## Facts

- Mary T. Thornton owned 320 acres in Toole County, Montana.
- On August 26, 1921, Thornton executed an oil-and-gas lease to Gordon Campbell granting Campbell (and his successors/assigns) the right to enter the land, explore for oil and gas, and, if found, produce and market it for a royalty; the lease was not recorded.
- On December 8, 1921, Thornton gave James L. Rock a written option to purchase the land within one year at a stated price; the option stated the land was subject to the Campbell lease.
- The Rock option was recorded on December 9, 1921 in the miscellaneous records of Toole County.
- In May 1922, Campbell assigned the lease to L. C. Stevenson, and Stevenson assigned the lease to Sunburst Oil & Gas Co.; both assignments were recorded.
- On June 6, 1922, Thornton conveyed the land to M. M. Guerin by warranty deed.
- In August 1922, Sunburst entered the land and began oil-and-gas exploration operations.
- Guerin sued for an injunction to stop Sunburst’s entry and operations, claiming she purchased for value without notice of the unrecorded Campbell lease.
- The trial court denied injunctive relief and entered judgment for Sunburst, finding Guerin had at least constructive notice of Sunburst’s rights under the lease.

## Issues

1. Did the recorded Rock option (stating the land was subject to the Campbell lease) and the recorded lease assignments give Guerin constructive notice of the unrecorded Campbell lease, so that Guerin took title subject to Sunburst’s lease rights?

## Decision

- The Montana Supreme Court affirmed the judgment and the order denying an injunction.
- The court held that the recorded Rock option and recorded assignments were “conveyances” (instruments affecting interests in real property) under Montana’s recording statutes and their recordation gave constructive notice of their contents.
- Because the recorded option expressly recited that the land was subject to the Campbell lease, Guerin was charged with notice of the lease’s existence and with inquiry notice of its terms; the recorded assignments further supported notice that Sunburst claimed rights under the lease.
- As a purchaser with constructive notice, Guerin could not treat the unrecorded lease as void against her, and she was not entitled to injunctive relief barring Sunburst’s operations.

## Legal Principles

- Under Montana recording law, recording a qualifying instrument gives constructive notice of its contents to subsequent purchasers.
- The statutory term “conveyance” includes written instruments that create, transfer, encumber, or otherwise affect an interest in real property; it is not limited to deeds.
- A recorded option to purchase may affect title by restricting the owner’s ability to sell except as provided in the option during its term, and thus may be a recordable instrument giving constructive notice.
- When a recorded instrument states that title or an interest is “subject to” another interest (such as a lease), a subsequent purchaser is put on inquiry and is charged with the facts a reasonable investigation would reveal about the referenced interest.
- An unrecorded instrument remains valid against persons who have actual or constructive notice of it; a purchaser with such notice takes subject to the prior interest.
- A warranty deed that does not except an outstanding interest does not defeat that interest when the grantee is chargeable with notice; any remedy is against the grantor on the deed covenants, not by excluding the earlier interest.

## Conclusion

Because the recorded Rock option in Guerin’s chain of title stated the property was subject to the Campbell oil-and-gas lease, and the lease assignments to Sunburst were also recorded, Guerin had constructive (and inquiry) notice of Sunburst’s lease rights; she therefore took the land subject to the lease and was not entitled to an injunction stopping Sunburst’s operations.


Guerin v. Sunburst Oil & Gas Co., 218 P.949 (1923)