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Bounced Check Pays Off
by Ron Davis

A bounced rental check has given the owners of a Texas shopping center an opportunity to get rid of a problem tenant.

The shopping center is Towne Center in El Paso, and the tenant operated an Asian restaurant that had a history of delinquent rental payments. The situation came to a head when the tenant sued the center’s owner for leasing space to another Asian restaurant. The tenant claimed that his lease granted him exclusive rights to that type restaurant at the shopping center. In response, the center’s owners sued the restaurant owner over his failure to pay rent as dictated by the terms of the lease.

A mediated accord resulted from negotiations between the two parties, and the tenant promised to pay $40,000 as back rent by a certain date, then $7,902 in four subsequent separate monthly payments. Upon meeting those payment deadlines, the tenant and shopping center’s owners agreed that they would dismiss their separate lawsuits.

The tenant paid the initial $40,000 payment on time. But when later making the first $7,902 payment, the tenant apparently did not have sufficient funds in the bank to cover the check that he sent to the center’s owners.

The center’s owners then contacted the tenant, hoping to receive an alternate payment, and the tenant instructed them to redeposit the check. By that time, however, the owners had returned the check to the tenant.

The tenant then tried other ways to comply with the settlement, but no final agreement was ever reached. A Texas court eventually decided in favor of the tenant, ruling that the mediated accord was “incomplete and ambiguous concerning key issues” and that the tenant had fulfilled his obligations under the terms of payment proposals.

The shopping center’s owners appealed that ruling.

A Texas appellate court reversed the lower court, explaining, “The tenant’s tender of a check was not performance of his obligation under the agreement until the check was presented for payment and honored [by the bank]. When the check was returned for insufficient funds, the tenant was in breach of the agreement.... Evidence that the tenant made other payments according to the dates specified in the agreement does not affect whether the contract was breached via the dishonored check.” (E.P. Towne Center Partners v. Chopsticks, Inc., 2007 WL 2405212 [Tex.App.–El Paso])

Decision: September 2007
Published: November 2007



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