## Facts

- Gulf Oil Corporation executed two essentially identical oil-and-gas leases on March 1, 1974, covering contiguous acreage; the dispute involved the E.D. Kincaid lease.
- The leases provided that, during the primary term, the lease would continue if the lessee (1) commenced a well, (2) timely paid annual delay rentals, or (3) made a “bona fide attempt to pay” delay rentals.
- Gulf timely paid delay rentals on both leases through 1979.
- In early 1980, Gulf considered drilling with Omega Minerals, Inc. on the E.D. Kincaid tract and withheld the 1980 delay rental while drilling was being evaluated.
- On February 29, 1980, Gulf learned Omega would not drill and instructed Omega to pay the E.D. Kincaid delay rental to the designated depository bank on Gulf’s behalf.
- On March 1, 1980, Omega delivered a check for the correct delay-rental amount to the depository bank, but the check was mistakenly labeled as relating to the F.T. Kincaid lease rather than the E.D. Kincaid lease.
- The bank initially credited the payment to the F.T. lease account; on March 3, 1980, Omega directed the bank to correct the allocation and credit the E.D. lease account.
- The E.D. Kincaid lessors filed a declaratory-judgment action asserting the lease automatically terminated for failure to pay delay rentals by March 1, 1980.
- The trial court, on an agreed evidentiary record, rendered judgment for Gulf and its assignees, concluding the lease remained in effect.

## Issues

1. Whether delivery of the correct delay-rental amount to the correct depository on the due date, but misidentified and initially credited to the wrong lease account, constituted a “bona fide attempt to pay” sufficient to prevent automatic termination.
2. Whether prompt correction of a clerical misdesignation, without harm to the lessors, preserves the lease under a bona-fide-attempt clause.

## Decision

- The court of appeals affirmed the judgment for Gulf and the other lessees/assignees.
- The court held Gulf, acting through Omega, made a “bona fide attempt to pay” the E.D. Kincaid delay rental.
- The lease did not terminate because the payment was timely tendered to the designated depository in the correct amount, and the only defect was a clerical mislabeling promptly corrected.

## Legal Principles

- When an oil-and-gas lease provides that it will not terminate upon a “bona fide attempt to pay” delay rentals, good-faith substantial compliance can satisfy the payment obligation even if a technical defect occurs.
- A timely tender of the correct amount to the contractually designated depository, coupled with prompt correction of an honest clerical error, supports a finding of a bona fide attempt.
- Forfeiture of leasehold rights is generally disfavored where the lessee acts in good faith, corrects mistakes with reasonable diligence, and the lessor shows no material prejudice.

## Conclusion

Because the lessee ensured the correct delay rental was timely placed with the designated depository and promptly cured an inadvertent misdesignation that caused temporary misapplication, the payment qualified as a bona fide attempt and the lease remained in force.


Kincaid v. Gulf Oil Corp., 675 S.W.2d 250 (Tex. App.—San Antonio 1984, writ ref’d n.r.e.)