Due Diligence & Title Opinions Flashcards

Which doctrine allows a grantee to claim title to minerals under a deed that misdescribes the property if the description can be reformed by extrinsic evidence?

Answer: Reformation

Reformation allows a court to correct a deed when mutual mistake caused an inaccurate description, giving the grantee what was actually intended.

A 'Pugh Clause' (or 'Freestone Rider') in an oil and gas lease primarily benefits the lessor by:

Answer: Releasing acreage or depths not held by production at the end of the primary term

A Pugh Clause prevents a lessee from holding an entire lease by production on only one portion; acreage or horizons not in production revert to the lessor.

During an acquisition title review, an examiner notes that mineral interest was conveyed via a deed from a corporation whose corporate charter had been forfeited. This creates concern because:

Answer: A corporation with a forfeited charter may lack legal capacity to convey property

A corporation that has forfeited its charter loses its legal existence, raising questions about the validity and enforceability of conveyances made during or after forfeiture.

The 'Shelley's Case' rule, where still applied, can affect mineral title examinations by:

Answer: Converting a life estate in minerals to a fee simple in the life tenant

Under the Rule in Shelley's Case, if a life estate and remainder are both given to the same person (or their heirs), the life estate merges into a fee simple—affecting how title passes.

An oil and gas lease contains a 'continuous operations clause.' This provision is most relevant to:

Answer: Allowing the lessee to maintain the lease beyond the primary term by conducting uninterrupted drilling activities

A continuous operations clause extends the lease into the secondary term as long as the lessee maintains uninterrupted drilling or completion activities per the clause's terms.

When a title opinion reveals a 'gap' in the chain of title, the most common curative instrument used to address it is:

Answer: A quitclaim deed from the party who may have held title during the gap period

A quitclaim deed from the party who may have held title during a gap conveys whatever interest they have or may have had, closing the gap without a warranty.

A 'shut-in royalty clause' in an oil and gas lease serves to:

Answer: Maintain the lease in effect when a well is capable of production but shut in due to market or pipeline conditions

Shut-in royalty provisions allow the lessee to pay a nominal royalty in lieu of actual production to hold the lease when a completed well cannot market its production.