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A owns Whiteacre, a tract of residential property. A and B enter a contract in which A agrees to sell Whiteacre to B in fee simple for $200,000, which represents fair market value. B sends $20,000 of the purchase price to A. The contract is silent as to the quality of title that A will convey. The contract contains no contingencies other than a financing contingency. Closing is set for 60 days after the contract is signed.
During the 60-day period, B obtains adequate financing. B also researches the title to Whiteacre, and finds that there is a problem with a prior deed in the chain of title. That deed purports to convey Whiteacre from X to Y. A’s title descends from Y. However, the X-Y deed is signed by X’s nephew, Z, and not by X. There is no evidence in the chain of title that Z held power of attorney for X, or that Z was otherwise authorized to convey Whiteacre.
B notifies A of this problem, and asks A to cure the title defect by the closing date. At the closing, A explains that despite making reasonable efforts to do so, A is unable to cure the defect. B nevertheless decides to proceed with the closing at the contract price, and A conveys Whiteacre to B with a general warranty deed. The applicable law provides that a general warranty deed includes all the common-law covenants of title.
Shortly after the closing, X’s heir, C, sues B to quiet title to Whiteacre and to evict B. Immediately, B notifies A of C’s claim. In court, C is awarded title to Whiteacre, and B is evicted. Assume that there is no issue regarding the statute of limitations.