Guerin v. Sunburst Oil & Gas Co.
218 P. 949, 1923 Mont. LEXIS 183, 68 Mont. 365 (1923)
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Rule of Law:
A subsequent purchaser of real property has constructive notice of an unrecorded instrument when a properly recorded instrument in their chain of title expressly references it, creating a duty to inquire about the unrecorded instrument's contents.
Facts:
- In 1921, Mary T. Thornton owned 320 acres of land in Toole County.
- On August 26, 1921, Thornton granted Gordon Campbell an unrecorded lease to explore for oil and gas on the land.
- On December 8, 1921, Thornton gave James L. Rock an option to purchase the land, which explicitly stated it was 'subject, however, to one certain oil and gas lease given in favor of Gordon Campbell.'
- The Rock option was properly recorded in the county's Miscellaneous Record Book on December 9, 1921.
- In May 1922, Campbell's lease was assigned to the Sunburst Oil & Gas Company, and the assignments were recorded.
- On June 6, 1922, Thornton conveyed the land to M. M. Guerin by warranty deed.
- In August 1922, Sunburst Oil & Gas Company entered the property to begin exploration for oil and gas under the terms of the Campbell lease.
Procedural Posture:
- M. M. Guerin (plaintiff) filed an action in the trial court against Sunburst Oil & Gas Company (defendant) to secure an injunction preventing the company from operating on her land.
- The defendant answered, asserting its rights under the Campbell lease and alleging that Guerin had purchased the land with notice of the lease.
- After a hearing, the trial court denied the application for an injunction and entered a judgment dismissing Guerin's complaint.
- Guerin (plaintiff-appellant) appealed the judgment and the order denying the injunction to the state's highest court.
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Issue:
Does a purchaser of real property have constructive notice of an unrecorded lease when a recorded option to purchase, which is subject to that lease, exists in the property's chain of title?
Opinions:
Majority - Mr. Justice Holloway
Yes, a purchaser has constructive notice of an unrecorded lease if it is referenced in a properly recorded instrument. The court reasoned that the recorded option agreement given to Rock was a 'conveyance' under state law because it was an instrument affecting title to real property. As it was properly recorded in the 'Miscellaneous Record Book,' it imparted constructive notice of its contents to all subsequent purchasers, including Mrs. Guerin. The option's explicit recital that it was 'subject... to' the Campbell lease was part of its contents. This recital put Guerin on inquiry notice, legally obligating her to investigate the nature and contents of the unrecorded lease. By failing to make this inquiry, she is charged with notice of all the facts she would have learned, namely the existence and terms of the Campbell lease held by Sunburst Oil & Gas Company. Therefore, she cannot claim to be an innocent purchaser.
Analysis:
This decision reinforces and clarifies the doctrine of inquiry notice within property law. It establishes that a reference to an extrinsic, unrecorded interest in a properly recorded document is sufficient to charge a subsequent purchaser with knowledge of that interest. The ruling places a significant affirmative duty on purchasers to not only search the public records but also to diligently investigate any encumbrances or outside interests mentioned within those records. This precedent makes it difficult for a purchaser to claim bona fide purchaser status without having thoroughly vetted all recitals and references found in the chain of title, thereby protecting the rights of holders of unrecorded interests that are referenced elsewhere.
