Hebendum and Delay Rental Clauses

Question 1

Habendum clause

Answer 1

The heart of the lease, keeps the lease alive, defines the primary and secondary term of the lease

Question 2

Delay rental clause

Answer 2

Allows a lease to be extended during the primary term without drilling

Question 3

The “unless” lease

Answer 3

The lease automatically terminates unless a well is commenced or delay rentals are paid prior to the end of the primary term. The most common form of lease

Question 4

The “or” lease

Answer 4

The lessee must either commence drilling a well or pay delay rentals or surrender the lease prior to the end of the primary term. If none of these are done, the lessor has a claim for breach of contract

Question 5

Federal oil co v. Western oil co.

Answer 5

Indiana

Bradford executed a lease to federal for a bonus of $1, there was extension by payment of delay rentals but there was no defined primary term.

The court ruled the lease was void due to lack of consideration and that the contract was not mutually binding and conclusive on both parties.

Question 6

Four legal requirements of a contract

Answer 6

1. Mutual assent
2. Consideration
3. Capacity
4. Legality

Question 7

Rule of consideration

Answer 7

Both parties must be bound or neither party is bound. If only one party is not bound you have a failure of consideration, and the contract is unenforceable

Question 8

Phillips petroleum co v. Curtis

Answer 8

Oklahoma

Phillips held a tract with “unless” leases. When the first delay rental payment was due, no payment was made and no drilling had commenced due to the error of a Phillips employee.

The court ruled there was no equitable relief for Phillips in preventing this lease from terminating because it was due to an error of one of its employees. The lease terminated.

Question 9

Paid up lease

Answer 9

Created to avoid the difficulty and risk of accounting for delay rentals.

Question 10

Bobs fide attempt provision

Answer 10

Language in the unless clause that allows a bona fide attempt to pay or tender to satisfy the delay rental. Serves to limit the severity of the unless clause and protect from automatic termination.

Question 11

Kincaid v gulf oil corp

Answer 11

Texas

Gulf attempted to pay delay rentals but made the check out to the wrong Kincaid

Court ruled the lease was protected under the bona fide attempt provision

Question 12

Humble v. Harrison

Answer 12

Texas

Due to an ambiguity in the deed, the amounts of delay rental payments due were improperly calculated by humble. Harrison accepted the first two delay payments before declaring the amount was incorrect and the the lease was terminated

The court ruled that Harrison failed to notify humble of the error, and found it is the burden of the lessor to notify a lessee of an error made in good faith construction of a deed or conveyance.

Question 13

Brannon v. Gulf

Answer 13

Texas

Payment of delay rental was late but accepted by the landowner. The landowner then denied subsequent payments and executed a new lease to gulf.

The court ruled that the lease had been revived by the landowners acceptance of the late delay rental payments. The court did not allow parol evidence to support that a new lease was the intention of the parties.

Question 14

Parol evidence

Answer 14

Extrinistic evidence of testimony, often verbal, that attempts to alter the meaning, terms or intent of the parties of a written contract

Question 15

Parol evidence rule

Answer 15

Parol evidence is generally in admissible in court based on the principle that if they intended for something else to be in the contract it should have been written.

Question 16

Top lease

Answer 16

A lease that sits on top of an existing lease

Question 17

Notice of assignment clause

Answer 17

Requires an assignee of a portion of the royalty interest to furnish certified copies of the deed or conveyance showing a transfer of title

Question 18

Gulf v. Shatford

Answer 18

Shatford waited until after gulf had sent out royalty payments to send his certified copies of transfer and sought the cancellation of the lease due to lack of payment

The court ruled that since shatford had not acted with haste to furnish the copies of the deed, he was not entitled to royalty payment at the time.

Question 19

Well commencement clause

Answer 19

Excuses the payment of delay rentals if the lessee commences the drilling of a well prior to the anniversary date

Question 20

Hall v. JFW

Answer 20

Kansas

JFW took several steps to begin drilling but did not get a rig on the land until the day after the primary term expired.

The lease terminated because they had not actually commenced a well. The lease should have provided for extension through the commencement of drilling operations.

Question 21

Superior Oil Co. v. Stanolind Oil

Answer 21

Texas

Unless lease. The lease’s anniversary date was March 3 but the first well was completed as a dry hole of February 3. The defendants interpreted the delay rental to be required by March 3 and paid the delay rental on Feb. 5

the court determined that prior to the assignment, payment had always been tendered Fed. 3. SInce they failed to pay by Feb. 3 the lease automatically terminated.

had they included an effective date clause to show the mutually established due dates, there would be no question here whatsoever