No “Pallant v Morgan” equity arose between parties who were on the opposite sides of a share sale agreement.

  A constructive trust may arise where parties agree that one will acquire a property for their joint benefit and the other refrains from attempting to acquire it for himself in reliance on that agreement, on the understanding that he will obtain an interest in it.  The parties’ pre-acquisition arrangement will colour the acquisition and the buyer will be treated as a constructive trustee of the land if he tries to renege: Pallant v Morgan [1953] Ch 43. The disappointed party must show that the buyer did not tell him about his change of heart (or did so only when it was too late to do anything about it). Furthermore, he must have relied on the arrangement to the buyer’s advantage, or to his own detriment, and it must be unconscionable for the buyer to retain the property for himself. Micheal v Phillips [2017] EWHC 614 (QB) concerned the sale of a mini cab company, which fell through. Meanwhile, for a period of almost three years, the buyers managed the business and combined it with their own. The seller made a series of financial claims against the buyers when the sale went off – and, more ambitiously, claimed that the buyers held the freehold interest in the building from which the company traded on a “Pallant v Morgan” trust for him. The seller claimed that he had agreed that the buyers could acquire the freehold of the premises, for which he had been negotiating, on condition that they would sell the property to him if the share sale fell through. Furthermore, he had arranged a meeting to introduce the buyers to the freeholder, at which it was agreed that the buyers could step into his shoes. The seller explained that he did not tell his solicitor about the agreement because he had so much else to do and did not foresee any problem with completion of the share sale. The judge accepted the seller’s evidence – and noted that the equity will arise even though an arrangement was not intended to have contractual effect, or was too uncertain to be enforced. Indeed, there would be no need to invoke the remedy if the arrangement was enforceable as a contract.  But the judge rejected the notion that the agreement gave rise to a “Pallant v Morgan” trust. Key components of the equity were missing. The parties had not been planning a joint venture together; the seller was disposing of his business to the buyers, rather than going into business with them. Furthermore, the parties had not intended that they would have concurrent interests in the property. If matters proceeded as expected, the buyers were to have the property solely for their own benefit. And, if the share sale did not proceed, the seller would be entitled to call for the property to be transferred, again solely for his own benefit. The necessary element of either detriment or benefit was also missing. The buyers had contracted to buy the seller’s company. Consequently, he no longer had any reason to acquire the property or to compete with the buyers for it. Furthermore, it would not be inequitable for the buyers to retain the property for their own benefit. The seller had a business tenancy of the ground floor – and had taken a risk as regards the freehold, which had not worked out to his advantage. Allyson Colby is a property law consultant