The Supreme Court of Nigeria has clarified the circumstances in which a seller becomes a constructive trustee for a buyer in a contract of sale, holding that while the law may treat a seller as holding property in trust for a buyer until a transaction is fully completed even where legal title has not been formally transferred, no such trust arises where the purchase price was never actually received and the transfer was never effected.
The decision was delivered in Binez Hotels Limited v. Bureau of Public Enterprises & Anor by a five-member panel comprising Justices Ogunwumiju, Jauro, Sankey, Ogbuinya, and Umar, JJ.SC.
Binez Hotels Limited, acting through Future View Securities Limited (the 2nd Respondent), entered into an agreement to purchase 13,000,000 ordinary shares in Nigerian Cement Company Nkalagu Plc, representing 10 per cent of the company’s issued share capital, for N7,020,000. The shares were owned by the Federal Government of Nigeria and were listed on the Nigerian Stock Exchange.
Following the appellant’s payment by cheque, the Bureau of Public Enterprises (the 1st Respondent) conveyed the approval of the transaction by the National Council on Privatisation, indicating that the sale had received the requisite governmental approval.
However, before the transaction could be perfected, the share transfer forms required to effect the transfer were never executed. The National Council on Privatisation subsequently cancelled the ongoing negotiations pursuant to its statutory powers. The shares were then sold to the Ebonyi State Government in accordance with the applicable privatisation framework, and the appellant’s cheque was returned through the 2nd Respondent without value.
Binez Hotels commenced an action by originating summons seeking declarations that it had acquired a valid interest in the shares and challenging the respondents’ actions. The trial court dismissed the suit in its entirety. The Court of Appeal dismissed the appeal and affirmed the trial court’s decision. The appellant appealed further to the Supreme Court.
Senior counsel for the appellant contended that a valid and binding contract came into existence once the appellant paid the agreed purchase price and the transaction received governmental approval. He argued that the execution and registration of the share transfer documents were “merely procedural steps required to perfect the transfer” and did not affect the existence or validity of the underlying contract.
He submitted that upon conclusion of the transaction, the BPE held the shares on the appellant’s behalf, assumed the position of a constructive trustee, and was precluded from dealing with the shares in a manner inconsistent with the appellant’s equitable interest. The subsequent cancellation and sale to Ebonyi State Government, he argued, amounted to a wrongful breach of that obligation, and the cancellation could not extinguish rights that had already accrued.
Counsel for the BPE responded that no concluded sale ever came into existence. He maintained that the transaction “never progressed beyond negotiations and remained an agreement to sell, which was lawfully terminated before completion.” Since the steps required to complete the transfer were never fulfilled, ownership remained with the Federal Government, which was entitled to dispose of the shares to the Ebonyi State Government.
Counsel for the 2nd Respondent similarly submitted that although negotiations had progressed and the essential elements of a contract may have been present, the transaction was never completed in the manner required for the transfer of shares. He relied on the fact that the appellant’s cheque was returned without being presented for payment as evidence that the consideration was never received. If the appellant suffered any loss, he argued, its remedy lay in a claim for damages or refund, not in an assertion of title to the shares.
The Supreme Court resolved the issue in favour of the 1st Respondent, but in doing so restated the general principle of constructive trust in terms that will be significant for future commercial disputes.
The court held that where parties have entered into a valid agreement such as a contract for sale, the law may treat the seller as holding the property in trust for the buyer until the transaction is fully completed, even though legal title has not yet been formally transferred.
In such an instance, the court explained, it will infer the existence of a constructive trust between the buyer and the seller. A constructive trust is “an equitable remedy imposed by the court to prevent unfairness in situations where one person holds property in circumstances in which it would be unconscionable for that person to retain it for their own benefit, irrespective of whether the parties intended to create a trust.”
The critical element of this definition is that the intention of the parties is irrelevant. A constructive trust is not created by agreement. It is imposed by the court as a matter of equity to prevent an unconscionable outcome. A seller who has received the purchase price but has not yet transferred legal title cannot simply keep both the money and the property. Equity treats the seller as holding the property for the buyer’s benefit.
Applying the principle to the facts, the Supreme Court held that the BPE was not holding the shares on trust for the appellant because the contract of sale was not completed.
The court identified the decisive facts: the appellant’s cheque was returned uncashed, and the share transfer was never effected. “Since the purchase price was not received and the transfer of the shares was not completed, the Appellant did not acquire ownership of the shares.”
The reasoning turns on the distinction between tendering payment and making payment. A cheque is not money. It is an instruction to a bank to pay money. Until the cheque is presented and cleared, no payment has been made. The appellant tendered a cheque, but the BPE never presented it for payment and returned it without value. In law, therefore, the purchase price was never paid.
The Supreme Court added an observation that may prove to be the most consequential part of the judgment: “The Court noted that the outcome might have been different had the 1st Respondent cashed the cheque but subsequently refused to complete the transfer of the shares.”
This qualification defines the boundary of the principle. Had the BPE presented the cheque, received the N7,020,000, and then cancelled the transaction and sold the shares elsewhere, the appellant would have had a strong argument that a constructive trust arose. The BPE would have been holding both the purchase money and the shares, a position that equity would regard as unconscionable.
By returning the cheque uncashed, the BPE ensured that neither party was enriched at the other’s expense. The appellant retained its money. The Federal Government retained its shares. No unconscionability arose, and therefore no constructive trust was imposed.
The judgment carries several practical implications for commercial transactions.
First, an agreement to sell is not a concluded sale. Where a transaction requires further steps to be perfected, such as the execution of transfer forms, registration, or approval, the transaction remains incomplete until those steps are taken, and a party who has not completed them acquires no proprietary interest.
Second, payment by cheque is not payment until the cheque is cleared. Buyers who tender cheques should ensure the cheque is presented and cleared, and should retain evidence of clearance, because an uncashed cheque is legally equivalent to no payment at all.
Third, the return of consideration is a defence. A seller who returns the buyer’s money before completing the sale to a third party substantially reduces the risk of a constructive trust claim, because the equitable foundation of such a claim, that the seller is retaining a benefit it should not keep, disappears.
Fourth, in privatisation transactions, the statutory powers of bodies such as the National Council on Privatisation to cancel ongoing negotiations remain effective until a transaction is completed. Bidders and prospective purchasers in privatisation exercises should understand that governmental approval of a transaction does not, by itself, create enforceable proprietary rights where the transaction has not been perfected.
Fifth, where a buyer suffers loss from a cancelled transaction, the remedy may lie in damages for breach of contract, if a binding contract can be established, rather than in a claim asserting title to the property. The two claims are conceptually distinct, and pleading the wrong one may result in the failure of an otherwise meritorious grievance.
The appellant’s case failed at three levels: the trial court dismissed the suit, the Court of Appeal affirmed the dismissal, and the Supreme Court resolved the issue against the appellant. Nigerian appellate practice attaches significant weight to concurrent findings of fact by two lower courts, and the Supreme Court will generally not disturb such findings absent a demonstration that they are perverse or occasioned a miscarriage of justice.
The appellant was represented by Chief Chijioke Okoli, SAN, with Chief Isaac Anumudu, Esq., Lawrence Unumudu, Esq., Kingsley Ezengwoke, Esq., and A. Nosagba, Esq.
The 1st Respondent was represented by Ayo Olanrewaju, Esq., with Tolani Layi-Babatunde, Esq., Kehinde Salimon, Esq., and Abdulrahman M. Sani, Esq.
The 2nd Respondent was represented by Uwaifo L. Ogedengbe, Esq.
The judgment is fully reported at (2026) 6 CLRN in association with ALP NG & Co.
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