owner	Typical advantage	Result
Tenant for life	Renews a lease of the property in his own name	Holds the renewed lease for all persons interested, as an illustration to the section shows
Co-owner	Buys in an outstanding claim or title to the common property	Holds it for all co-owners, who must contribute their share of the cost
Mortgagee	Buys the mortgaged property at a sale he has brought about	Holds it for the mortgagor, subject to reimbursement

The section is balanced: those who take the benefit must repay their due share of the expenses properly incurred, and indemnify the qualified owner against liabilities properly contracted. The aim is to share the advantage fairly, not to penalise the qualified owner.

⚠ Key point

A fiduciary (trustee, executor, partner, agent, director, legal adviser or any person bound in a fiduciary character) who gains a pecuniary advantage by availing himself of his character, or through dealings in which his interest is or may be adverse, holds it for the person he must protect (Section 88). A person who gains an advantage by undue influence, if he took without consideration or with notice, holds it for the person prejudiced (Section 89). A tenant for life, co-owner, mortgagee or other qualified owner who uses his position to gain an advantage at others' expense, or gains it as their representative, holds it for all persons interested, subject to their share of expenses and an indemnity (Section 90).

4. Related Topics and Provisions

Fiduciary disabilities (Topic 24): Sections 50 to 53
Obligations in the nature of trusts (Topic 32): Sections 95 and 96
Constructive trusts from contracts and transfers (Topic 36): Sections 86, 87 and 91 to 93
Trust distinguished from contract and agency (Topic 55)