Bank draft vs check

Oil and Gas Leasing Help
21

Dear Mineral Joe,

Deleting the warranty provision in the lease does no good as far as returning money.

The covenant of seizin basically says that you have the right to execute the lease and have title. Deleting the warranty does not address statutory or implied warranties.

As to considering if the lease is a top lease, you will need to find out if your state follows Shelley’s case or has abrogated by statute. In a nutshell, the top lease must be effective in a time certain - not just an overlay on top of an existing lease. That would violate the rule against perpetuities and as a result, the top lease would not be enforceable.

Which is fine, except that it does not trump the covenant of seizin.

Striking the warranty of title is not the same thing as broadly disclaiming warranty with provisions for no repayment of monies due to failure of title or incapacity to execute. Then anybody claiming under the covenant of seizin would be dancing on the head of a pin.

Mineral Joe said:

R W,

Funny you should ask, just yesterday I received an interest payment from Brigham. It took several requests and I am uncertain I received the correct amount but I am in the end satisfied. My hats off to them, in the long run they are a cut above the rest.

Talk about check in hand, I drove to a fairly local lease broker’s office to drop off an executed lease and pick up my check after they wanted to lease some of my minerals. I told them I’d prefer a check and so three times I asked if they had run title and three times they told me yes. Now weeks later and after they recorded the lease I get a certified letter in the mail telling me they want their money back. Come to find out they took a top lease as the previous lease doesn’t expire for another year (leased by prior owner). So does one return their money or consider it a top lease?

22

Mineral Joe, that is an interesting dilemma. I’d have to have the answers to some questions before answering. Did you know you were leased, and disclose such information at the time you struck the deal? Did you get from the lessor in writing that they understood that such was the case? If so I would offer to negotiate a settlement, after all my time they have wasted is worth something, and sometimes the burned hand teaches best. Joe if you have the lessee’s understanding in writing that there was an existing lease with a year left to run, I think it’s up to your charity. I don’t think the law protects companies from making bad business decisions.

23

We are in the process of leasing our Texas minerals. However, three members of our family are in three different states. We are here in Texas for the winter.

In the past we have used the bank draft method, but that was before we became knowledgeable about problems that could arise. Thanks to this forum we know a bank draft is not a good way to go.

Does anyone have any suggestions on how we should handle the lease/money transaction with all of us being so far away?

We have thought of hiring an attorney to act as a third party. Other ideas.

Thanks, the Haags

24

Kenneth:

Refer to Mr. Cotton’s post as he explains a great way to handle this matter whether you are local or long distant.

Kenneth L. Haag said:

We are in the process of leasing our Texas minerals. However, three members of our family are in three different states. We are here in Texas for the winter. In the past we have used the bank draft method, but that was before we became knowledgeable about problems that could arise. Thanks to this forum we know a bank draft is not a good way to go. Does anyone have any suggestions on how we should handle the lease/money transaction with all of us being so far away? We have thought of hiring an attorney to act as a third party. Other ideas. Thanks, the Haags

What is the proper protocol on acceptance of an oil & gas lease
25

Yes I read Buddy’s reply and have a great deal of respect for all that we have learned from him and others. However, are you saying that an oil company would after receiving a “copy” of the executed lease, would send out 4 separate cashiers checks, certified checks and then “trust” 4 family members in then sending the real lease???

26

Mr. Haag, I think I covered the point of what would happen if you cashed the check and not forwarded the lease. The company would get their paid and cancelled check back, that would be ratification, whether you sent the lease back or not. It would do you no good to not send the lease after cashing the check and possibly much financial harm as lawyers are expensive. If you didn’t return the lease, I think you would have to record it otherwise you would have to keep it very safe because from that point on the lease would be the only way you could prove what you agreed to. Could someone please tell me an upside for a mineral owner to cash the check and not forward the lease?

27

Kenneth:

In your case, one individual could be appointed to handle the matters of the others involved whereas the appointed individual would be in contact with the oil company representative. Trust is really the point of the matter, if the oil company doesn’t trust you then how can they expect you to trust them when these are your minerals? Who has more to lose in the deal? As I stated earlier, I have taken several bank drafts over the years and no problems encountered except when one was somewhat late. It does worry one when you send a signed lease to a company who is processing numerous other leases and your hopes are that the paperwork gets handled properly. On each occasion (when a bank draft was involved), I was on a first name basis with an individual of the company and stayed in constant contact with them until the paperwork was finalized. In conclusion, talk it over with the rest of your relatives and handle this in a manner that all agrees to. Good luck in your negotiations.

Kenneth L. Haag said:

Yes I read Buddy’s reply and have a great deal of respect for all that we have learned from him and others. However, are you saying that an oil company would after receiving a “copy” of the executed lease, would send out 4 separate cashiers check, certified checks and then “trust” 4 family members in then sending the real lease???

28

I will just say this, the ONLY assurance your lease will be honored is cash. The best way to secure said cash is by company check or cashier’s check. Even then do not release the lease until these funds have cleared (say a week or whatever) during this clearing time, your attorney can act as escrow. However do not enter into an escrow for any other purpose or configuration - only the check clearing period. DO NOT PROVIDE THE LEASE UNTIL YOU ACTUALLY HAVE CASH IN YOUR ACCOUNT.

What people MUST understand is that any period given to a gas company to check a deed, is simply time a gas company can change their mind. Be assured no matter how good you think your lease or payment terms are the gas company has ways it will use to get out of the lease. Simply, if they don’t pay, the only thing you can do is sue. Gas companies know this and know they can outlast your legal expenses.

29

I have been involved 4 different times when a mineral owner cashed a check and never provided the lease. It was never worth the money to pay a lawyer for their time to take the case to court. We recovered the lease from one landowner by threatening a lawsuit and sending a letter on an attorney’s letterhead.

Something needs to be done at the legislative level to fix this cold draft business. I have been pressured by companies that contracted me to send out the type of draft that can be revoked for no reason and I have always refused. To the best of my knowledge, the draft form that I use can only be canceled if we find that the mineral owner does not own the interest.

And no, I do not make a habit of leasing and running title afterwards. We have title and then in the draft period I make sure that nothing has been sold or leased within the time period since title was finalized.

A couple of months ago, I made a deal with a woman. I sent her the documents and the Bank Draft with specific instructions to turn the Bank Draft with the remainder of her paperwork into her Bank. (I have drafted my paperwork to make it as obvious as possible that the whole package is not to be separated and is to be turned into a bank as a unit). While the paperwork was with the bank, I searched the stack of instruments waiting to be recorded at the County Clerk’s office and found a lease from the woman to another company.

Would this hurt a big ugly energy company as badly as it would most of us as individuals? No.

Does it make it harder for honest Landmen to keep work? Yes. It gives the companies another excuse to hire the guy that is willing to be dishonest fire the one that sticks by their standards.

r w kennedy said:

Mr. Haag, I think I covered the point of what would happen if you cashed the check and not forwarded the lease. The company would get their paid and cancelled check back, that would be ratification, whether you sent the lease back or not. It would do you no good to not send the lease after cashing the check and possibly much financial harm as lawyers are expensive. If you didn’t return the lease, I think you would have to record it otherwise you would have to keep it very safe because from that point on the lease would be the only way you could prove what you agreed to. Could someone please tell me an upside for a mineral owner to cash the check and not forward the lease ?

30

I like drafts when they are made and used correctly. I hate drafts that are homemade on some used car salesman turned landman’s laptop.

31

Ms. Shugart, are you saying if a well is drilled that people who did not return lease acres are not held?

Myranda Shugart said:

I have been involved 4 different times when a mineral owner cashed a check and never provided the lease. It was never worth the money to pay a lawyer for their time to take the case to court. We recovered the lease from one landowner by threatening a lawsuit and sending a letter on an attorney’s letterhead.

Something needs to be done at the legislative level to fix this cold draft business. I have been pressured by companies that contracted me to send out the type of draft that can be revoked for no reason and I have always refused. To the best of my knowledge, the draft form that I use can only be canceled if we find that the mineral owner does not own the interest.

And no, I do not make a habit of leasing and running title afterwards. We have title and then in the draft period I make sure that nothing has been sold or leased within the time period since title was finalized.

A couple of months ago, I made a deal with a woman. I sent her the documents and the bank draft with specific instructions to turn the bank draft with the remainder of her paperwork into her bank. (I have drafted my paperwork to make it as obvious as possible that the whole package is not to be separated and is to be turned into a bank as a unit). While the paperwork was with the bank, I searched the stack of instruments waiting to be recorded at the county clerk’s office and found a lease from the woman to another company.

Would this hurt a big ugly energy company as badly as it would most of us as individuals? No.

Does it make it harder for honest landmen to keep work? Yes. It gives the companies another excuse to hire the guy that is willing to be dishonest and fire the one that sticks by their standards.

r w kennedy said:

Mr. Haag, I think I covered the point of what would happen if you cashed the check and not forwarded the lease. The company would get their paid and cancelled check back, that would be ratification, whether you sent the lease back or not. It would do you no good to not send the lease after cashing the check and possibly much financial harm as lawyers are expensive. If you didn’t return the lease, I think you would have to record it otherwise you would have to keep it very safe because from that point on the lease would be the only way you could prove what you agreed to. Could someone please tell me an upside for a mineral owner to cash the check and not forward the lease?

32

Mr. Kennedy,

I didn’t intend to insinuate that at all. To tell you the truth, I am not sure what the company that I worked for then did with the acreage. I know that at least one of the tracts was never drilled.

I suppose force-pooling would be an option in certain states and backing the mineral owner in as a partner would be an option in others.

Perhaps I spoke above my pay grade…

r w kennedy said:

Ms. Shugart, are you saying if a well is drilled that people who did not return lease acres are not held?

Myranda Shugart said:

I have been involved 4 different times when a mineral owner cashed a check and never provided the lease. It was never worth the money to pay a lawyer for their time to take the case to court. We recovered the lease from one landowner by threatening a lawsuit and sending a letter on an attorney’s letterhead.

Something needs to be done at the legislative level to fix this cold draft business. I have been pressured by companies that contracted me to send out the type of draft that can be revoked for no reason and I have always refused. To the best of my knowledge, the draft form that I use can only be canceled if we find that the mineral owner does not own the interest.

And no, I do not make a habit of leasing and running title afterwards. We have title and then in the draft period I make sure that nothing has been sold or leased within the time period since title was finalized.

A couple of months ago, I made a deal with a woman. I sent her the documents and the bank draft with specific instructions to turn the bank draft with the remainder of her paperwork into her bank. (I have drafted my paperwork to make it as obvious as possible that the whole package is not to be separated and is to be turned into a bank as a unit). While the paperwork was with the bank, I searched the stack of instruments waiting to be recorded at the county clerk’s office and found a lease from the woman to another company.

Would this hurt a big ugly energy company as badly as it would most of us as individuals? No.

Does it make it harder for honest landmen to keep work? Yes. It gives the companies another excuse to hire the guy that is willing to be dishonest and fire the one that sticks by their standards.

r w kennedy said:

Mr. Haag, I think I covered the point of what would happen if you cashed the check and not forwarded the lease. The company would get their paid and cancelled check back, that would be ratification, whether you sent the lease back or not. It would do you no good to not send the lease after cashing the check and possibly much financial harm as lawyers are expensive. If you didn’t return the lease, I think you would have to record it otherwise you would have to keep it very safe because from that point on the lease would be the only way you could prove what you agreed to. Could someone please tell me an upside for a mineral owner to cash the check and not forward the lease?

33

If you accept a bank draft, you will have to pay the bank a fee to deposit it and it takes about a month to clear—if the bank gets it right and doesn’t screw it up, which happened to me. I think the bank fee was $15.00. I always ask for a bank check now, and ask that the oil company execute the lease first and send it to me with their check.

34

Excellent suggestion Ms. Burke. I will be suggesting that to people I know from now on, thank you!

Elizabeth Burke Taylor said:

If you accept a bank draft, you will have to pay the bank a fee to deposit it & it takes about a month to clear - if the bank gets it right & doesn’t screw it up, which happened to me. I think the bank fee was $15.00. I always ask for a bank check, now, and ask that the oil company execute the lease, first, and send it to me with their check.

35

I have a top lease offer but they want the lease before they send the check (not draft). I have email copy to this statement of theirs. Is this still risky?

r w kennedy said:

Susan, you don’t accept drafts that landmen commonly use to pay for your oil and gas lease, because they are not obligated to lease from you, or pay you the stated amount of the draft. It is totally optional whether they honor the draft or not. They want your commitment to lease while you have no commitment from them to complete the agreement or pay. Do not let the executed lease out of your hands until you have cash you can spend, unless you think it would be all right to pay thousands of dollars to a lawyer out of your own pocket to force them to release the lease if they do not pay you. I wouldn’t recommend you accept less than the full amount agreed in any transaction, whether it be the sale of a pig or an oil and gas lease. If you accept and cash the check/deposit a draft for $10 from them that they do honor, you may not ever see the rest until you are $10,000 deep or more in lawyers fees. It’s not against the law to owe someone money. You have every right to sue if they do not pay. You may even get paid and recover lawyers fees one day in the future, but you will be $ out of pocket until then, and they would still hold your lease. It could be ok to accept a draft, I’m sure many drafts are honored every day. The questions are do you want to risk it? Are you willing to dig deep into your own pocket if it turns out it isn’t ok?

36

Ron, I would say yes. The situation would not have changed, they’d have your top lease but you wouldn’t have their money, and no set procedure for getting it besides a lawsuit. I have a suit against a lessee that didn’t pay, it isn’t any fun but I’m only some thousands of $ into it, maybe the fun comes later?

37

Ron:

Is this top lease offer involving a lease broker or directly with an oil company? As Mr. Kennedy stated, the risk factor is there in either case thus I would have a check in hand before turning over a signed lease. As I have stated earlier, these are your minerals and the procedure for handling the lease should be on your terms.

38

It sounds like you have never dealt with Chesapeake and some of their brokers!

If the lease broker and their land staff have not completely “run the title” and you accept a draft and place it and or other documents in your bank, they have you! You are tied up and they are not. In most cases they will not work on your title and will move on and do it at their own time and pace!

What if you own 50% of the mineral acres and they send only an amount of say 30%? Their land staff made a mistake. Don’t you really want to know exactly what you are going to be paid?

If the draft says 30 days, it means 30 business days and more time if they need it. Bank Drafts should be “outlawed”!

Native American said:

That sounds like an excellent arrangement. Wish more “landmen” did the same.

Myranda Shugart said:

If you use YOUR bank as an escrow agent, you should be safe. However, you must make sure that the leasing agent pays any fees associated with this process. Generally it is standard procedure for them to pay and it should be a deal that they already have with THEIR bank.

When I lease people, I never have them send the draft back to me. I always ask land owners to turn the bank draft and the Lease into THEIR bank. The bank releases the Lease to us and the money to the mineral owner at the same time. In my opinion, this is an excellent way to do business and well worth the fees associated.

39

Yes, it used to always work out but certain oil companies are putting a lot of pressure on their leasing agents to sit on drafts as long as possible. They wait until an exploratory well is drilled then don’t honor the draft if the well is no good and tell the land owner it was because of title failure. Very unethical. Try to get a check and if they refuse, get them to limit the draft term to 10 days.

40

Joan, you just answered a post that is nearly a year old.

That’s ok though, this is an important topic that warrants frequent review and discussion. You are right, but I wouldn’t even permit a 10 day draft. Once they have the draft the time period is essentially irrelevant. By that I mean, if they don’t honor it on the 11th day or the 50th day, what is a mineral owner going to do? Sue the gas/oil company? If an individual attempts to sue the gas/oil they will lose because their funds can’t outlast the gas/oil company budget. This happened to me, but also to thousands in Michigan so many people sued - power in numbers.

In the old and honest days, the bank draft was used; it made sense and it worked. Those days are gone and as a minimum the gas/oil company can’t be trusted to execute that agreement accordingly. So it is important to get a real company check or cashier check. DO NOT PROVIDE A SIGNED LEASE UNTIL THE MONEY CLEARS THE BANK. This can be done with your attorney holding the signed lease until the check has cleared and you know that it (their check) is good and been honored. It is OK to provide a copy of the signed lease, just write COPY across every page so it couldn’t possibly get filed (filing a copy has happened in the past, so write COPY across it).

I don’t post very much any more, but I am very sensitive to this particular topic since I lived it first hand.

My other pet peeve is the lease extension; the gas/oil company option to extend the lease by renewing the signing bonus. These options are ONLY for the benefit of the gas/oil company. DO NOT ACCEPT THEM EITHER. I am talking about the lease offers of 3 + ? or 2 + ? or 5 + ? Don’t accept that question mark lease extension option. It seems good, but it isn’t good.