LAW OF TRUSTS – IV

CONSTRUCTIVE TRUSTS

S.Selvakunapalan LL.B., LL.M.

Attorney-at Law, Deputy Legal Draftsman
Visiting Lecturer – Sri Lanka Law College.

1
 What is constructive trust?
• An obligation in the nature of a trust created
under the following circumstances defined as
constructive trusts–(section 82)

• Where it does not appear that transferor

intended to dispose of beneficial interest.

2
• A constructive trust is one which is not created
by express or implied act of the settlor, but
which is deemed by operation of law or arises
by the construction of law.

• Where a person who is the legal owner of the

property, but is in fiduciary position as regards
another person in respect of that property, he
is compelled by the doctrine of equity to hold
the property for the benefit of that other
person, it is constructive trust.
3
• Since section 5 is to be read with section 6, the
trusts created under Chapter II would be those
where there is an intention to create a trust, and
such intention may be manifested in the form
prescribed by 5(1) and (2), or on the proof of
fraud, by parole.
• A trust arising under Chapter IX must fall within
one of the categories in sections 82 to 98.
Section 83 would include cases where there is
specific intention not formally expressed, to
create a trust in favour of the settlor.

4
• Chapter II (sections 5 and 6); Chapter IX (sections
82 to 96) and section 107 of the Trusts
Ordinance govern the origins of trusts.
• Section 5(1) and (2) read with section 6 falls with
the category of express trusts.
• Section 5(3) read with section 5(1) and (2) and
section 6 falls with the category of informal
trusts.
• Chapter IX is headed constructive trusts.

5
• Under section 107 a trust may be arisen even
in the absence of a written declaration of trust
as required by section 5, or in the absence of a
valid legal conveyance to the trustee as
required by section 6, and such trust may be
imposed on a person who never agreed to be
trustee.
• In Muttammah vs. Thiyagarajah (62NLR559)
Sonsoni CJ said “the dividing the line between
express and constructive trust is very thin and
some cases fall within both categories.

6
• Where the owner of property transfers or
bequeaths it, and it cannot reasonably be
inferred consistently with the attendant
circumstances that he intended to dispose
of the beneficial interest therein, the
transferee or legatee must hold such
properly for the benefit of the owner or his
legal representative. (sec 83)

7
 Chandradasa v. Hemalatha
SC Appeal 168/14 decided on August 8, 2017

The transferor is duty bound to adduce evidence

to show that he did not intend to dispose of the
beneficial interest of the property. He is obliged
to adduce evidence to show the attendant
circumstances that there was no intention to
transfer the beneficial interest.

8
• Section 83 declares that where property is
transferred or bequeathed and if it cannot be
inferred that the beneficial interest was
disposed of, the transferee or legatee is a
trustee of the property.

• Section 83 places the emphasis on the

intention of the transferor and does not refer
to payment of consideration. But whether
consideration has passed would be an
element in arriving at the transferor's
intention.
9
• (a) A conveys land to B without consideration
and declares no trust of any part. It cannot,
consistently with the circumstances under which
the transfer is made, reasonably be inferred that
A intended to transfer the beneficial interest in
the land. B holds the land for the benefit of A-
(illustration to the sec 83).

10
• (b) A transfers certain stock belonging to him
into the joint names of himself and B. It
cannot, consistently with the circumstances
under which the transfer is made, reasonably
be inferred that A intended to transfer the
beneficial interest in the stock during his life. A
and B hold the stock for the benefit of A
during his life-(illustration to the sec 83).

11
• (c) A makes a gift of certain land to his wife B.
She takes the beneficial interest in the land
free from any trust in favour of A, for it may
reasonably be inferred from the circumstances
that the gift was for B's benefit-(illustration to
the sec 83).

12
Patrick Perera v. Linette Fernando
SC Appeal 101/16; decided on : 05.12.2017

“it is only the owner of a property who held the

property before transferring the same to
another who can claim the benefit of section 83
of the Trusts Ordinance.”

13
• Where a person has a notarial conveyance in his
favour, the courts have placed heavy burden on
the transferor to prove facts bringing himself
within the section 83.

• Proof by a person relying on section 83 that he

made a voluntary conveyance to a stranger is
not enough. He must prove that he did not
intend to transfer the beneficial interest.

14
• Section 83 refers to the “owner or legal
representative” would not apply where ‘A’
transfers the property to ‘B’, not stating in the
conveyance that he intended to benefit ‘C’.

• In Theevanapillai vs. Sinnapillai (22NLR316) The

land was conveyed to the first defendant on
an express verbal understanding that she was
to convey to her son ‘S’ when his debts were
settled.

15
• The learned Judge also came to the conclusion
that no consideration was paid. He, therefore,
held that the defendant held the land in trust
for ‘S’ and decreed a conveyance.

• On appeal, Ennis ACJ held that there is no

reasons to interfere with the decision of the
District Court.

16
• In Goonewardena vs. Goonewardena
(24NLR385) ‘C’ argued that ‘B’ held the property
on trust for him. ‘C’ stated that his father asked
him by letter to quit Government service and
return home and that the father promised to
convey land on which mills were situated to
him; that ‘C’ acted on this promise and gave up
his job; that the father intended to carry out his
promise but died before doing so; that the
father’s will all his property was bequeathed to
his wife (C’s mother)

17
• Bertram C.J said that ‘C’ had an equitable claim
and also referred to C’s claim to an equitable to
an equitable right based upon a trust. Section
83 or any other section in the Trusts Ordinance
was not referred to.

• LJM Coorey suggested that this section could be

amended by the addition after words “legal
representative” of the words “or other person
intended to be benefited”.

18
• “attendant circumstances” in section 83 have
been described as those “which precede or
follow the transfer” … but are not too far
removed in point of time to be regarded as
attendant …” Whether a circumstance is
attendant or not would depend on the facts of
the each case.

19
• In Premawathi vs. Gnanawathi (1994 2SLR 171) an
undertaking to re-convey the property sold was by
way of a non‑notarial document which is of no
force or avail in law under section 2 of the
Prevention of Frauds Ordinance. However the
attendant circumstances must be looked into as
the plaintiff had been willing to transfer the
property on receipt of Rs. 6000/‑ within six
months but could not do so despite the tender of
Rs. 6000/‑ within the six months as she was in
hospital, and the possession of the land had
remained with the 1st defendant and the land
itself was worth Rs. 15,000/‑. 20
• the attendant circumstances point to a
constructive trust within the meaning of
section 83 of the Trusts Ordinance. The
"attendant circumstances" show that the
1st defendant did not intend to dispose of the
beneficial interest.

21
 Agreement to re-convey?
• ‘A’ may transfer the property ‘B’ by a notarial
conveyance, for a stated price, subject to an
agreement to re-convey on tender of purchase
price with interest, within the stated period.

22
• The problems which confront the court
depend on whether the agreement to re-
convey is -

(i) notarially executed and signed by

transferee,
(ii) mentioned in the notarial document
conveying the property but not signed by
the transferee,
(iii) alleged by the transferor by parol evidence.

23
• In (i) the agreement to re-convey is enforceable
only if the purchase price is tendered within the
stated period, and after that ‘A’ cannot prove by
parol evidence that the transaction was in reality
a mortgage and thus rely on the maxim once a
mortgage always a mortgage, and enforce the
agreement after the specified period has
elapsed.

• (ii) has been held to fall within section 96.

24
• In (iii) where there is a notarial conveyance
absolute on the face of it, ‘A’ cannot prove by
parol evidence that the transfer was subject to
an agreement to re-convey on payment of the
purchase price with interest.

25
• Since parol evidence is admissible to prove a
trust, a party who has transfered the property
subject to an agreement to re-convey, either
after the specified period has elapsed, or
because of the agreement is a parol one, seeks to
argue that the transaction is a trust.
• In this situation the courts have posed the issue,
is there a plain agreement to re-convey or are
there other factors which show that the
agreement to re-convey amounts to a trust?

26
• It is submitted that some of the cases which have
decided that parol agreement to re-convey
amounts to a trust.

• In Carthelis vs. Perera (32NLR19) land was

transferred as security for debt of Rs. 5000/-,
subject to a re-conveyance on payment of that
amount, and this was regarded as creating trust.

27
• In Fernando vs. Fernando, (Supra n. 15) a notarial
conveyance of land valued at Rs. 2000/- by a man
seriously ill for a stated purchased price of Rs.
600/- the transferor remaining in possession,
subject to a parol agreement to re-convey if the
transferor recovered, was held not to create a
trust, the transferee being absolutely entitled. In
all probability the transfer was effected on the
tacit condition set out in the plaint. But that
condition the plaintiff is not in a position to prove,
as it was purely an oral agreement, if it existed at
all. The plaintiff cannot, therefore, rely on a
resulting trust. 28
• Where a person conveys land the transferee has
a notarial conveyance in his favour, and the
question is to be asked is, whether the
transferee has the beneficial interest in the
property, or are there any rights still outstanding
in the transferor.

• Among other factors which may be taken into

consideration are whether the consideration
paid adequate, whether the transferor
remained in possession and purpose for which
the property was transferred.
29
• In some of the cases where there was held to
be no trust, either the transferor remained in
possession.

• An agreement to re-convey could also come

within the provisions of section 96.

30
• In Valliyammai Atchi Vs. Abdul Majeed
(45NLR169) case, A’s affairs were in an
embarrassed condition due to want of liquid
cash and creditors pressing for payment. A
transferred absolutely by means of notarial
conveyance all his property to B who was the
one of the principal creditors, the stated price
being the amount of A’s debts to B.

31
The value of the properties was much more than
the amount of A’s debts. A sought to prove by
parol that the transfer to B was effected to
enable B to manage A’s affairs collecting the rents
and profits, selling properties if necessary and
after paying A’s debts to retransfer the residuary
properties to A.
A had been in possession of some of the
properties. B was held to be a trustee for A of the
residuary properties. B was held to be a trustee
for A of the residuary properties.
32
• B’s argument was that there was no
declaration of trust notarially executed as
required by section 2 of the Prevention of
Frauds Ordinance. At this stage, A put forward
the argument that according to section 91
read with section 92 of the Evidence
Ordinance a written contract cannot be varied
by oral evidence.

33
• When the terms of a contract, or of a grant,
or of any other disposition of property have
been reduced by or by consent of the parties
to the form of a document, ….., no evidence
shall be given in proof of the terms of such
contract. Grant, or other disposition of
property,…, except the document itself, …
(Section 91 of the Evidence Ordinance)

34
• When the terms of any such contract, grant,
or other disposition of property, …have been
proved according to the last section, no
evidence of any oral agreement .. shall be
admitted as between the parties to any such
instrument, or their representatives in
interest, for the purpose of contradicting,
varying, adding to, or subtracting from its
terms. (section 92 of the Evidence Ordinance)

35
• Howard CJ rejected B’ argument citing the
proviso 1 to section 92 which is to the following
effect:
• Any fact may be proved which would invalidate
any document, or which would entitle any
person to any decree or order relating thereto,
such as fraud, intimidation, illegality, ……
• To summarize this situation, where a person
attempts to effectuate a fraud on another
person alleging that the other person had not
adhered to the provisions of section 5(1) in

36
respect of an immovable property and therefore
arguing that there is no valid trust, the other
person can resort to section 5(3) to prove a
constructive trust. In such instant, the other
person can cite section 83 or section 96 of the
Trusts Ordinance to prove the existence of a
constructive trust although the requirements in
section 5(1) or (2) have not been satisfied.

37
 Bernedette valangenberg Vs. Hapuarachchige
Anthony ([1990] 1 SLR 190)
By Deed for a total consideration of Rs. 45,000/-
of which Rs. 5,000/- was paid out of monies
saved by him whilst employed abroad; and that
he conveyed the legal interest in the said house
property to his mistress the defendant -appellant
retaining the beneficial interest in himself; and
prayed that the said property be declared subject
to a trust in favour of himself.

38
The court stated that the plaintiff has succeeded
in showing fraud on the part of the defendant in
denying the claim of the plaintiff. In the result
s.2 of the Frauds Ordinance and s.92 of the
Evidence Ordinance have no application to this
case and the plaintiff can lead oral evidence of
the existence of a constructive trust in his favour
on the basis that he retained the beneficial
interest in the property at the time the second
deed was executed.

39
• In Thisa Nona and three others vs. Premadasa
(1997 1SLR169) it was said “The 1st defendant-
appellant paid the Notary's fees and stamp fees. If
it was an outright transfer, the purchaser would
have had to pay the charges. Why did 1st
defendant-appellant willingly come forward to
pay same if the transaction was not beneficial to
her in that she was receiving a loan or had
received a loan for which a security was given in
the form of an outright transfer? In fact according
to the attestation clause most of the
consideration had been received by the transferor
prior to the signing of deed.
40
• The fact that document was admitted by the
plaintiff-respondent, the fact that the 1st
defendant-appellant paid the stamp and Notary's
charges, the fact that deed was a document
which came into existence in the course of a
series of transactions between the plaintiff
respondent and the fact that the 1st defendant
appellant continued to possess the premises in
suit just the way she did before the deed was
executed all go to show that the transaction was
a loan transaction and not an outright transfer.

41
• The attendant circumstances show that
the 1st defendant-appellant did not
intend to dispose of the beneficial
interest in the property transferred.

42
• In Ehiya Lebbe v. A. Majeed it was held that if
the transferor paid the whole costs of the
conveyance it would be a test to find out the
nature of the transaction. It therefore appears
that having taken the bulk of the loan earlier the
1st defendant-appellant was forced to consent
to the terms of the plaintiff-respondent. By
allowing the cost of the conveyance to be paid
by the 1st defendant-appellant, the plaintiff-
respondent exposed the nature of the
transaction.

43
•  Does it not show that the 1st defendant-
appellant had not intended to part with the
beneficial interest in the land to the plaintiff-
respondent?
• In Ehiya Lebbe v A. Majeed (Supra) it was held
that if the transferor continued to remain in
possession after the conveyance that would
also be a test to find out the nature of the
transaction.

44
W.C. K. Kulasuriya vs. W.H Gunathilaka SC.
Appeal 157/2011 (Decided on 04/04/2014)

This case relates to a block of land which was

conveyed by Deed of Transfer by Kulasuriya to
Mohotti for Rs. 10, 000/-. The premises in suit
was later transferred by Mohotti by Deed of
Transfer Gunathilake for Rs. 40, 000/-.

45
Kulasuriya took up the position that Deed No.
7948 was not in fact a Transfer, but was
executed in favour of Mohotti as security for a
loan and that he was holding the premises in
suit on a constructive trust for the Kulasuriya .
She further claimed that he had transferred the
land to the Gunathilake dishonestly and
fraudulently in order to place the property
beyond her reach and disallow the Kulasuriya to
make the requisite payments and re-convey the
property.

46
This particular Deed, was an absolute transfer
on the face of it, and made no mention
regarding a conditional agreement or an
agreement to re-transfer the property. the total
market value of the property ranges between
Rs. 11, 962.50 – Rs. 15, 950.00.
The Court held that the absence of a notarial
instrument to establish the agreement to re-
convey, or even a non-notarial agreement that
could have been taken into account as an
attendant circumstance, along with the fact that

47
adequate consideration has passed, there is
inconclusive proof of continued possession,
makes it impossible for this Court to accept the
existence of such an agreement to re-convey
through which a constructive trust could be
established. it is clear that a constructive trust
cannot arise in the present case.

48
 Fernando vs. Thamel (47NLR297)
• In the plaintiffs conveyed a land to the
defendant for sum of 650/-. The Defendant
agreed to settle the mortgage bond. On the
same day that P 2 was executed the defendant
gave the plaintiffs the document P 3. This is an
inform al document by which the defendant
undertook to g iv e a retransfer o f the land in
question within a period o f 3 years if the
plaintiffs paid him Rs. 671/-.
49
In this case there are circumstances tending to
show that the transfer was to be in trust. The
evidence of the 2nd plaintiff that no money was
paid by the defendant on the day of transfer
that he merely undertook to free the property
from the mortgage, that she was reluctant to
grant the transfer and only did so on an
agreement to retransfer are circumstances
indicative of a trust.

50
Moreover there is a gross disparity in the price
under P2, namely, Rs. 650 and the value of the
property at the time of the transfer which is put
by the second plaintiff at Rs. 1,750 or Rs. 2,000.

The defendant admits the agreement to

retransfer the property and also that he had no
money at the time of the transfer. He also says
that when he gave P3 he had no intention of
retransferring the land, but would do so now if
he was paid.
51
• It was proved that no money was paid by the
defendant that the plaintiffs were reluctant to
grant the transfer and only did on an agreement
to retransfer and that there was gross disparity
between the price and the value of the property.
It was held that the transfer of the land was to be
in trust and establishing fraud on the part of
defendant.
• The District Judge held that P 3 being an inform al
document subsequently made cannot b e used to
vary P 2 which is an outright transfer. He,
however, admitted P 3 to prove that the
defendant held the property in trust for the
plaintiffs.
52
• The only question that arises for consideration
is whether the District Judge was right in so
admitting P 3 .
• The Court held that the informal document
was admissible to prove that the defendant
held the property in trust for the plaintiffs and
further, that the informal document was not
admissible under proviso (3) to section 92 of
the Evidence Ordinance.

53
Dayawathie and others V. Gunasekera &
another (1991 1 SLR 115)
The Plaintiff, a building contractor, needed
finances in 1966 and sought the assistance of
the 2nd defendant with whom he had
transactions earlier. This culminated in a Deed of
Transfer in favour of the 1st Defendant, who is
the mother of the 2nd Defendant and the 2nd
Defendant being a witness to the Deed.

54
The property was to be re-transferred within 3
years if Rs. 17,000/- was paid. The Plaintiff
defaulted, in his action to recover the property,
the Plaintiff succeeded in the trial Court in
establishing a constructive trust. The Court of
Appeal reversed the judgment on the sole
ground that the agreement was a pure and
simple agreement to re-transfer.

55
The SC cited that “as was emphasized by Sir John
Beaumont in Walliamma Atchi v. Abdul Majid
one has to bear in mind that the Trusts
Ordinance is a later enactment, and it deals
expressly with trusts. Naturally in any conflict of
the provisions of the Evidence Ordinance with
the provisions of the Trusts Ordinance the later
must undoubtedly prevail. I think the best of all
guides on this question is the observation of
H.N.G. Fernando J. in Muttamma v Thiyagarajah
he stated as follows :-

56
"The plaintiff sought to prove the oral promise
to re-convey not in order to enforce that
promise but only to establish an "attendant
circumstances" from which it could be inferred
that the beneficial interest did not pass.”
Although that promise was of no force or avail in
law by reason of section 2 of the Prevention of
Frauds Ordinance, it is nevertheless a fact from
which an inference of the nature contemplated
in section 83 of the Trusts Ordinance properly
arises.
57
The Prevention of Frauds Ordinance does not
prohibit the proof of such an act. If the arguments
of counsel for the appellant based on the
Prevention of Frauds Ordinance and on section 92
of the Evidence Ordinance are to be accepted,
then it will be found that not only section 83, but
also many of the other provisions in chapter IX of
the Trusts Ordinance will be nugatory.

58
The Court held that the Prevention of Frauds
Ordinance and Section 92 of the Evidence
Ordinance do not bar parole evidence to prove a
constructive trust and that the transferor did not
intend to pass the beneficial interest in the
property, that extrinsic evidence to prove
"attendant circumstances" had been properly
received in evidence at the trial.

59
 Hewage Don Piyasena Vs.
Karunasena Hathurusinghe
SC. Appeal 41/2013
Sections 91 and 92 of the Evidence Ordinance
prevents leading evidence to prove or disprove a
written document. But Section 83 of the Trusts
Ordinance provides that if one can prove that in
the attendant circumstances that if the donor did
not intend to transfer the beneficial interest, even
though the written document appears to speak
otherwise, a constructive trust will be formed.
60
 M.H.S. Zulfika vs. C.Seelavangsha
SC. (Appeal) No. 8A/2010
• The Respondent instituted an action seeking a
declaration of title to the property, eviction of
the Appellant, who was in unlawful possession
of the property. There had been an outright
transfer by the Appellant to the Respondent,
of the land.

61
• This was challenged by the Appellant who
alleged that the purported transfer on the
Deed was merely to secure the loan of Rs
11,000/- given by the Respondent, and the
property was to be held on trust until the loan
was repaid.

62
• Two attendant circumstances which this Court
needs to consider are the allegations pertaining
to the undervaluing of the property in the Deed
of transfer, and the Respondent's husband's
alleged employment as a moneylender.
• Appellant alleges that the value of the property
mentioned in the Deed was significantly below
the market value at the time, as the amount on
the Deed was intended to reflect the sum
actually taken as a loan from the Respondent.

63
• The Court notes that the Deed of Transfer No.
2572 dated 06.03.1986 (P1) values the land in
question at LKR11,000/= and that the Deed
No. 2375 dated 07.09.1985 attested to by R S
K Chandrakanthi, Notary Public (P2) values the
land at LKR5,600/=. The property had not
been undervalued on the Deed of transfer.

64
• In addition, the Deed of Transfer occurred in the
presence of a Notary who would have expressly
indicated the conditions of the transfer, if there
were any, and in this instance if such transfer
was to be temporary. Further, if the intention of
the Appellant was not to transfer the beneficial
interest of the property, the notarial document
would have been a mortgage bond, rather than
an outright transfer.
• Court finds there to be no attendant
circumstances to suggest the existence of a
constructive trust.
65
P.J.Fernando v. H.T.A.M.Fernando
decided on 17.1.2017
• I hold that Section 2 of the Prevention of
Frauds Ordinance and Section 92 of the
Evidence Ordinance do not operate as a bar to
lead parole evidence to prove a constructive
trust and to prove that the transferor did not
intend to dispose of beneficial interest in the
property.

66
 Section 84
• Where property is transferred to one person for
a consideration paid or provided by another
person, and it appears that such other person did
not intend to pay or provide such consideration
for the benefit of the transferee, the transferee
must hold the property for the benefit of the
person paying or providing the consideration.

67
• The English rule that where a purchase was
made in the name of a stranger, in the
absence of proof to the contrary, the
transferee was a trustee, was adopted in Sri
Lanka before 1918.
• But section 84 has effected a change
because a person who relies on it must
prove,
(i) that he provided the consideration; and
(ii) that it was not for the benefit of the
transferee.

68
• Where B was express trustee of a money for A
and use this with A’s consent to purchase a land,
B was held to be a trustee under section 84.

• An alternative remedy which was open to A in

this situation was to follow the property in a
changed form in the trustee’s hand under section
65(2)

69
• Daniel v. Arnolis [30 N.L.R. at 247]

It was held that the plaintiff must prove that he

paid the consideration and he paid so not for
the benefit of the defendant when claiming a
constructive trust in terms of Section 84 of the
Trust Ordinance.

70
• In Marrikar vs. Lebbe (52NLR193) out of
money which defendant was holding in trust
for the plaintiff, certain immovable property
was bought in the name of the defendant.
• Held, that, under section 84 of the Trusts
Ordinance, the plaintiff was entitled to a
declaration that the defendant held the
property as trustee for the plaintiff and to a
conveyance of the premises by the defendant
to the plaintiff.

71
• Where the trustee has disposed of trust
property, and the money or other property
which he has received therefor can be traced
in his hands or the hands of his legal
representative or legatee, the beneficiary has,
in respect thereof, rights as nearly as may be
the same as his rights in respect of the original
trust property- 65(2)

72
The following situations may arise where A’s
money which was in his care and possession of B
is used and (5 circumstances)-
(i) The money is used with A’s consent and the
conveyance is taken in the name of B.
(ii) The money is used with A’s consent, but B
has disregarded the instructions to purchase
in A’s name.
(iii) The money is used without A’s consent, B
having used A’s money and the conveyance
is taken in the name of B.
73
(iv) The money is used with A’s consent, but B has
disregarded instructions to purchase in the name
of C.
(v) A pays the money and directs that the
conveyance be issued to B.

In situation (i), A’s right was to conveyance.

In situation (ii) the transaction was set aside

because of fraud.

74
• In situation (iii) If “paid or provided” implies a
handing over of the consideration, this might
exclude (iii). But (iii) has consistently has been
assumed to fall within section 84.
• In (iv) there will be no trust for C, because
according to section 84, the results to the
person providing the consideration.
• In (v) it falls under section 84.

75
In Gould vs. Innasithaby (9NLR177) The plaintiff
employed the defendant to purchase a property
for him. It was understood between the plaintiff
and the defendant that the plaintiff should pay
the purchase money, and that the defendant
should get the conveyance in his own name, and
should subsequently re-convey the property to
the plaintiff. 

76
• The defendant having refused to re-convey
the property, the plaintiff raised this action to
compel him to do so. The defendant pleaded
section 2 of Ordinance No. 7 of 1840 in bar of
the plaintiff's claim.
• Held, that the plaintiff was entitled to
maintain the action, notwithstanding the
absence of any notarial instrument signed by
the defendant agreeing to re-convey the
property.

77
In Arunasalam Chetty vs. Somasunderam
Chetty (21NLR389) Where a property was
conveyed to a Chetty with the firm name R. M.
A. R. A. B., it was held that the property was
transferred to him as agent of the firm, and not
in his private capacity.

As the Chetty to whom the property was so

conveyed was express trustee and not
constructive trustee, it was not open to him to
plead prescription as against the other members
of the firm.
78
Sangarapilai vs. Kandiah (19NLR389) A agreed
to buy a land from B and paid the purchase
money, but, fearing some litigation, obtained a
conveyance in the name of C without C 's
knowledge. A informed C subsequently of the
execution of the deed in C's favour, and C
acquiesced in it, and agreed to transfer the land
to A whenever called upon.
Held, that C held the land in trust for A, and that
A could maintain an action for a conveyance for
the land from C, or if C had parted with the land,
to recover its value. 
79
Three other situations in which the application of
84 is problematical may arise.
• (vi) A’s money loaned to B is used by B for a
purchase in B’s name .
• (vii) A’s money loaned to B is used and the
conveyance is taken in A’s name:-
(a) with B’s consent to provide a security till B’s
pays;
(b) because though B asks A to pay the money

to the vendor and to purchase in B’s name,

A takes conveyance in his name. 80
• In (vi) A relying on 84 is met by B’s claim that
he provided the consideration.
• In (vii) B is seeking to set up a trust under 84
on the basis that he provided the
consideration.

Levin and Scott both think (vi) and (vii) would

give rise to a trust, and a similar conclusion
could be reached on a construction of section
84.

81
• In Swaminathan vs. Vander Poorten
(37NLR287) where B intending to purchase
property for Rs.275,000, paid Rs.65,000 from
his own money and borrowed Rs.210,000
from A, and the conveyance was taken in A’s
name as security for repayment for loan, the
Privy Council held there was a trust without
reference any section.

82
• In Perera vs. Tissera (35NLR257) Where the
widow of an intestate transferred her half
share of certain lands to the administrator
under an arrangement, the object of which
was to preserve the property for the minor
children of the intestate, and where by a
subsequent deed, which purported to be a
deed of agreement between the administrator
and the guardian ad litem of the children, the
administrator undertook to sell to the children
the share of the lands, which he obtained,
upon payment of a certain sum of money
within a stated period.
83
• Held, that, in the circumstances, a trust had
been established in favour of the children and
that all the pecuniary advantages obtained by
the administrator in dealing with the lands
transferred to him must be held by him in
trust for the benefit of the minors.

84
• It seems clear that under section 83 and 84 it is
the intention of the parties at the time transfer or
purchase that is most important.
• In Mendis vs. Paramaswami (62NLR302) it was
said that “Where property is transferred to one
person for a consideration paid by another
person, statements made by the purchaser long
after the transaction (about four and a half years
in the present case), and not contemporaneously,
are not relevant under section 84 of the Trusts
Ordinance to show that the consideration was
not paid for the benefit of the transferee”.

85
• In this case Basanayake CJ thought “that
contemporaneous statements alone are
relevant on the construction of section 84.

86
• In Adamjee vs. Board of Review, Ceiling on Housing
Property and others (1985 1SLR 169) the 5th respondent
applied under s. 13 of the Ceiling on Housing Property
Law to the Commissioner of National Housing to
purchase premises. The 4th respondent refused the
application as the premises had been used as business
premises-being given to boarders and lodgers - from
1964 to 1972. The premises had been purchased in 1964
by Alibhoy Adamjee father of the petitioner. The
application was resisted on the ground that these were
business premises and the petitioner was not in a
position to purchase the premises.

87
• Held : There was prima facie evidence that the
petitioner was in a position to purchase the
premises. Though she had not the means, her
son who was doing a lucrative business would
buy them for her. Such a purchase by the son
will not result in a constructive trust in favour
of the son because this would be a case where
the son is providing the consideration for the
benefit of the mother.

88
 The presumption of Advancement
• Where A provides the consideration but the
conveyance made to B, a presumption of trust
arises, and the burden is on B to rebut this.
• But A is in loco parentis to B, the counter
presumption arises that the purchase was for
the B’s benefit and the burden is on A to
rebut.

89
• A must prove under section 84 (i) he has paid
the consideration; (ii) he did not do so for B’s
benefit, otherwise no presumption of trust
arises.
• In considering whether the beneficial interest
has been transferred under 83, and whether
the consideration provided for the benefit of
transferee under section 84, the relationship
between parties would be very relevant factor.

90
• In Fernando vs. Fernando a man bought a
sweepstake ticket in the name of his 16years
old son. When he won the first prize, the court
thought that the father, a poor man, had no
intention of making a gift of this nature.
• In Perera vs. Scholastica, a case under section
84, Gratiean J thought that the presumption
could be given effect under section 83. Two
brothers held to be loco parentis had
deposited money in the saving bank in the
name of their orphan sister. The court inferred
from the fact they had retained the saving
book, that the
91
beneficial interest under section 83 had not
been transferred unconditionally and was
subject to condition that their sister married
according to their wishes. Therefore, where
the girl married a person of a different caste
she was held to have forfeited her rights in the
money.

92
 Trustees of the trusts arising under
Chapter IX of the Trusts Ordinance on the
same footing as trustees of the trust
created under Chapter II

93
• Section 97 places trustees of the trusts arising
under Chapter IX of the Trusts Ordinance on
the same footing as trustees of the trust
created under Chapter II, subject to two
exceptions, stated in section 97.
• (a) where he rightfully cultivates the property
or employs it in trade or business, he is
entitled to reasonable remuneration for his
trouble, skill, and loss of time in such
cultivation or employment; and

94
• (b) where he holds the property by virtue of a
contract with a person for whose benefit he
holds it, or with anyone 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.

• Section 52 which applies to trusts created

under Chapter II states that a trustee may not
charge for his services, except where there is
“an Order of court”.

95
• While section 52 leaves the award of the
remuneration to the discretion of the court,
but 97 (b) gives a trustee a right to it.

• In Phipps vs. Boardman (1965) the court in

granting limited remuneration to a constructive
trustee stressed that he had acted bona fide.
But it may be argued that the effect to
‘rightfully’ is that he must employ the trust
property in circumstances in which as a trustee
it is proper for him to do so.

96
The person who accepts the confidence is called
the " trustee “ – section 3(d). The person holding
property in accordance with any of the
preceding sections of this Chapter must, so far
as may be, perform the same duties, and, save
as in this Ordinance otherwise provided, is
subject, so far as may be, to the same liabilities
and disabilities, as if he were a trustee of the
property for the person for whose benefit he
holds it… – section 97.

97
Therefore the combined effect of the sections 3
and 97 of the Trusts Ordinance is that a trustee
includes a ‘constructive trustee’.

98
• Nothing contained in Chapter IX shall impair the
rights of transferees in good faith for valuable
consideration, or create an obligation in
evasion of any law for the time being in force-
(section 98).
• The first part of this section is a remainder that
section 69 to 72 apply to Chapter IX. Those are
wrongful employment by partner trustee of
trust property for partnership purposes; liability
of beneficiary joining in breach of trust; rights
and liabilities of beneficiary's transferee

99
• In second part, the word ‘evasion’ implies an
intentional attempt to circumvent the existing
law and does not touch a case which merely
happens to conflict with the strict law.

• Therefore, section 98 does not require trust of a

land arising under Chapter IX to be notarially
executed.

100
 Resulting Trust
A resulting trust is one which implied in favour
of the settlor or his representatives. It may be
defined as the one where the property is
incompletely conveyed or where on a
conveyance the beneficial interest in property is
incompletely disposed of, and the property or
the indisposed beneficial interest in it reverts
back to the settlor.

101
Where a trust is incapable of being executed, or
where the trust is completely executed without
exhausting the trust property, the trustee, in the
absence of a direction to the contrary, must hold
the trust properly, or so much thereof as is
unexhausted, for the benefit of the author of
the trust or his legal representative. (section 85)

102
(a) A conveys certain land to B - " Upon trust",
and no trust is declared ; or " Upon trust to be
thereafter declared ", and no such declaration is
ever made ; or Upon trusts that are too vague to
be executed ; or Upon trusts that become
incapable of taking effect; or " In trust for C ", and
C renounces his interest under the trust. hi each
of these cases B holds the land for the benefit of
A,

103
(b) A transfers Rs. 10,000 in the four per cents,
to B, in trust to pay the interest annually
accruing due to C for her life. A dies. Then C dies.
B holds the fund for the benefit of A's legal
representatives.

104
(c) A conveys land to B upon trust to sell it and
apply one moiety of the proceeds for certain
charitable purposes, and the other for the
maintenance of a particular form of worship. B
sells the land, but the charitable purposes
wholly fail, and the maintenance of the worship
does not exhaust the second moiety of the
proceeds. B holds the first moiety and the part
unapplied of the second moiety for the benefit
of A or his legal representative.

105
(d) A bequeaths Rs. 10,000 to B, to be laid out in
buying land to be conveyed for purposes which
either wholly or partially fail to take effect. B
holds for the benefit of A's legal representative
the undisposed of interest in the money or land,
if purchased.

106
According to section 85 of the Trusts Ordinance
a resulting trust arises in two situations namely,
(i) where a trust is incapable of being executed,
and;
(ii) where the trust is completely executed
without exhausting the trust property. But a
resulting trust can arise only in the absence of
a direction to the contrary contained in the
terms of the trust- Dwarkadas vs. CIT (1948)16
ITR 160 (Bom).

107
A constructive trust is thus a relationship with
respect to the property subjecting the person by
whom the title to the property is held by an
equitable duty to convey it to another person on
the ground that his acquisition or retention of
the property is wrongful and that he would be
unjustly enriched if he were permitted to retain
the property.

108
Where the owner of property transfers it to
another for an illegal purpose, and such purpose
is not carried out into execution, or the
transferor is not as guilty as the transferee, or
the effect of permitting the transferee to retain
the property might be to defeat the provisions
of any law, the transferee must hold the
property for the benefit of the transferor.
(section 86)

109
Where a testator bequeaths certain property upon
trust, and the purpose of the trust appears on the
face of the will to be unlawful, or during the
testator's lifetime the legatee agrees with him to
apply the property for an unlawful purpose, the
legatee must hold the property for the benefit of
the testator's legal representative. Where property
is bequeathed and the revocation of the bequest is
prevented by duress, the legatee must hold the
property for the benefit of the testator's legal
representative- section 87.

110
 Where property is transferred in pursuance of a
contract which is liable to rescission or induced by
fraud or mistake, the transferee must, on receiving
notice to that effect, hold the property for the
benefit of the transferor, subject to repayment by
the latter of the consideration actually paid, and
subject to any compensation or other relief to which
the transferee may be by law entitled- section 88

111
Where a debtor becomes the executor or other legal
representative of his creditor, he must hold the debt for the
benefit of the persons interested therein – sec 89.

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- sec 90.

112
A, an executor, buys at an under-value from B, a
legatee, his claim under the will. B is ignorant of the
value of the bequest. A must hold for the benefit of
B the difference between the price and value. (illus
(a))
A, a trustee, retires from his trust in consideration
of his successor paying him a sum of money. A
holds such money for the benefit of his beneficiary.
(illus (b))
A, a partner, buys land in his own name with funds
belonging to the partnership. A holds such land for
the benefit of the partnership-(illus (c)

113
A, a partner, employed on behalf of himself and
his co-partners in negotiating the terms of a
lease, clandestinely stipulates with the lessor for
payment to himself of a lakh of rupees. A holds
the lakh for the benefit of the partnership-(illus
(d)
A and B are partners. A dies. B, instead of winding
up the affairs of the partnership, retains all the
assets in the business. B must account to A's legal
representative for the profits arising from A's
share of the capital. (illus (e))

114
A, an agent employed to obtain a lease for B,
obtains the lease for himself. A holds the lease
for the benefit of B. (illus (f))

A, a guardian, buys up for himself incumbrances

on his ward B's estate at an under-value. A holds
for the benefit of B the in cumbrances so
bought, and can only charge him with what he
has actually paid- (illus (g))

115
• The words of section 90 have the effect of
constituting an executor, partner, agent, director
of a company or legal representative, a trustee in
all circumstances where such a person gains a
“pecuniary advantage,” by “availing himself of his
character” or by entering into dealings where his
“interest are…adverse” to that of the person
whom he is bound to protect.

• Under section 90, an agent or any fiduciary would

be trustee of a secret commission.
116
• In England, a person with a beneficial interest
in property which is in the hands of fiduciary
can follow the property, until it reaches the
hands of a bona fide purchaser without
notice, or until it has ceased to be identifiable.
This principle has been incorporated into the
law of Sri Lanka by sections 65 to 69 of the
Trusts Ordinance, but is available only against
a transferee from the trustee.

117
• Please refer the sections 90 to 98.

118