Co-author Katie R. English.
In order to be a good faith purchaser, a party must not have actual or constructive notice of another’s rights. Northern Oil and Gas v. Creighton asked, When should the determination of whether a party has notice be made, A: At the time the second lease is recorded, or B: When the second lessee acquires his rights? Answer: B, when the lease becomes an enforceable contract.
- 10/2004: The Gundersons grant an oil and gas lease to Holt covering Section 25: S2SE4.
- 11/2004: Holt records his lease.
- 2/2005: Holt assigns his WI to Murex Petroleum.
- 11/25/2007: Apparently enthralled by the notions of free enterprise and unfettered capitalism, Gundersons grant a lease to Creighton covering Section 25: N2SE4.
- 12/20/2007: Holt records an affidavit stating that the description in the Holt lease should be N2SE4, instead of S2SE4.
- 1/30/2008: Creighton records his lease.
Northern, successor to Creighton, sued Murex to quiet title to the leasehold estate in the N2SE4. Murex countersued and moved for summary judgment seeking reformation of the Holt lease under N.D.C.C. § 32-04-17. Reformation of a contract in cases of mutual mistake is allowed under that statute “if it can be done without prejudice to rights acquired by third persons in good faith and for value.”
The Trial Court
The court said Creighton had constructive notice of Holt’s claim from the Holt affidavit before he recorded the Creighton lease and therefore could not be a good faith purchaser. Accordingly, the only fact to determine in order to reform the Holt Lease was whether there was a mutual mistake. The parties then stipulated that there was a mutual mistake in the Holt lease and that the Gundersons intended to lease the disputed property to Holt. The trial court ordered the Holt lease be reformed based on the parties’ stipulation and entered a judgment quieting title to the oil and gas leasehold estate in Murex.
It’s Not Over Till It’s Over
The North Dakota Supreme Court reversed. The trial court must determine whether Creighton had constructive notice when he acquired the Creighton lease (i.e., when it became an enforceable contract), not when it was recorded. The court found a factual dispute on that issue. Therefore, the trial court erred in concluding as a matter of law that Creighton was not a good faith purchaser.
- Correctly describe the property you are paying good money to lease.
- More important: Check your work. Or ask someone who actually likes to dive into those details to do it for you.
- Even more important: Record your lease promptly. Don’t put it in a drawer and wait around for God-know-what event to record it.
- There are reasons to violate the last rule, but sloth isn’t one of them.
- We don’t know Creighton, and we aren’t saying he didn’t have a good reason to delay.