043 TSB Exco, Inc. v. E.N. Smith, III Energy Corp.

Richard F. Brown

 
The following is not a legal opinion. You should consult your attorney if the case may be of some significance to you.
 
TSB Exco. Inc. v. E. N. Smith. III Energy Corp., 818 S.W.2d 417 (Tex. App.–Texarkana 1991, no writ), considers whether payment by check is “payment” as required to extend a lease. The Taylor Lease contained common-form delay rental and royalty clauses that provided for payment “by check or draft of Lessee.” There was an additional typewritten lease paragraph that extended the Taylor Lease for another five years upon “payment to Lessor” of an additional bonus on or before July 6. The Taylor’s gave an option to top lease to Smith Energy, a representative of TSB delivered personal checks to the Taylor’s on July 1 for the additional bonus, and the Taylor’s returned the checks uncashed on July 7. TSB then sued to declare that its Taylor Lease was still in effect. The trial court held that the Taylor’s were entitled to a cash payment, were not estopped to demand cash, and that TSB had no lease.
 

Held: Reversed; TSB’s lease was good. For the first time, a Texas court adopted Restatement (Second) of Contracts §249 (1981) which provides:

Where the payment or offer of money is made a condition of an obligor’s duty, payment or offer of payment in any manner current in the ordinary course of business satisfies the requirement unless the obligee demands payment in legal tender and gives any extension of time reasonably necessary to procure it.

 
The court also supported its ruling by holding, alternatively, that the lease itself authorized payment by check. It found that every other payment under the lease explicitly permitted payment by check, that it would be illogical for all payments except this one to be permissible by check, and that the special lease paragraph was effectively a part of the delay rental paragraph. The court rejected arguments from the Taylor’s that the typed provision should control over the printed provision (a rule applicable only when there is conflict between the provisions), that the lease should be construed against the draftsman lessee (a rule applicable only when the contract is ambiguous), and that the check was drawn not on “lessee” but someone else (because there was a savings clause in the lease about erroneous payments as to parties).
 
The significance of the case is the adoption of the Restatement definition of “payment.” There are two competing lines of Texas cases holding that payment by check is and is not “payment.” Because of this uncertainty, the careful draftsman expressly authorizes payment by check. However, because payment by check is so common, this provision is frequently omitted by oversight. It is unfortunate that this case did not go on up to the Supreme Court on appeal so we would have a definitive decision on the adoption of Restatement §249. For now, at least one Texas court has adopted it. Furthermore, given the alternative holdings of the court, if any payments under the lease authorize payment by check, there is a reasonable chance that all payments may be made by check.