I think the title says most of it but to be specific; is the order for payment just another collection item, that may or may not be honored? I haven’t actually laid eyes on one of these instruments, but I would be wary accepting one of these as payment unless they have the conditions under which they may not be honored in writing on the instrument and your recourse if it is denied for no cause. Order for payment sounds alot better than NOT A DRAFT, even if it is identical except in name. The only two mentions I found of the order for payment in a brief search was one being honored late and the other was honored not at all. I suggest that no one let an executed lease out of their hands before they have received actual payment, not a collection item. Thanks in advance for any information you can provide.
Dear Bob,
An Order of Payment is exactly like a draft, as is a Bill of Exchange. I honestly have not heard that term since I took a law course on negotiable instruments.
There are ways to craft drafts to make them work properly, with recourse for refusal to honor them. However, the oil companies don't use them.
Order of payments are used extensively in the northeast, but I have used them in other states as well.
I have seen tons of discussions on "don't accept a draft", but have to disagree to an extent. If a company shows a history of not paying drafts or order of payments, then you have reason not to accept. I have written hundreds of drafts and even more order of payments and every one of them has been honored (unless of course it turns out you dont own the minerals).
Unfortunately, the good get punished for the bad.
Dont be so quick to turn down an offer because it has a draft attached.
Buddy,
This past year I've twice been offered an "Order of Payment" on different leases from different companies. I refused both. Yet my point is, they seem to be becoming more commonly offered. As you, and RW Kennedy (in a Dunn Co post), point out the "Order of Payment" is essentially an I.O.U.. Nothing backs up an "Order of Payment" except a promise of payment.
The bottom line remains, folks you should never hand over your signed lease until you receive actual payment. The problem is most mineral owners are not located in the same place as the leasing company (or their representatives). This can easily be addressed without someone travelling to the other's location. When used properly a "Bank Draft" does serve this purpose. Most companies ask mineral owners to simply send their signed leases in exchange for a "Bank Draft". Obviously, the mineral owner should NOT do that. If you don't use your bank in the process then even the "Bank Draft" is nothing more than an I.O.U..
As I explained elsewhere, using a "Bank Draft" properly involves using your bank to hold onto your signed lease until their bank provides your bank with actual payment in exchange for the draft. When used in this manner, the Bank Draft protects the interests of both parties.
Take your time to do this right. You want your payment, they want your lease. If you use the "Bank Draft" properly, that is with the banks acting as the middle man, you will both be satisfied.
We just received a lease offer yesterday. It included what is being called "Customers Draft"-with privilege of Re-Draft.
In the letter it states (This draft would need to be endorsed and returned to us in the envelope provided along with the enclosed W-9 so that we may forward it to XXXX Bank of CITY, ND for processing. Upon verification of your ownership interest, a cashiers check will be mailed to the address listed on the lease within the time allotted on the draft.)
The draft reads as: Thirty (30) business days after sight and subject to approval of title and form.
My question is, how to handle this situation, other than making photo copies of the draft (both sides after signing) otherwise once that's mailed its hearsay. I do want to have our bank hold the signed lease until payment is made, but what do you suggest about the draft?
Also, about the W-9, not sure I want to give my ssn until I know I'm paid, can that be held at our bank with the lease, or do they need to have it along with the signed customers draft?
Adam, I will agree that it’s possible that an offer that comes with a draft may be a legitimate offer. How about if people just refuse offers that tender a draft as payment that also suggest that you send them the executed lease before you are paid? I think any company that encourages you to send in the executed lease without having been paid, is simply trying to get something for nothing, and should be dealt with accordingly. If someone sends a lease agent an executed lease and the minerals are in a RACE [ to record ] state, I think they will record first and sort things out later, if they do otherwise they risk losing the deal to another lease agent who will record, because the mineral owner isn’t bound by the executed lease until it is recorded. I have been stung twice in this situation. I have no idea why they did not pay. Both times I had good title. The third well is being drilled on one parcel and the other parcel has 5 wells on it now, in Dunn and McKenzie co N.D. respectively. Good area, good title, no payment. I’m sitting here right now shaking my head.
Adam said:
Order of payments are used extensively in the northeast, but I have used them in other states as well.
I have seen tons of discussions on "don't accept a draft", but have to disagree to an extent. If a company shows a history of not paying drafts or order of payments, then you have reason not to accept. I have written hundreds of drafts and even more order of payments and every one of them has been honored (unless of course it turns out you dont own the minerals).
Unfortunately, the good get punished for the bad.
Dont be so quick to turn down an offer because it has a draft attached.
r w kennedy, It is unfortunate that you have gone through that. I have had people submit the lease to the bank with the draft, and it works fine. I have also had plenty of people send the lease to me & the draft to the bank. My company has a policy of not recording until payment is issued.
Unfortunately, those bad apples make it tough for honest companies to do business.
I agree that bad apples make it hard on others, Adam. I disagree whenever anyone suggests that it is only 1 or 2 bad apples. I now, firmly believe that it is a serious mistake to let an executed lease leave your hand before you have been paid as long as there is even one bad apple out there. I handled one case of the lease being recorded without payment myself, but I have had to hire a lawyer out of my own pocket to handle the other as they have already sold/assigned the lease to 3 other companies and are bound to defend their claim to what they haven’t paid for. I know now you should follow the language of the lease and have cash in hand before you hand over an executed lease, period.
That is horrible.
I hope your future experiences are better.
I have leased numerous times and the usual practice is the “bank draft” which was described above. Luckily, I have never been “cold” drafted but it’s a scary situation. Buddy’s advice in regards to letting your bank be the middle man, is great advice which I will utilize this method in all future lease negotiations.
The mineral owner is basically getting the shaft if the draft isn't honored, as they've wasted X number of days "in wait" to see if the draft is honored, in the meanwhile, other offers that came in have been lost and the mineral owner has to go into yet another blind faith that the next lease offer isn't another farce.
Frustrating.
You'd think the BBB could get involved and make it impossible for this to not happen.