Does seller have good title where the buyer has notice of a later equitable interest

A seller cannot give good title where a buyer has notice of an equitable interest that ranks after the buyer’s interest under the sale and purchase agreement.

In Lam Sau-Wah v Tam Chi Hung ([2001] 2 HKLRD 104, CA) the seller entered into an agreement to sell a flat to the buyer. The agreement was registered. A third party appealed against a decision in which it had been held that the third party did not have an interest in the flat under a resulting trust. The third party sent notice of the appeal to the buyer. The buyer claimed that the seller had not shown good title. The Court of Appeal agreed. Although the buyer clearly had priority over the third party, it was not clear whether the buyer should pay the balance of the purchase price to the seller or to the third party. If the balance were paid to the seller and the third party’s appeal succeeded then the third party might have a claim against the buyer.

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