APPEAL from the Circuit Court of Rock Island County; the Hon.
FREDERICK P. PATTON, Judge, presiding.
MR. JUSTICE STOUDER DELIVERED THE OPINION OF THE COURT:
The plaintiff, Rock Island Y.W.C.A., instituted this action in the circuit court of Rock Island County to recover from defendants, Stanley Bestor and Robert Bestor, the unpaid consideration of an option executed between the parties and in favor of defendants. The circuit court entered judgment in favor of plaintiff for $1,000 and defendants appealed.
On October 2, 1974, the defendants offered plaintiff $1,000 as consideration for a 10-day option to purchase from plaintiff about 17 acres of real estate located in Rock Island County, fronting on the Mississippi River. The acreage is developed with a variety of buildings, a swimming pool and docks. In earlier years it had been a Y.W.C.A. girls camp known as Camp Archie Allen. At 9:30 a.m. on October 3, 1974, plaintiff accepted the option offer.
According to the relevant terms of the option agreement, the defendants were to have the exclusive option to purchase the described premises, along with certain designated personal property, for $100,000. Upon the exercise of the option, the plaintiff was to provide defendants with merchantable title to the property. It was also agreed that if the option were exercised, the $1,000 option price would be applied to the purchase price at the time of closing. Certain other provisions provided for assignability, proration of taxes, and brokers fees. If defendant failed to exercise the option, the plaintiff would retain all sums paid by defendant as consideration for the 10-day option.
At approximately 1 p.m. on October 3, 1974, several hours after the option had been signed and well before the expiration of the option period, defendants inquired of plaintiff whether the option had been executed and upon being informed of the Y's acceptance, requested cancellation. This request to cancel or rescind the option was precipitated by defendants learning that the property was subject to what is commonly known as a floodplain easement in favor of the United States Government. The plaintiff refused to cancel, having turned down an offer to purchase in the interim because of the signed agreement and withheld the real estate from the market until the expiration of the option period. No money was ever paid by defendants and suit was brought by plaintiff on their promise to pay.
The site of the real estate is upstream from a navigational dam known as Lock & Dam Number 14. In connection with the construction of the dam, the United States had obtained the "perpetual right to clear out and remove all brush, timber, and other natural and artificial obstructions" and the "full, complete and perpetual right, power and privilege to overflow" plaintiff's 17 acres. Defendants contend that the floodplain easement created by this language constitutes an encumbrance upon the land which renders the title unmerchantable and because it is impossible for plaintiff to provide merchantable title upon exercise of the option, as is specified by the terms in the contract, they are not obligated to pay the consideration of $1,000. It appears that defendant also presented this same issue to the trial court, but the court refused to consider it and ruled in plaintiff's favor.
Plaintiff argues that the option is a simple unambiguous contract, entered into for valid consideration, a contract which has been fully performed by plaintiff while defendant has failed to perform his obligation to pay $1,000. Plaintiff also suggests that payment of the $1,000, by the express terms of the option, is not preconditioned upon plaintiff providing evidence of merchantable title, but to the contrary, merchantable title was not to be provided until after the option had been exercised. Hence, in essence, plaintiff argues that since the option was never exercised, the duty to provide merchantable title never arose and defendant cannot seek to avoid or rescind the option contract because of an encumbrance which allegedly renders the title not merchantable. On appeal, we must determine whether the defense of impossibility of conveying merchantable title raised by defendants constitutes a legitimate defense which should have been considered by the trial court. The trial court held the defense improper and hence made no determination of whether plaintiff could or could not convey merchantable title.
• 1 The option contract entered by the parties does not constitute a contract for plaintiff to sell and defendants to buy Camp Archie Allen. Rather, the option constituted a separate contract, entered into for valid consideration, which would mature or ripen into a binding real estate contract only upon exercise of the option. It is, in essence, a contract to make a contract. However, to say that the option agreement is a contract separate from the real estate sales agreement does not mean they are not interdependent. The option contract not only contained the terms providing for the length of the time seller would withhold the property from the market and the consideration which would be paid for the exclusive privilege of having the option to buy during that period, but also provided the essential terms for the real estate contract itself. Indeed, it is fundamental that such essential terms be included in an option, for without these terms, no binding obligation to sell and buy would arise upon exercise of the option. The real estate sales contract would be unenforceable and the purpose of the option contract fail. Hence, it should be readily apparent that the option agreement and the real estate sales contract are mutually related to one another. Such a mutual relationship is also supported in the present case by the fact that the option price was to be applied to the purchase price upon exercise of the option. In the event that the subject matter of the option contract, to wit the transfer of real estate, is impossible to perform according to the terms of the option, then the option must also fail.
We realize that in an ordinary real estate transaction, the time of furnishing merchantable title is after performance is undertaken by the buyer. But we believe that an encumbrance which could render the title unmerchantable is placed in a different category when the buyer also asserts and proves impossibility of performance existing at the time the contract was entered into. (See Annot., 84 A.L.R.2d 12 (1962).) Where impossibility of performance is asserted, any further conduct on part of prospective buyer would be excused. If the buyer need not tender performance, then it would seem that further performance under a related option agreement is likewise unnecessary, particularly where the object of the option contract is the sale of real estate. (See Christopher v. West, 409 Ill. 131, 98 N.E.2d 722.) The floodplain easement is not the usual encumbrance in the ordinary sense because of the nature of the problems it presents. If the easement renders title unmerchantable and the defect cannot be cured, then the easement will constitute a valid defense to the option contract.
• 2 In the present case, had the defendant paid for and exercised the option and plaintiff failed to deliver merchantable title, the defendant would be entitled to a refund of the option price and perhaps damages as well. To hold defendants liable for the option price would mean that the only way defendant could avoid liability would be by doing the useless task of exercising an option which defendant knew plaintiff could not perform and then suing upon plaintiff's failure to perform. It would be simpler merely to cancel or rescind the option in the first place. It is one of the oldest and perhaps the wisest maxims of equity that the law will not require a person to do a useless act. (Moehling v. Pierce, 3 Ill.2d 418, 121 N.E.2d 735.) Yet, it is just such a useless act that would be required under plaintiff's contentions and theories for defendants to avoid liability.
• 3 One should also consider what possible adverse consequences would enure to defendants in the event they were required to avoid liability on the option price only by first exercising the option and then suing or defending on the basis of the plaintiff's unmerchantable title. Defendants became aware of the floodplain easement at or near the time of plaintiff's acceptance of the option. By proceeding to exercise their option after learning of the easement, defendants would risk waiving all objections to the floodplain easement. As a general rule, a purchaser of real estate who enters a contract to buy real estate with actual knowledge of certain restrictive easements or encumbrances waives any objection as to those encumbrances. (25 Am. Jr. 2d Easements & Licenses § 97 (1966).) Faced with such an alternative, defendants only choice was to proceed as they did, rescinding the contract immediately upon learning of the easement. We should note that defendants might also be in violation of their contractual duty to mitigate damages if they had exercised the option while knowing plaintiff could not perform, and then sought recovery of any damages sustained by plaintiff's failure to deliver merchantable title.
• 4 What we have said thus far does not resolve the pivotal issue in this case, namely whether the floodplain easement render plaintiff's title unmerchantable. No evidence was presented at trial on this issue since the trial judge thought it was irrelevant to plaintiff's suit. We believe the court erred in failing to consider the impossibility of delivering merchantable title as a defense. However, since no evidence was presented, we must remand the case for a determination of whether the existence of the floodplain easement in favor of the United States renders the title to Camp Archie Allen unmerchantable and if so, then whether such a title defect could be cured. If defendants can prove unmerchantability and inability to cure, then they have established a valid defense.
For the foregoing reasons the judgment of the circuit court of Rock Island County is reversed and the cause ...