Face Challenges Confidently

008 Sun Explor. and Prod. Co. v. Benton

Thursday, September 3rd, 2015

Richard F. Brown

The following is not a legal opinion. You should consult your attorney if the cases may be of significance to you.
Sun Exploration and Production Co. v. Benton, 728 S.W.2d 35 (Tex. 1987), adds to a very small store of decided case law on the effect of following the common practice of depositing bank drafts (subject to title review) and executed mineral leases into the bank for collection. In the usual course title is approved, the draft is paid in the amount of the bonus for the benefit of the lessor, and the lessee gets the executed lease. However, the documents are not always handled exclusively through banking channels, and there has been some concern as to the effect of the “subject to title review” language, if the lessee already has the lease. In the Benton case the draft was payable “15 days after sight and upon approval of title,” but the lease was immediately given to Sun’s lease broker, who promptly recorded it. Within the 15-day period, Sun determined the title was not good and refused to honor the draft. The Supreme Court held that the lease and the draft must be construed together, that the “subject to title review” language was a condition precedent to the contract, and that when Sun disapproved of the title, the contract failed. Sun had effectively protected itself by the language on the draft, and the mere acceptance and recordation of the lease did not alter the rights and obligations of the parties.