Michigan Oil and Gas Update

The lawsuits regarding the lease transaction cancellations, and the diverging rulings that have come out of the circuit courts\u27 adjudication of those lawsuits, raise interesting questions of Michigan contract law in the context of oil and gas lease transactions. These questions include when does a binding contractual relationship arise between a prospective lessee and a prospective lessor; whether lessors are subject to an implied standard of reasonableness, an implied duty of good faith when inspecting and considering approval of title under the typical order for payment language, or both; if such a standard or duty is to be implied, how that standard or duty should be defined; and what kinds of title matters constitute valid bases for objection. How these questions are ultimately decided by Michigan\u27s higher courts will surely have a significant impact on the structure of oil and gas leasing transactions in this state