Northern Oil & Gas, Inc. v. Creighton
2013 N.D. LEXIS 73, 2013 ND 73, 830 N.W.2d 556 (2013)
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Rule of Law:
When considering the reformation of a contract due to mutual mistake, a third party qualifies as a good faith purchaser whose rights are protected only if they acquired those rights for value and without actual or constructive notice of the mistake at the time the contract became enforceable, not merely at the time the instrument was recorded.
Facts:
- In October 2004, Brian and Holly Gunderson (Gundersons) entered into an oil and gas lease with Holt, which contained a mistake in the legal description of Section 25, listing 'S/2SE/4' when it should have been 'N/2SE/4'.
- In February 2005, Holt assigned the majority of his interest in this lease to Murex Petroleum Corporation, John H. Holt, LBK Sales & Service, Racer Oil & Gas, LC, and Double L, LLC (Murex).
- In November 2007, Alan Bradshaw, a landman working for Morris J. Creighton (Creighton), determined the Gundersons owned unleased minerals, and on November 25, 2007, the Gundersons and Creighton signed an oil and gas lease for Section 25: N1/2SE1/4.
- During their communication, Brian Gunderson told Bradshaw that the property was available for lease, that Holt had previously sought another lease covering the minerals, and expressed concern about repaying Holt money he had received for acreage he did not own (the S/2SE/4).
- On December 21, 2007, Holt recorded an affidavit in the Mountrail County Recorder’s Office, stating there was a mistake in the property description of his original lease, claiming 'S/2SE/4' should have been 'N/2SE/4'.
- The Creighton/Gunderson lease was recorded on January 30, 2008.
- On April 2, 2008, Creighton assigned his interest in the Creighton lease to Antares Exploration Fund, L.P., who then assigned its interest to Northern Oil & Gas, Inc. (Northern) on April 14, 2008.
Procedural Posture:
- In February 2009, Northern Oil & Gas, Inc. (Northern) brought an action in district court (trial court) to quiet title against Creighton and Murex Petroleum Corporation (Murex) to determine the rights of the parties to the oil and gas leasehold estate in Section 25: N/2SE/4.
- Murex filed a third-party complaint against the Gundersons, a cross-claim against Creighton, and a counterclaim against Northern.
- Murex moved for partial summary judgment, seeking reformation of the Holt lease and arguing Creighton had constructive notice of the mistake.
- Northern also moved for summary judgment, arguing the property at issue was not included in the Holt lease and that Creighton was a bona fide purchaser in good faith and for value.
- The district court denied both motions for summary judgment, but ruled that Creighton (and therefore Northern) was not a good faith or bona fide purchaser because Holt’s affidavit, recorded before Creighton’s lease, gave Creighton notice of Holt’s claim.
- The district court further ruled that the only remaining issue of fact for trial was whether there was a mutual mistake justifying reformation of Holt's oil and gas lease.
- The parties subsequently entered a stipulation agreeing there was a mutual mistake in the Holt lease, and that the Gundersons intended to lease all their mineral acres to Holt, including the disputed property.
- Based on this stipulation, the district court ordered the Holt lease reformed to include the disputed property and entered a judgment quieting title to the oil and gas leasehold estate in favor of Murex.
- Northern appealed the judgment to the Supreme Court of North Dakota.
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Issue:
Does a party acquire good faith purchaser status, thereby precluding contract reformation, based on their lack of notice at the time their lease is executed and rights are acquired, or at the time their lease is recorded?
Opinions:
Majority - Maring, Justice
No, a party acquires good faith purchaser status, thereby precluding contract reformation, based on their lack of notice at the time their rights under the lease were acquired (when the contract became enforceable), not merely at the time their lease is recorded. The district court erred in concluding, as a matter of law, that Creighton was not a good faith purchaser solely because he had constructive notice of Holt’s affidavit before recording his lease. North Dakota Century Code § 32-04-17 allows contract reformation without prejudice to 'rights acquired by third persons in good faith and for value,' meaning the third party must acquire their rights without notice before the purchase, which occurs when the lease becomes an enforceable contract. The recording of an instrument merely provides notice to subsequent purchasers and protects against their claims. Whether Creighton had constructive notice when he acquired rights under the lease (i.e., when the lease was executed) is a question of fact because multiple reasonable inferences can be drawn from Brian Gunderson’s conversation with Bradshaw regarding the availability of the property and concern over repaying Holt. Additionally, there is a factual dispute regarding when Creighton made payment, affecting the 'for value' aspect. Given these disputed material facts and inferences, summary judgment was inappropriate, and the case must be remanded for further proceedings to determine if Creighton was a good faith purchaser at the time he acquired rights.
Concurring - Crothers, Justice
Yes, I agree with the majority's decision to reverse and remand for further proceedings. This case, like others involving mineral development, illustrates that summary judgment is not appropriate when material issues of fact exist, even if those facts arise from written documents. The procedure, not the substance, was lacking. On remand, the case could proceed to a 'trial' based on the existing record, supplemented by a stipulation of facts and exhibits, to address the factual disputes that prevented summary judgment.
Analysis:
This case significantly clarifies the timing for determining good faith purchaser status in North Dakota, establishing that notice is assessed at the point of contractual agreement and acquisition of rights, rather than the later act of recording. This distinction is crucial for contract reformation cases involving real property interests, especially in industries like oil and gas where leases are routinely recorded. The decision reinforces the principle that summary judgment is inappropriate when reasonable minds can draw different inferences from undisputed facts, emphasizing the judiciary's role in fact-finding and the protection of potential equitable interests.
