North Dakota Mineral Leases Sight Drafts

North Dakota Mineral Leases Sight Drafts

North Dakota Mineral Leases
Sight Drafts

The legal consideration received by the lessor in exchange for the leasing of the mineral rights to a lessee usually consists of:

  • a cash bonus – paid when the lease is entered into, or shortly thereafter;
  • delay rental payments during the primary term of the lease, if the lease allows, and if wells are not drilled within a specified period of time;
    and
  • royalties on the income received from the resources – if mineral production is actually achieved.

When the lessor signs the lease, the lessee or its representative may attempt to give the lessor a sight draft equal to the amount of the cash bonus – in lieu of a cashier’s check.

Unless special precautions are taken, the lessor should avoid accepting a sight draft in lieu of a cashier’s check.

Purpose of North Dakota Mineral Leases Sight Drafts

Sight drafts are theoretically used to give the lessee time to check:

  • the ownership of the minerals covered by the lease,
  • as well as changes made to the standard lease form initially presented by the lessee’s representative which were subject to the lessee’s approval.

Payment Procedures

Upon receiving the sight draft, the lessor will “deliver” the draft to the lessor’s bank, which will send it to the lessee’s bank forcollection.

The lessee’s bank will notify the lessee that a sight draft has been presented for collection, and the lessee will generally have a specified number of days – perhaps 30 – from the date of such notice to honor the draft.

If the lessee is satisfied with the title and the negotiated lease terms, the lessee will deposit funds at the lessee’s bank in the amount of the draft, and the draft will be paid to the lessor through his or her bank.

Lessor Precautions

If the lessee insists on using a sight draft in lieu of a cashier’s check, the lessor should submit both the sight draft and the proposed mineral lease to his or her bank, with instructions that the lease should only be released to the lessee upon actual payment of the draft.

Short Drafting – North Dakota Mineral Leases Sight Drafts

If the lessor does not condition the release of the lease to the lessee with the actual payment of the draft to the lessor, the lessee may:

  • record the lease in the county records,
    and
  • try to resell the lease during the 30-day period.

(“short-drafting”). If the lessee is not successful in reselling the lease, the sight draft may not be honored by the lessor.

Lessors victimized by such a practice will not only:

  • not have a mineral lease,
  • but they must legally cancel the recorded lease before they can lease the mineral rights to anyone else.

Sight Draft Collection Issues

  1. A sight draft is not the same as a cashier’s check.
  2. A 30-day sight draft may take up to 40 days to process through the banking system – since the 30 days:
    • start when the lessee’s bank notifies the lessee that the draft has been presented for collection,
      and
    • end when the lessee deposits sufficient funds to honor the draft on the 30th day.
  3. It takes a number of days for the draft to get from the lessor’s bank to the lessee’s bank, and some time for the funds to be transferred to the lessor’s bank upon payment.
  4. When the draft is eventually paid to the lessor, the amount received by the lessor may differ from the face amount identified on the sight draft due to a reduction for any partial ownership interest of the mineral rights held by the lessor.

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    Topics of Interest – North Dakota Intestate Succession.

    Topics of Interest – North Dakota Informal Probate

Copyright 2019 – All Rights Reserved

North Dakota Mineral Leases Sight Drafts

 Gary C. Dahle –  Attorney at Law
2704 Mounds View Blvd.,  Mounds View, MN 55112

Phone:  763-780-8390   Fax:     763-780-1735      gary@dahlelaw.com

Gary C. Dahle has represented clients from the countries of Canada, Norway, and Sweden, and the states of Alabama, Arizona, California, Colorado, Connecticut, Florida, Idaho, Illinois, Indiana, Iowa, Louisiana, Maine, Massachusetts, Michigan, Minnesota, Missouri, Montana, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Tennessee, Texas, Virginia, Washington, and Wisconsin in the United States, with respect to North Dakota mineral rights and probate issues in various North Dakota Counties.

http://www.legis.nd.gov/general-information/north-dakota-century-code

 Legal Disclaimer

Information provided herein is only for general informational and educational purposes.

North Dakota mineral rights law involves many complex legal issues. If you have a specific legal problem about which you are seeking advice,  please consult with a North Dakota attorney of your choice.

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