Request By:
Mr. Philip D. McKenzie
Attorney at Law
P.O. Box 635
Grayson, Kentucky 41143
Opinion
Opinion By: Steven L. Beshear, Attorney General; By: Charles W. Runyan, Assistant Deputy Attorney General
You request the opinion of this office on a question relating to recording leases. The facts and questions were stated as follows:
As counsel for a coal company I have been requested to advise regarding the legality of recording a memorandum of a lease of record instead of the actual lease. The purpose of a memorandum would be essentially to keep confidential particular terms, especially as to consideration.
I find leases of mineral covering a period in excess of five years must be recorded (KRS 382.080). Is the reasonable inference then a coal lease of less than five years not recorded is still good as against a bona fide purchaser for value without notice?
Secondly, KRS 371.010 appears to allow a memorandum of a leasehold to be given in place of an actual lease. Is it your opinion such is true, that the same may be recorded and be as effective as the lease itself, if recorded, as against bona fide purchasers for value without notice? KRS 382.080 reads:
(1) No deed conveying any title to or interest in real property, or lease of oil, gas, coal or mineral right and privilege, for a longer time than five (5) years, nor any agreement in consideration of marriage, shall be good against a purchaser for a valuable consideration without notice thereof, or any creditor, unless the deed is acknowledged by the party who executes it, or is proved and lodged for record in the proper office, as prescribed by law.
(2) The provisions of this section shall apply with like protection to the creditor of, or innocent purchaser from, the heir or devisee of the grantor.
As you noted, KRS 382.080 requires that a lease of minerals for a longer time than five (5) years requires recordation in the county clerk's office in order to be good against a purchaser for a valuable consideration without notice thereof, or any creditor. You are thinking in terms of coal leases. Clearly a coal lease in excess of five (5) years requires recordation, as we said. Moreover, the explicit language of KRS 382.080 envisions the recording of the entire contents of the lease, subject to proper signatures and execution pursuant to KRS 82.130. See OAG 77-295, copy enclosed.
Your question is whether or not a coal lease of five years or less, and not recorded, would be good as against a bona fide purchaser for value without notice?
KRS 382.100 (Carroll's Kentucky Statutes, Section 500) reads:
Any contract for the sale of real property or any interest therein, when acknowledged or proven as deeds are required to be, may be recorded in the county in which the property is situated, in the same offices and books in which deeds are recorded, and the record of any such contract recorded shall, from the time of lodging the contract for record, be notice of the contract to all persons.
KRS 382.270 (Carroll's Kentucky Statutes, Section 496) reads:
No deed or deed of trust or mortgage conveying a legal or equitable title to real property shall be valid against a purchaser for a valuable consideration, without notice thereof, or against creditors, until such deed or mortgage is acknowledged or proved according to law and lodged for record. As used in this section "creditors" includes all creditors irrespective of whether or not they have acquired a lien by legal or equitable proceedings or by voluntary conveyance.
Although KRS 382.080, standing alone, may contain some suggestion that a coal lease of five (5) years or less may not require recordation, and unrecorded might prevail against a bona fide purchaser for value without notice, it is our view that such construction is not in conformity with the Kentucky law, as interpreted by the courts.
Note that KRS 382.100 (Carroll's Section 500) and 382.270 (Carroll's Section 496) emphasize that no conveyance of any interest in land shall be valid against a purchaser for valuable consideration, without notice thereof unless duly lodged for record. As the court observed in
Vanderpool's Guardian v. Louisville Gas & Electric Co., 251 Ky. 337, 65 S.W.2d 69 (1933), under Carroll's Section 496 the purchaser for a valuable consideration without notice is not affected by an unrecorded deed. The court specifically pointed out that "It is well settled that oil and gas leases convey an interest in real estate and are within the statute." Nothing was said about the duration of the lease. KRS 382.080 was not mentioned. The court only considered what is now KRS 382.100 (Carroll's Section 500) and 382.270 (Carroll's Section 496).
The overarching judicial construction of statutory law as applied to conveyances "affecting the title to real estate" was carefully expressed in
Seat v. Louisville & Jefferson County Land Co., 219 Ky. 418, 293 S.W. 986 (1927) 989 as follows:
All of the sections of the statute relating to the recording of deeds, mortgages and other instruments affecting the title to real estate must be read and considered together. It is clear that it has been the deliberate purpose of the General Assembly to require the recording of any instrument which affects in any way the title to real estate, and it further appears that an innocent purchaser of real estate, the title to which may be affected by any written instrument, will not be prejudiced or affected by the provisions of any such instrument unless it has been recorded as required by law, unless he has actual notice of its contents. The recording of any instrument which conveys title to real estate or any interest therein or any easement therein or which places a restriction or burden upon any real estate is of the utmost importance, and when such instrument is recorded it is notice to the world, and every one thereafter purchasing property the title to which is affected by the instrument is bound by the provisions of the instrument.
Note carefully that the court in Seat v. Louisville & Jefferson etc., above, adopted the doctrine of pari materia in saying that "all of the sections of the statute relating to the recording of deeds, mortgages, and other instruments affecting the title to real estate must be read and considered together." (Emphasis added).
Since a coal lease for five (5) years or less affects the title to real estate under the above statutes and court holdings, it is our opinion that such lease not recorded would not be good as against a bona fide purchaser for value without notice. Further, such a lease for five (5) years or less would be recordable if it contains the entire agreement and is properly executed as required by law. See
Billington v. Dunn, 217 Ky. 164, 289 S.W. 213 (1926); and
Cannon v. Carr, 292 Ky. 793, 168 S.W.2d 21 (1943).
It has been written that the purpose of recording laws is to "afford to prospective purchasers and encumbrancers notice of every outstanding interest or title which might affect their rights . . . ." (Emphasis added). 66 Am.Jur.2d, Records and Recording Laws, § 53, p. 373. Thus statutes which create constructive notice will be subjected to the most rigid construction. See Ibid., § 63, p. 380.
Secondly, you suggest that KRS 371.010 appears to allow a memorandum of a leasehold to be given in place of an actual lease. Your question is whether a coal lease, containing only a memorandum of the transaction, recorded would be as effective as the entire lease as against bona fide purchasers for value without notice.
KRS 371.010 is really a statute of frauds. It narrowly relates to only court actions brought on such agreements or leases. See
Drake v. Rowe, 162 Ky. 646, 172 S.W. 1068 (1915) 1070. See
Har-Bel Coal Company v. Asher Coal Mining Company, Ky., 414 S.W.2d 128 (1967), in which Judge Williams pointed out that like an oil and gas lease, a coal lease creates an interest in real estate within the meaning of the statute of frauds, KRS 371.010. Thus no action could be brought where the agreement between the parties (an initial five years) was oral. See KRS 446.010, defining "real estate" and "land", and
Cannon v. Carr, 292 Ky. 793, 168 S.W.2d 21 (1943).
However, the Statute of Frauds, KRS 371.010, has no relation to the system of constructive notice established pursuant to KRS 382.100 and 382.270, as dealt with above. The answer to your question is that the recording of a memorandum of a coal lease will not suffice to be effective against bona fide purchasers for value without notice.
Note the emphasis upon a full description of land in the lease instrument in
Loeb v. Conley, 160 Ky. 91, 169 S.W. 575 (1914) 579:
We recognize the rule of law that the description of the land in a writing is an essential part of the instrument, and if the description is so insufficient as that the land cannot be identified, the instrument will not furnish the constructive notice necessary to charge innocent purchasers or lessees, and will indeed be void as to them.
CONCLUSIONS
(1) A coal lease of five (5) years or less, to be good against a bona fide purchaser for value without notice, must be properly recorded in the county clerk's office.
(2) The memorandum provisions of KRS 371.010, statute of frauds, have no bearing on the constructive notice statutes in KRS Chapter 382.