Shale Energy Law Blog
The District Court rejected the plaintiff’s argument that it was not bound by the extension provision and notice of ownership change provision because such terms were not disclosed in the memorandum of oil and gas lease filed of record in place of the actual lease. The memorandum contained the basic terms of the lease but did not provide all the provisions of the agreement between the lessor and lessee. The plaintiff asserted that it was a bona fide purchaser without constructive notice of the unrecorded provisions, including the extension provision and notification requirement for ownership change, and was entitled to rely solely on the recorded memorandum of lease. The District Court held that there is a duty under Pennsylvania law for a purchaser to undertake a reasonable inquiry into the title of the property being purchased before being considered a bona fide purchaser. The Court held that due diligence by the purchaser includes both an examination of recorded documents and an inquiry of the possessor or other parties where there is reason to believe such persons may know facts related to the title of the property. Under the circumstances of the case, the Court found that the plaintiff had notice of the lease and it was reasonable for it to have requested a copy of the full lease to become aware of each of its provisions.