Tenant's Bounced Check Caused Loss of Purchase Option

August 31, 2006

Aug. 4, 2006—A lease gave a tenant a purchase option on the condition that the tenant pay $10,000 on or before Jan. 1, 2003, to keep the option in effect. The tenant gave the owner a personal check for $10,000 on Jan. 1, 2003. The owner deposited the check on Jan. 2, and the bank dishonored it on Jan. 6 because of insufficient funds. The owner informed the tenant that the purchase option was no longer in effect. The tenant sued the owner, claiming that it had properly performed the condition needed to keep the purchase option in effect.

Aug. 4, 2006—A lease gave a tenant a purchase option on the condition that the tenant pay $10,000 on or before Jan. 1, 2003, to keep the option in effect. The tenant gave the owner a personal check for $10,000 on Jan. 1, 2003. The owner deposited the check on Jan. 2, and the bank dishonored it on Jan. 6 because of insufficient funds. The owner informed the tenant that the purchase option was no longer in effect. The tenant sued the owner, claiming that it had properly performed the condition needed to keep the purchase option in effect.

A Texas appeals court ruled that the purchase option was no longer in effect. Although the lease didn't specify how to pay the option fee, the tenant chose to give the owner a personal, uncertified check “on the last day possible,” the court noted. The tenant's personal check was merely a “conditional payment—conditioned on payment of the check when presented to a bank, said the court. The personal check merely suspended the tenant's obligation to pay the option fee until the check was either paid or dishonored. Because the check was dishonored after Jan. 1, the tenant didn't pay the option fee by the deadline, as required by the lease, said the court.

  • Probus Properties v. Kirby: No. 05-04-01148-CV, 2006 Tex. App. LEXIS 6923 (Tex. Ct. App. 8/4/06).

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