Title: Aztec Gas & Oil Corp. v. Roemer Oil Co.

State: wyoming

Issuer: Wyoming Supreme Court

Document:

Aztec Gas & Oil Corp. v. Roemer Oil Co.1997 WY 133948 P.2d 902Case Number: 96-180Decided: 12/05/1997Supreme Court of Wyoming

AZTEC GAS & OIL CORPORATION, a Nevada 
Corporation, 

Appellant(Defendant),

 

v.

 

ROEMER OIL COMPANY, a Colorado 
Corporation, 

Appellee(Plaintiff).

 

Appeal 
from the District Court of Campbell County 

The 
Honorable Dan R. Price II, J.

 

 

Thomas, J., dissented and filed 
opinion.

 

Representing 
Appellant: 

Jon B. Huss 
and Drew A. Perkins of Brown, Drew, Massey & Sullivan, 
Casper.

 Representing 
Appellee: 

Timothy R. 
Beyer and Peter J. Korneffel, Jr. of Baker & Hostetler, Denver, CO; and 
Joseph E. Hallock of Stevens, Edwards & Hallock of Gillette. 

 

Before TAYLOR, C.J., and 
THOMAS, MACY, GOLDEN and LEHMAN, JJ.

LEHMAN, Justice. 

[¶1]      Appellant Aztec 
Gas and Oil Corporation (Aztec) appeals entry of judgment in favor of Appellee 
Roemer Oil Company (Roemer) for $14,912.00.

 

[¶2]      We 
affirm.

 

ISSUES

 

[¶3]      Although the 
parties cite six issues in their briefs, we find the following two issues 
determinative:

 

I. Under what circumstances does a check constitute 
legal tender?

II. Can a drawer of a check unilaterally modify the 
time period a check holder has for presentment?

 

FACTS

 

[¶4]      This dispute 
arose over payments due under a settlement agreement entered into to resolve 
litigation which was the subject of Roemer Oil Co. v. Aztec Gas & Oil 
Corp., 886 P.2d 259 (Wyo. 1994). The settlement agreement required Aztec to 
pay Roemer $15,261.48 in six payments, and included a confession of judgment 
signed by Aztec to secure payment of the settlement amount. The default 
provision of the settlement agreement provided that in the event Aztec failed to 
make timely payments Roemer could enter the confession of judgment if, after 
written notice of default from Roemer, Aztec failed to cure default within ten 
days. The confession of judgment also purportedly waived all of Aztec's defenses 
to the entry of judgment.

 

[¶5]      Aztec paid each 
installment by check. Aztec made the first payment on time, but all subsequent 
payments were late. Approximately two weeks after Roemer received the fifth 
payment, Aztec contacted Roemer and twice requested that Roemer promptly deposit 
the fifth payment check because Aztec intended to close the account on which the 
check was drawn. Two weeks later when Roemer presented the check, approximately 
thirty days after its receipt, the check was dishonored.

 

[¶6]      Roemer accepted 
Aztec's sixth payment check, but when Aztec attempted to reissue the fifth 
payment, Roemer refused payment. Instead, Roemer moved for entry of judgment in 
district court to enforce the confession of judgment as provided by the 
settlement agreement. Aztec responded by opposing Roemer's motion and moving to 
dismiss the case with prejudice. The district court conducted a telephonic 
hearing on the motions and granted Roemer's motion, finding that Aztec came 
before the court "with unclean hands for failure to make any of the payments, 
except the first $3,000 payment, in a timely manner on the dates contained in 
the Settlement Agreement." Aztec timely appeals.

 

DISCUSSION

 

Standard of 
Review

 

[¶7]      The parties 
stipulate to all the material facts in the case, so no factual issues for review 
exist. Our review, therefore, is de novo, limited to questions of law to which 
we accord no deference to the district court. Anderson v. Bommer, 926 P.2d 959, 961 
(Wyo. 1996); Treemont, Inc. v. 
Hawley, 886 P.2d 589, 592 (Wyo. 1994). This dispute arises over a settlement 
agreement; we have previously held that a settlement agreement is a contract, 
subject to the same legal principles as those which apply to any contract. Matter of Estate of McCormick, 926 P.2d 360, 362 (Wyo. 1996) (citing Idaho 
Migrant Council, Inc. v. Warila, 890 P.2d 39, 41 (Wyo. 
1995)).

 

When Checks 
Constitute Legal Tender

 

[¶8]      To determine if 
the dishonored check issued to Roemer for the fifth payment cured Aztec's 
default, we must first address when a check constitutes legal tender. Payment by 
check is governed by both the common law and the Revised Uniform Commercial Code 
(UCC), which we adopted as W.S. 34.1-1-101 through 34.1-10-104 (1997). Although 
the UCC generally governs transactions involving negotiable instruments, W.S. 
34.1-1-103 provides that "[u]nless displaced by the particular provisions of 
this act * * *, the principles of law and equity * * * shall supplement its 
provisions." 

 

[¶9]      Our jurisdiction 
has previously given little attention to the concept of legal tender at common 
law. We have held that actual tender of money, as opposed to a mere offer to 
pay, is necessary to constitute legal tender. See Radalj v. Union Savings & Loan 
Ass'n, 59 Wyo. 140, 138 P.2d 984, 999 (1943). A number of courts have held 
that when a debtor delivers a check to a creditor,

 

the original debt is not paid or discharged unless, 
and until, the check itself is actually paid on due presentment, or, it is 
sometimes stated, until it is honored or accepted by the drawee; and, where the 
check is not paid on presentment, the creditor may treat it as a nullity, return 
it, and recover on the original debt, or, at his option, sue on the 
check.

70 C.J.S. Payment § 18, at 21-22 (1987 & Supp. 
1996) (footnote citations omitted). We particularly agree with the Nevada 
Supreme Court's analysis of the legal tender of a check:

[P]ayment by check, without objection, does not 
discharge a debt until the check is honored. Once honored, the time of payment 
relates back to the time the check was delivered. If the check is not honored, 
however, the payment is not deemed made until cash is actually received or a 
subsequent check honored.

R & S Investments v. Howard, 95 Nev. 279, 593 P.2d 53, 56 (1979) (emphasis in 
original). This approach is consistent with Article 2 of the UCC and other 
regional case law. See Gudenau v. 
Bierria, 868 P.2d 907, 911 (Alaska 1994) ("A check is proper payment for an 
obligation, and so long as the check is honored, the obligation is considered 
paid when the payee receives it."). See 
also UCC 3-310 (rev'd 1990) and Vonk 
v. Dunn, 161 Ariz. 24, 775 P.2d 1088, 1091 (1989) ("A check constitutes only 
conditional payment of the underlying obligation unless the parties agree 
otherwise.").

 

[¶10]   One of the purposes of the UCC is 
to encourage consistency in and continued expansion of our commercial practices. 
W.S. 34.1-1-102(b). Although UCC Article 2, adopted at W.S. 34.1-2-101 through 
34.1-2-725, governs the sale of goods and is not directly applicable to the 
settlement agreement between the parties, it nevertheless provides useful 
guidance on how we should perceive transactions involving 
checks.

 

[¶11]   Wyoming Statute 34.1-2-511(c), in 
pertinent part, states that "payment by check is conditional and is defeated as 
between the parties by dishonor of the check on due presentment." Official 
Comment 4 to UCC 2-511 explains that "[t]his Article recognizes that the taking 
of a seemingly solvent party's check is commercially normal and proper and, if 
due diligence is exercised in collection, is not to be penalized in any way." 
Official Comment 5 states that "[u]nder subsection (3) payment by check is 
defeated if it is not honored upon due presentation." See also Bolz v. Security Mut. Life Ins. 
Co., 721 P.2d 1216, 1218 (Colo. App. 1986) ("Payment by check is conditional 
only and does not discharge the liability for which payment is given, unless 
there is an express or implied agreement that the check [will] be accepted as 
absolute payment."). See also UCC 2-511.

 

[¶12]   We adopt a definition of legal 
tender consistent with both the UCC and regional common law and hold that 
payment by check does not discharge a debt unless and until the check is 
honored; once honored, the time of payment relates back to the time the check is 
delivered. Since Aztec's check was dishonored, it did not discharge Aztec's 
obligation to make the fifth payment under the settlement agreement or cure 
Aztec's default. Thus, entry of judgment was appropriate.

 

Modification of Presentment 
Time

 

[¶13]   Aztec argues that this court should 
find that Aztec's fifth payment check, even though dishonored, cured Aztec's 
default because Roemer had a duty to promptly present the check. This duty, 
Aztec asserts, arose because Aztec requested prompt presentment and, at the time 
of the request, adequate funds existed in the account. In support of this 
assertion, Aztec cites to J.S. Martin 
Lumber Co. v. Rice, 136 Okla. 172, 276 P. 733, 734 (1929) and Federal Land Bank v. Barrow, 189 N.C. 
303, 127 S.E. 3, 6 (1925). Both cases, however, precede our adoption of the UCC. 

 

[¶14]   Our statute now provides that a 
check will remain valid for a minimum of ninety days. Wyoming Statute 34.1-3-304 
states that "[a]n instrument payable on demand becomes overdue at the earliest 
of the following times: * * * (ii) If the instrument is a check, ninety (90) 
days after its date." Thus, Roemer could legitimately expect that the check 
would not become stale for ninety days. Wyoming Statute 34.1-3-117 specifically 
provides that

 

the obligation of a party to an instrument to pay the 
instrument may be modified, supplemented, or nullified by a separate agreement 
of the obligor and a person entitled to enforce the instrument, if the 
instrument is issued or the obligation is incurred in reliance on the agreement 
or as part of the same transaction giving rise to the 
agreement.

Absent prior agreement to 
the contrary, Aztec could not unilaterally alter Roemer's right to the 
ninety-day period to present a check as provided by 
statute.

 

CONCLUSION

 

[¶15]   We find Aztec's appeal did raise 
legitimate legal issues regarding legal tender and, therefore, decline to award 
attorney fees. Aztec's fifth payment check did not cure default because a 
dishonored check does not constitute legal tender and because Aztec could not 
unilaterally modify the time a check holder has for presentation. We therefore 
affirm the judgment in favor of Roemer.

 

THOMAS, Justice, dissenting. 

[¶16]   Aztec Gas & Oil Corporation 
(Aztec) and Roemer Oil Company (Roemer) agreed to settle their differences over 
amounts owed by Aztec to Roemer under an oil and gas operating agreement. See Roemer Oil Co. v. Aztec Gas & Oil 
Corp., 886 P.2d 259 (Wyo. 1994). Aztec was to pay Roemer $15,261.48 in six 
payments. The settlement agreement encompassed a right on the part of Roemer to 
file a Confession of Judgment against Aztec for "$26,000.00 together with 
reasonable costs (but not attorneys' fees) for filing and collecting the 
judgment, prejudgment interest at the rate of 8% compounded annually from the 
date of [the] Settlement Agreement, and post judgment interest," minus amounts 
paid pursuant to the agreement, in the event of a breach of the Settlement 
Agreement by Aztec. When Roemer claimed a breach for failure to make the 
December payment, it requested entry of judgment for $14,900.60, representing 
the difference between the claimed amount and the amounts admittedly 
paid.

 

[¶17]   In the Final Judgment entered upon 
a Motion for Entry of Judgment, filed by Roemer, and a Motion for Dismissal with 
Prejudice, filed by Aztec, the district court found that Aztec had failed to 
make a payment as required by the Settlement Agreement, and it had not cured the 
default. The court specifically found "that Aztec comes before the court with 
unclean hands for failure to make any of the payments, except the first 
$3,000.00 payment, in a timely manner on the dates contained in the Settlement 
Agreement." In fact, the Settlement Agreement specifically anticipated late 
payments and provided:

 

3. Default. The parties agree that, if 
Aztec fails to make any payment required under paragraph 1 of this Settlement 
Agreement, then Roemer upon (1) written notice to Aztec, and (2) Aztec's failure 
to cure its default within ten days of Roemer's written notice, may, in the 
alternative to otherwise enforcing this Settlement Agreement, file, enforce and 
collect the Confession of Judgment, a copy of which is attached hereto as 
Exhibit "B". Aztec shall execute the Confession of Judgment contemporaneously 
with the execution of this Settlement Agreement. With the Confession of 
Judgment, Roemer shall file and serve upon Aztec a duly executed affidavit as 
proof of Aztec's default. * * * Roemer also agrees that it will not file or seek 
to enforce the Confession of Judgment except upon Aztec's failure to make any 
payment and failure to cure as provided in this paragraph.

 

[¶18]   After the first check, the other 
payments by Aztec to Roemer were late, but the checks uniformly were written and 
furnished to Roemer within the ten day period provided in the parties' 
Settlement Agreement. It is fair to say that Roemer treated each check, save 
one, as payment for purposes of the default provision of the agreement. In 
accordance with the established practice, a check was furnished to Roemer for 
the payment it claims as the default. After Aztec made the December payment, it 
requested Roemer to promptly negotiate the check because Aztec intended to close 
the checking account on which the check was written. Aztec twice requested that 
the check be forwarded for collection so that it would clear the account before 
it was closed. The parties stipulated to the truth of averments in the affidavit 
of Charles Blackard, the controller for Aztec Gas and Oil Corporation, that 
stated among other things:

 

5. By mid-January 1996 I noticed that Roemer had not 
cashed these checks. During the week of January 15, 1996 I called Roemer 
representative Steve Swanson and advised him to cash the checks promptly, since 
Aztec was going to close the account upon which they were drawn. Approximately 
one week later I called Mr. Swanson again, and again advised him to promptly 
cash the checks. Aztec even offered to replace the checks with cashiers checks, 
if Mr. Swanson would return the two checks. Mr. Swanson indicated that he did 
not have the checks and that they had been sent off for 
processing.

 

[¶19]   Another paragraph of the Settlement 
Agreement provides:

 

7. Further Assurances. From time to 
time after the execution of this Settlement Agreement, the parties shall, 
without charge, perform such other acts, and shall execute and deliver and shall 
furnish such other instruments, documents, materials and information, as may be 
reasonably necessary to effectuate the acts provided for in this Settlement 
Agreement.

 

This contractual language 
surely is sufficiently broad to cover the simple act of negotiating a check 
within thirty days, upon the specific request of the other party. The 
RESTATEMENT (SECOND) OF CONTRACTS § 205 (1979) states, "Every contract imposes 
upon each party a duty of good faith and fair dealing in its performance and its 
enforcement." We have relied upon this provision, citing it with approval, and 
have said:

 

The implied covenant of good faith and fair dealing 
is present in every contract:

§ 205 Duty of Good Faith and Fair 
Dealing

 

Every contract imposes upon each party a duty of good 
faith and fair dealing in its performance and its 
enforcement.

Restatement (Second) of 
Contracts § 205 (1981).

 

State Farm Mut. Auto. Ins. Co. v. 
Shrader, 882 P.2d 813, 825 (Wyo. 
1994). We acknowledged this provision in Wilder v. Cody Country Chamber of 
Commerce, 868 P.2d 211, 220 (Wyo. 1994), and Husman, Inc. v. Triton Coal Co., 809 P.2d 796, 801 (Wyo. 1991). I would adopt this rule for Wyoming and apply it in 
this case.

 

[¶20]   My rhetorical question is where do 
we find good faith and fair dealing on the part of Roemer with respect to this 
check. Roemer, obviously whiffing the scent of blood, did not negotiate the 
check until some thirty days after it was sent by Aztec, at which time the 
account had been closed, and the check was returned. Aztec provided a 
replacement check (another stipulated fact), but Roemer refused to accept that 
check, even though it had accepted and received payment of the sixth check 
(another stipulated fact). Roemer took the position that the settlement 
agreement had been breached and proceeded to file the Confession of Judgment. 
When Aztec sought relief from the district court, the district judge entered 
Final Judgment in favor of Roemer for $14,912.00.

 

[¶21]   The result in this case is that 
Aztec has paid $12,225.03 on the settlement agreement; has endeavored to pay the 
balance; and now has a judgment against it for an additional $14,912.00, for a 
total recovery by Roemer of $27,137.03, almost double the amount agreed upon in 
the Settlement Agreement. The district court refused relief to Aztec, holding 
that it came seeking equity without clean hands because of the continual history 
of late payments. No stain apparently attached to Roemer with respect to holding 
a check it had been requested to cash and then claiming that Aztec had breached 
the contract when the check failed to clear the account.

 

[¶22]   I am satisfied that this is an 
instance in which the law has perpetrated an injustice on Aztec. Consequently, I 
would reverse the decision of the trial court, holding that there had been 
performance under the terms of the contract by Aztec, and Roemer is the party in 
default because it did not manifest good faith and fair dealing consistent with 
paragraph seven of the Settlement Agreement when it did not honor the request 
for prompt presentment of the check. I would reverse, holding that Roemer is not 
entitled to the Final Judgment resulting from its filing of the Confession of 
Judgment.