National Oil & Pipe Line Co. v. Teel

This suit was brought by the defendants in error to cancel two certain contracts which purported to convey to Chas. A. Nicholson the right to bore for and take away the oil, gas, and other minerals, each upon a distinct tract of land. Nicholson assigned his right under both contracts to John F. Mundy, who in time conveyed his right in one tract to the National Oil and Pipe Line Company, and in the other to the Empire State Oil, Coal and Iron Company. Nicholson and each of his successors in title were made parties defendant. Nicholson and Mundy disclaimed. The defendant companies made defense, and upon the trial judgment was rendered against them. Upon appeal the judgment was affirmed.

The plaintiffs in their petition alleged that the contracts were procured by the fraud of Nicholson; that no consideration was paid therefor, and, in effect, that they were void for want of mutuality.

The defendant companies answering, denied the allegations of the petition and pleaded that they were purchasers for value without notice of the fraud of Nicholson.

The trial court found, as a matter of fact, that the contracts were procured by fraud; that the assignments to Mundy and to the defendant companies were made for value and without actual notice of the alleged fraud; but also found that the plaintiffs at the time of the transfer were in actual possession of the lands, and therefore concluded, as a matter of law, that they had constructive notice. But the Court of Civil Appeals reversed the ruling of the trial court upon the question of constructive notice, and held that since the possession of the plaintiffs was entirely consistent with the rights attempted to be secured by the contracts in question, such possession did not affect purchasers with notice of the infirmity of the contracts. They, however, affirmed the judgment upon other grounds.

In the Court of Civil Appeals the appellants assigned error as to the finding of the trial court, that the contracts were procured by fraud. But the Court of Civil Appeals, presumably for the reason that in their opinion the appellants were protected as purchasers for a valuable consideration without notice, did not pass upon the question. But, whatever their reasons for the failure to decide the point, the important fact is that they did not sustain the assignment. It must therefore be considered by us as if it had been expressly overruled. Capes v. Burgess,135 Ill. 61. Since we are without jurisdiction to determine a question of fact, and since the plaintiffs in error have not assigned in this court that there was no evidence to sustain the finding of the trial court, we must treat the case as if fraud had been established by the evidence. This brings us to the question, is the plea of innocent purchasers a valid defense to this action? In order to decide this question, it is necessary to determine the nature of the contracts under which the plaintiffs in error claim. Viewing the written agreements in the light most favorable to these parties, they do not pass an interest in the lands, but are mere contracts for an option by which they may acquire such interest. A naked agreement by which one promises to convey to another an interest in land in consideration of money to be paid, or acts to be performed by such other, but which does not bind the other to pay or perform the consideration, as the case may be, can not be enforced. In such case there is a want of mutuality in the agreement. The one party promises to do something — the other does not promise absolutely to do anything; hence there is no consideration to support a contract, and it is void. On the other hand, a promise to give an option is valid if supported by an independent consideration. For example, if a sum of money be paid for the option, the promisee may, at his election, enforce the contract. Each of the contracts in this case purports upon its face to have been executed in consideration of the payment of one dollar; and though the plaintiff below pleaded that no consideration was paid, there was no evidence that the recitals as to the consideration in the contracts were not true. Whether the recital of "one dollar," — commonly called a nominal consideration, — is sufficient to support the contracts we need not discuss, — though there is very high authority for holding that such recital is sufficient for the purpose. Davis v. Wells, 104 U.S. 159. Treating the contracts as if supported by a consideration, the question recurs, can the assignee of such a contract, or the vendee of the right secured by it, shield himself against the fraud of his assignor in its procurement by showing that he is a purchaser for value without notice of the fraud? We have found but one case in our reports in which a like question was considered, and it seems decisive of the point against the plaintiff in error. In York's Administrator v. McNutt, 16 Tex. 13, McNutt gave one Hughes a bond for title for a tract of land, the consideration being money won at cards. Hughes sold the land to one Cox, who sold again to York. It was held that the fact that York occupied the position of an innocent purchaser did not entitle his administrator to recover the land. In disposing of the case, Chief Justice Hemphill says:

"It must be admitted that there is great apparent hardship in affecting subsequent vendees with all the equities, though latent, which may subsist between the vendor and the first vendee, where the sale is only of the equitable title, and especially so where the rule is well established that a subsequent purchaser without notice will be protected against the equities of the vendor or those claiming in privity under him. But it appears very clear from the authorities that the protection given to purchasers for valuable consideration without notice, extends only to cases where they have taken a conveyance, or, in other words, where they have purchased the legal title. Dart on Vendors, 462; 4 Dess., 274; 8 Cranch, 462; 10 Pet., 177; 7 Pet., 252. But where the purchase is only of the equitable, it is taken with all its imperfections and equities, notwithstanding a valuable consideration may have been given and there may have been no notice of the equity or defense against the title. 12 Sergeant Rawle, 389; 2 Watts, 459. In the case of Chew v. Barnett, 11 Sergeant Rawle, 380, the court say that `when it is asserted that a purchaser for a valuable consideration takes the title free of every trust or equity of which he has no notice, it is intended of the purchase of a title perfect on its face; for every purchaser of an imperfect title takes it with all its imperfections on its head. It is his own fault that he confides in a title which appears defective, and he does so at his peril.'"

When it is considered that but for the illegality of the consideration of his bond for title, Hughes acquired thereby a perfect equitable title to the land, — a title as effective under our system of practice as the legal title, — it seems that this is a very pronounced decision. By the contracts in the present case Nicholson acquired no title to the lands; at most, he secured only the right to acquire an interest in the lands, by complying, at his election, with the stipulations on his part. Until compliance he had no legal title in the lands themselves; and as a rule, it is only the purchaser of the legal title who can assert the equity of an innocent purchaser. If Nicholson or Mundy had so complied when the latter made the sales to the defendant companies, their position may have been different.

Furthermore, the instruments being merely contracts by which Nicholson could acquire an interest in the lands, it seems to us they fall within the rule of "written instruments not negotiable by law," with reference to which article 309 of our Revised Statutes provides that "The assignee of any instrument mentioned in the preceding article may maintain an action thereon in his own name, but he shall allow every discount and defense against the same which it would have been subject to in the hands of any previous owner before notice of the assignment was given to the defendant; and in order to hold the assignor as surety for the payment of the instrument, the assignee shall use due diligence to collect the same."

Our conclusion upon the point considered renders it unnecessary for us to pass upon the questions learnedly discussed in the opinion of the Court of Civil Appeals.

For the reasons given, the judgment of the Court of Civil Appeals and that of the District Court are affirmed.

Affirmed.