Lead Opinion
[¶ 1] Northern Oil & Gas, Inc. (“Northern”) appeals from a judgment ordering reformation of an oil and gas lease and quieting title to the oil and gas leasehold estate in Murex Petroleum Corporation, John H. Holt, LBK Sales & Service, Inc., Racer Oil & Gas, LC, and Double L, LLC (collectively “Murex”). We conclude the district court erred in concluding, as a matter of law, that Creighton was not a
I
[¶ 2] Brian and Holly Gunderson own certain real property in Mountrail County. In October 2004, the Gundersons entered into an oil and gas lease with Holt. The lease described the covered property as:
Township 155 North, Range 91 West
Section 25: S/2NE/4, S/2SE/4
Section 26: NE/4, SE/4SW/4
Section 35: E/2NW/4, SW/4NW/4 .
The lease was recorded in the Mountrail County Recorder’s Office in November 2004. In February 2005, Holt assigned all of his interest in the lease, with the exception of an overriding royalty interest, to Murex Petroleum, LBK Sales & Service, Racer Oil & Gas, and Double L. The assignment was recorded in the Mountrail County Recorder’s Office in April 2005.
[¶ 3] In November 2007, Alan Bradshaw, a landman working for Morris J. Creighton, determined the Gundersons owned unleased minerals. On approximately November 23, 2007, Bradshaw contacted the Gundersons about leasing the minerals. On November 25, 2007, the Gundersons and Creighton signed an oil and gas lease for the property described as:
TOWNSHIP 155 North Range 91 West:
Section 25: N1/2SE1/4
The lease was recorded in the Mountrail County Recorder’s Office on January 30, 2008.
[¶ 4] On December 21, 2007, Holt recorded an affidavit in the Mountrail County Recorder’s Office, which stated there was a mistake and typographical error in the property description in the Holt lease. Holt claimed “Section 25: S/2NE/4, S/2SE/4 should have been described as Section 25: S/2NE/4, N/2SE/4” and the Gundersons “own no interest in the Section 25: S/2SE/4 as described in this oil and gas lease when it included the typographical error.” Holt claimed his lease remains in effect and includes Section 25: N/2SE/4.
[¶ 5] On April 2, 2008, Creighton assigned his interest in the Creighton lease, with the exception of an overriding royalty interest, to Antares. Exploration Fund, L.P. The assignment was recorded on April 15, 2008. On April 14, 2008, Antares assigned its interest in the Creighton lease to Northern. The assignment was recorded on May 8, 2008.
[¶ 6] In February 2009, Northern brought an action to quiet title against Creighton and Murex and to determine the rights of the parties to the oil and gas leasehold estate in and under the property described as:
Township 155 North, Range 91 West
Section 25: N/2SE/4
Murex filed a third-party complaint against the Gundersons, a cross-claim against Creighton, and a counterclaim against Northern.
[¶ 7] Murex moved for partial summary judgment seeking reformation of the Holt lease, claiming a mutual mistake had been made in the legal description of the land in the Holt lease, the parties intended the lease to cover the property that was the subject of the lawsuit, and Creighton had constructive notice of the mistake before he entered into the oil and gas lease, with ■ the Gundersons. Northern also moved for summary judgment, arguing the property at issue was not included in the Holt lease, Creighton was a bona fide purchaser in good faith and for value, and
[¶ 8] After oral argument, the district court denied both motions but decided some of the issues raised. The court ruled Creighton, and therefore Northern, were not good faith or bona fide purchasers because Holt recorded an affidavit claiming there was a mistake in his oil and gas lease and the affidavit gave Creighton notice of Holt’s claim to the property prior to the recording of Creighton’s lease. The court ruled the issue of whether there was a mutual mistake was a factual issue that could not be resolved on summary judgment. The court ordered that the only issue of fact left to be determined at trial was whether there was a mutual mistake justifying reformation of Holt’s oil and gas lease.
[¶ 9] The parties entered a stipulation agreeing there was a mutual mistake in the Holt lease and the Gundersons intended to lease all of their mineral acres to Holt, including the property that is the subject of the action. Based on the parties’ stipulation, the court ordered the Holt lease be reformed to include the disputed property. The court entered a judgment reforming the Holt lease and quieting title to the oil and gas leasehold estate in favor of Murex.
II
[¶ 10] “ ‘Summary judgment is a procedural device used to promptly resolve a controversy on the merits without a trial if either party is entitled to judgment as a matter of law and the material facts are undisputed or if resolving the disputed facts would not alter the result.’ ” Riedlinger v. Steam Bros., Inc.,
[¶ 11] In deciding whether to grant summary judgment, the district court may consider the pleadings, depositions, admissions, affidavits, interrogatories, and inferences to be drawn from the evidence. Riedlinger,
[¶ 12] Whether the district court has properly ruled on a motion for summary judgment is a question of law, which we review de novo on appeal. Riedlinger,
Ill
[¶ 13] Northern argues the court erred in finding Creighton was not a good faith purchaser. Northern contends the court erred in considering whether Creighton had actual or constructive notice of the alleged mistake in the Holt lease when his lease was recorded and failed to determine whether Creighton had notice when he executed the lease.
[¶ 14] Murex sought reformation of the lease under N.D.C.C. § 32-04-17, which allows for the reformation of a contract:
When, through fraud or mutual mistake of the parties, or a mistake of one party which the other at the time knew or suspected, a written contract does not truly express the intention of the parties, it may be revised on the application of a party aggrieved so as to express that intention so far as it can be done without prejudice to rights acquired by third persons in good faith and for value.
Reformation is an equitable remedy used to rewrite a contract to conform to the parties’ actual intent. Smetana,
[¶ 15] Good faith is “an honest intention to abstain from taking any un-conscientious advantage of another even through the forms or technicalities of law, together with an absence of all information or belief of facts which would render the transaction unconscientious.” N.D.C.C. § 1-01-21. A good faith purchaser must acquire rights without actual or constructive notice of another’s rights. Smetana,
[¶ 16] The district court ruled Creighton, and therefore Northern, were not good faith purchasers because Creighton had notice of Holt’s claim before he recorded his lease:
The problematic situation, as argued by Murex here, is the Affidavit recorded by Holt describing the alleged mistake in the property description in the Holi/Gunderson lease. N.D.C.C. § 47-19-19 provides that “[t]he record of any instrument shall be notice of the contents of the instrument, as it appears of record, as to all persons.” The recording of deeds, mortgages and instruments affecting title to real property is constructive notice to all purchasers and encumbrancers subsequent to the recording.
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The Court sees the chronology of events in this case as significant to thedetermination of whether Creighton* was a bona fide purchaser. Creighton’s agent, Alan Bradshaw, contacted the Gundersons about a lease of the subject land on or about November 28, 2007. The Gundersons entered into a lease with Creighton on November 25, 2007. Holt recorded his Affidavit of mistake on December 21, 2007. The Creighton/Gunderson lease was recorded on January 30, 2008. Creighton conveyed his interest in the Creighton/Gunderson lease to Antares, retaining an overriding royalty, on April 2, 2008. Antares conveyed its interest in the Creighton/Gun-derson lease to Northern on April 14, 2008.
For whatever reason, there was more than a two month delay between the execution and recording of the Creighton/Gunderson lease. Had Creighton recorded the lease before Holt recorded his Affidavit, the outcome of Northern’s motion might have been different. Creighton did not record the lease until January 30, 2008, and once the Holt Affidavit was recorded (December 21, 2007), Creighton and the whole world were on notice that there was, at the very least, a cloud over the subject property. Because Creighton had constructive notice of the Holt Affidavit — recorded before the Creighton/Gunderson lease was recorded — the Court finds Creighton was not a bona fide purchaser without notice. Therefore, the “filter rule” does not apply to give Northern bona fide purchaser status. To the extent Northern contends it is a bona fide purchaser without notice on its own, the Court finds it is not, because the Holt Affidavit was recorded prior to the conveyances to Antares and Northern and was notice to all.
(Citations omitted).
[¶ 17] The district court ruled Creighton was not a good faith purchaser because he had notice at the time he recorded his lease. However, N.D.C.C. § 32-04-17 allows for reformation of a contract if reformation “can bé done without prejudice to rights acquired by third persons in good faith and for value.” The statute requires the third party acquire their rights in good faith and for value. This Court has said a good faith purchaser must not have notice of the alleged problematic situation before the purchase. Smetana,
[¶ 18] Murex argues the court’s decision should be affirmed because Creighton had constructive notice of Holt’s claim before he executed the lease, and therefore he was not a good faith purchaser. Determining whether a person had constructive notice requires examining the
[¶ 19] Although the issue of whether the purchaser had notice is generally a question of fact, determining whether the purchaser is a good faith purchaser without notice is a mixed question of fact and law. Erway v. Deck,
The factual circumstances relating to events surrounding the transaction — the realities disclosed by the evidence as distinguished from their legal effect— constitute the findings of fact necessary to determine whether a party has attained the status of a good faith purchaser without notice.... A court’s ultimate determination that a party is not a good faith purchaser for value is a conclusion of law, because that determina-' tion describes the legal effect of the underlying factual circumstances.
Id. (quoting Diocese of Bismarck Trust,
[¶ 20] Whether Creighton had notice is a question of fact. Deciding an issue on summary judgment is not appropriate if the court must draw inferences or make findings on disputed facts. Smetana,
[¶ 21] Murex contends Creighton had notice of circumstances sufficient to put a prudent person upon inquiry about a mistake in Holt’s lease. Murex claims there was evidence Creighton’s agent, Bradshaw, contacted the Gundersons for the purpose of leasing the minerals and Brian Gunderson told Bradshaw he was concerned he would have to repay Holt money he received on acreage he did not own. Murex claims a prudent person would look into Brian Gunderson’s concerns and- would suspect that there was a mistake in the Holt lease and that the lease was intended to include the property Creighton was interested in leasing.
[¶ 22] Both Murex and Northern contend the only evidence presented about Brian Gunderson’s conversation with Bradshaw was contained in Creighton’s affidavit, which states:
That on or about November 23, 2007, Bradshaw, acting under my direction, contacted Brian Gunderson by telephone to present an offer, on my behalf, to lease the Subject Minerals. Brian Gun-derson told Bradshaw he was aware the Subject Minerals were open and available for lease, and stated that Holt had contacted Brian Gunderson three months prior seeking another lease covering the Subject Minerals. Brian Gun-derson informed Bradshaw that he and his wife were not very keen on granting Holt a new lease because Holt’s terms were not as good as what I was offering. Brian Gunderson told Bradshaw that he was concerned that he would have torepay to Holt the money he had received on the acreage he did not own, i.e., the S/2SE/4, and Bradshaw informed Brian Gunderson that whether or not Brian Gunderson would have to repay the money was beyond Bradshaw’s purview as a landman.
[¶ 23] Although Murex and Northern argue that the facts are not disputed, they do not agree on the inferences that can be drawn from this evidence. Northern argues the Creighton affidavit supports its argument that Creighton did not have constructive notice and did not have a duty to inquire. Northern contends Brian Gun-derson told Bradshaw that the property was available for lease and Holt had contacted him seeking a second lease, which indicates the Holt lease did not cover and was not intended to cover the property in dispute. Murex argues the affidavit supports its argument that Creighton had notice that Murex had a claim on the disputed property because Gunderson asked Bradshaw about repaying money he received on land he did not own, the property descriptions are similar, and a prudent person would suspect the Holt lease was meant to include the property Creighton wanted to lease. More than one inference can reasonably be drawn from this evidence and findings of fact are required, which is not appropriate in a summary judgment proceeding. See Brown v. North Dakota State Univ.,
[¶ 24] Murex also contends Creighton was not a good faith purchaser because he did not make a payment on the lease before Holt recorded his affidavit. Murex claims Creighton did not become a purchaser for value until he made a payment on the lease, he was not planning to make payment until he completed a title search, and he did not pay the Gundersons until January 25, 2008, which was more than a month after the Holt affidavit was recorded. However, Northern argues there is a factual dispute about when Creighton paid the Gundersons. Northern contends Murex’s claim is based on the Gundersons’ response to an interrogatory in which they said they “received verification of the deposit on January 25, 2008,” and there is no evidence in the record about when Creighton issued payment, the form of delivery, or whether a draft was issued directly to the bank or to the Gun-dersons. Northern also claims the undisputed facts show Bradshaw determined the title review was completed before the Creighton lease was executed.
[¶ 25] Whether Creighton acquired rights to the property in good faith and for value requires findings of fact about the events surrounding the transaction. See Diocese of Bismarck Trust,
IV
[¶ 26] We have considered the parties’ remaining issues and find they are either without merit or are unnecessary to our decision. We reverse the judgment and remand for further proceedings.
Concurrence Opinion
concurring.
[¶ 28] This is another in a growing line of mineral development cases appealed to us after summary judgment. Remand is required under our summary judgment standards precluding Rule 56, N.D.R.Civ. P., treatment when material issues of fact exist — even if arising from written documents. Majority opinion at ¶ 20; Hamilton v. Woll,
[¶ 29] I note here as I did in Hamilton,
“Although summary judgment is not appropriate under these circumstances, this case can be submitted to the district court for ‘trial’ on the same record. Simply put, it is the procedure and not the substance that was lacking in this proceeding. That deficit easily can be remedied on remand by providing a stipulation of facts and exhibits, together with any argument permitted by the district court, for trial based on the record submitted.”
Id. at ¶ 20 (Crothers, J., concurring specially).
[¶ 30] Dale V. Sandstrom, J., concurs.