TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN
NO. 03-08-00517-CV
Lisa Caufmann, Appellant
v.
Elsie Schroer, as Trustee of The Elsie R. Schroer Survivor's Trust, UTD,
September 22, 1997, formerly known as The Schroer Family Revocable Trust, Appellee
FROM THE DISTRICT COURT OF TRAVIS COUNTY, 126TH JUDICIAL DISTRICT
NO. D-1-GN-03-001201, HONORABLE LORA J. LIVINGSTON, JUDGE PRESIDING
M E M O R A N D U M O P I N I O N
Appellant Lisa Caufmann (1) appeals from the trial court's judgment against her for
failure to make payments on a note. Caufmann and her husband, Thomas Caufmann, executed a real
estate lien note for a principal amount of $150,000 that was assigned to Elsie Schroer as trustee of
the Elsie R. Schroer Survivor's Trust ("the Trust"). The Caufmanns made only $4,500 in payments
on the note. Schroer sued the Caufmanns, obtaining an interlocutory default judgment against
Thomas Caufmann. Schroer's claim against Lisa Caufmann was tried to the trial court, which
entered judgment in favor of Schroer. On appeal, Caufmann argues that the trial court erred in
concluding that the note was supported by consideration and that the court could consider extrinsic
evidence in determining the consideration for the note. We affirm the judgment of the trial court.
BACKGROUND
On August 16, 1995, Thomas Caufmann and a business associate, Anthony Eddolls,
executed a promissory note to Max and Elsie Schroer in the amount of $150,000 with an interest rate
of eighteen percent ("the 1995 Note"). (2) The records custodian for the Trust testified that $150,000
was transferred to Thomas Caufmann in exchange for the 1995 Note and that no complaint regarding
disbursement of the funds was ever received. The note was due in its entirety within two years, with
$50,000 of the principal due after one year of the date of the note and the remainder due after
two years of the date of the note. (3)
Two years later, however, the only payments that had been received on the 1995 Note
were interest payments; none of the principal had been repaid. On January 26, 1998, Thomas
Caufmann and his then-wife, appellant Lisa Caufmann, (4) executed a real estate lien note for $150,000
at a rate of zero percent interest ("the 1998 Note"). The 1998 Note was mailed to the Schroers with
a letter, which though unsigned stated that it was from Thomas and Lisa Caufmann ("the
1998 Letter"). (5) The letter indicated that the Caufmanns could not afford to make payments on the
1995 Note, (6) and sought to substitute the 1998 Note for the 1995 Note. The letter indicated that the
Caufmanns planned to sell off property that they owned, details of which were specified in a third
document included in the mailing, in order to make payments on the 1998 Note. The letter also
stated that monthly payments on the 1998 Note would begin April 15, 1998.
The Schroers responded with a letter dated May 30, 1998, accepting the 1998 Note
and indicating that it would be assigned to Elsie Schroer. (7) The letter referenced a conversation with
the Caufmanns regarding the terms of the 1998 Note and stated, "We look forward to receiving June
1st payment as you indicated." A total of $4,500 was paid on the 1998 Note before payments ceased.
In 2002, Myron Schroer, Elsie's son and agent, had several conversations with Lisa
Caufmann regarding delinquent payments on the 1998 Note. Lisa Caufmann indicated that she
would raise the matter with Thomas Caufmann; however, additional payments were not forthcoming.
Consequently, Elsie Schroer brought a suit on a sworn account to recover the balance due on the
1998 Note with interest. After a bench trial, the trial court entered judgment in favor of Elsie
Schroer and issued findings of fact and conclusions of law. This appeal followed.
STANDARD OF REVIEW
Caufmann challenges the trial court's second and seventh conclusions of law, which
respectively state that the 1998 Note was supported by adequate consideration and that the court
could consider extrinsic evidence in evaluating the consideration for the 1998 Note. (8) We review the
trial court's conclusions of law de novo. BMC Software Belgium, N.V. v. Marchand, 83 S.W.3d 789,
794 (Tex. 2002). Although an appellant may not challenge a trial court's conclusions of law for
factual sufficiency, we may review the trial court's legal conclusions drawn from the facts to
determine whether the conclusions are correct. Id.
DISCUSSION
Extrinsic Evidence
We begin with Caufmann's fourth issue on appeal, as its resolution informs the
analysis of Caufmann's remaining issues. In her fourth issue, Caufmann argues that the trial court
impermissibly concluded that extrinsic evidence could be used in evaluating the 1998 Note.
Specifically, Caufmann argues that use of the 1998 Letter to determine the consideration supporting
the 1998 Note violated the parol evidence rule.
The parol evidence rule is not a rule of evidence, but rather is a rule of substantive
contract law. Hubacek v. Ennis State Bank, 317 S.W.2d 30, 32 (Tex. 1958). The rule functions as
an evidentiary rule barring admission of extrinsic evidence which seeks to vary, add to, or contradict
the terms of a written agreement. Sun Oil Co. v. Madeley, 626 S.W.2d 726, 731 (Tex. 1981).
Accordingly, extrinsic evidence of the parties' intent is not admissible to vary the terms of an
otherwise unambiguous instrument. Estes v. Republic Nat'l Bank, 462 S.W.2d 273, 275 (Tex. 1970).
For extrinsic evidence of the parties' intent to be admissible, the instrument must first be ambiguous
as a matter of law. Id.
We examine, then, whether the 1998 Note is ambiguous. A contract is not ambiguous
if its wording permits a definite or certain legal meaning. (9) DeWitt County Elec. Co-op, Inc. v. Parks,
1 S.W.3d 96, 100 (Tex. 1999). A contract is ambiguous if, after applying established rules of
construction, its meaning is uncertain and doubtful, or the writing is reasonably susceptible to more
than one meaning. Id. Lack of recital of consideration renders a contract ambiguous. See Vass
v. Fisher, 405 S.W.2d 866, 867 (Tex. Civ. App.--Houston [1st Dist.] 1966, no writ). (10) In such
cases, "if not expressed, consideration may be implied by or inferred from the terms and obvious
import of the contract, or it may be proved by parol evidence." Id. (citation and quotation omitted).
The 1998 Note expresses no consideration. While the note specifies a principal
amount of $150,000, the note does not recite the particular consideration given for the principal
amount. (11) Accordingly, the note is ambiguous as a matter of law, and the trial court could properly
consider extrinsic evidence, including the 1998 Letter, in determining the terms of the agreement. (12)
As the trial court did not err in concluding that extrinsic evidence could be considered in evaluating
the consideration supporting the 1998 Note, Caufmann's fourth issue is overruled.
Consideration
Caufmann's first, second, and third issues on appeal challenge the trial court's
conclusion of law that the 1998 Note was supported by adequate consideration. "Consideration is
defined as 'either a benefit to the promisor or a loss or detriment to the promisee.'" Northern
Natural Gas Co. v. Conoco, Inc., 986 S.W.2d 603, 607 (Tex. 1998) (quoting Receiver for Citizen's
Nat'l Assurance Co. v. Hatley, 852 S.W.2d 68, 71 (Tex. App.--Austin 1993, no writ)). A
promissory note given "for value" is supported by adequate consideration and is therefore
enforceable. Suttles v. Thomas Bearden Co., 152 S.W.3d 607, 615 (Tex. App.--Houston [1st Dist.]
2004, no pet.). A promissory note is issued for "value" if it is issued as payment of, or as security
for, an antecedent claim against any person, whether or not the claim is due. Id.; see also Ward
v. Vaughn, 298 S.W.2d 862, 866-67 (Tex. Civ. App.--Galveston 1957, no writ) (explaining that
forbearance of antecedent debt was sufficient consideration for note).
After examining the 1998 Note in conjunction with the extrinsic evidence of the
1998 Letter and the 1995 Note, we agree with the trial court that the 1998 Note is supported by
adequate consideration. The 1998 Note is clearly intended to replace a preexisting obligation, the
1995 Note. The 1998 Letter refers to a prior "Promissory Note." The 1998 Letter indicates that the
prior note was co-signed by Anthony Eddolls, just as the 1995 Note was. The 1998 Letter explains
that the Caufmanns "cannot continue to pay the original note amounts @ 18% interest," which
conforms to the interest rate on the 1995 Note. The 1998 Letter states that the Caufmanns "are
enclosing a new note, based on the principal amount" of the prior note, and the enclosed 1998 Note
recites the same principal amount as the 1995 Note (but at a rate of zero percent interest).
Under this analysis, the consideration for the 1998 Note is the forgiveness of the prior
obligations incurred under the 1995 Note. Such forgiveness of an antecedent debt constitutes proper
consideration.
Caufmann argues, however, that consideration for the 1998 Note failed because the
principal amount was never received. Failure of consideration occurs when, "after an agreement has
been reached, the promised performance fails." Bassett v. American Nat'l Bank, 145 S.W.3d 692,
696 (Tex. App.--Fort Worth 2004, no pet.) (holding that failure to pay amount promised by note
constituted failure of consideration). In this case, Caufmann bases her argument on the fact that
neither she nor Thomas Caufmann received the $150,000 in principal specified by the 1998 Note.
Such an argument presupposes that the consideration for the note was the listed principal amount.
Our analysis above, however, indicates that the consideration supporting the 1998 Note was not
the principal amount stated in the note, but instead the forgiveness of the 1995 Note. (13) As
Caufmann presented no evidence that Elsie Schroer attempted to collect on or otherwise enforce the
1995 Note after the receipt of the 1998 Note, there is no basis for a defense of failure of
consideration in this case.
Accordingly, as we conclude that the 1998 Note was supported by consideration,
Caufmann's first, second, and third points of error are overruled.
CONCLUSION
Because we find no reversible error, we affirm the judgment of the trial court.
__________________________________________
Diane M. Henson, Justice
Before Chief Justice Jones, Justices Puryear and Henson
Affirmed
Filed: February 26, 2010
1. For the purposes of this opinion, the use of "Caufmann" refers to Lisa Caufmann only.
Any references to Thomas Caufmann will state his full name.
2. At the time of the making of the 1995 Note, the Trust was known as the Schroer Family
Revocable Trust. The Schroer family includes Elsie, the trustee of the current Trust; Max, Elsie's
husband, who died in 1997; Myron, Elsie and Max's son, who is Elsie's agent; and Cindy, Myron's
wife, who serves as the records custodian of the Trust.
3. The facts recited herein are from the testimony and exhibits admitted at trial.
4. The Caufmanns divorced in February 2002. Lisa Caufmann testified that she would often
sign documents if Thomas Caufmann told her to do so, because he would sometimes physically
strike her if she refused. However, she also testified that she signed the 1998 Note voluntarily, and
does not assert on appeal that her signature was coerced.
5. Lisa Caufmann testified that she had never seen the letter dated January 26, 1998, before
testifying at trial. She stated that her husband would "constantly" send out letters in her name
without informing her of what he was doing. She also testified that she has been involved in many
lawsuits involving the finances of her husband, who was investigated by the FBI for his financial
dealings. In addition, she testified that she had been named an "innocent spouse" by the IRS with
regard to the couple's finances.
6. The letter explained that the failure to make payments on the 1995 Note was due in part
to lack of contributions from Anthony Eddolls. According to the letter, Eddolls was preparing to file
for bankruptcy.
7. The 1998 Note was initially made out to beneficiaries Myron and Cindy Schroer.
8. These two conclusions of law are properly categorized as legal questions. Regarding the
trial court's second conclusion of law, "[w]hat constitutes consideration for a contract is a question
of law," and the "issue concerning a failure of that consideration is also a legal one within the
province of the trial court." Peat Marwick Main v. Haass, 775 S.W.2d 698, 706
(Tex. App.--San Antonio 1989), rev'd on other grounds, 818 S.W.2d 381(Tex. 1991). Regarding
the trial court's seventh conclusion of law, the admissibility of extrinsic evidence to determine the
terms of a written instrument is governed by the legal question of whether the instrument is
ambiguous as a matter of law. Estes v. Republic Nat'l Bank, 462 S.W.2d 273, 275 (Tex. 1970).
9. As "[a] promissory note is nothing more than a contract evincing an obligation to pay
money," we turn to principles of contract law to evaluate the 1998 Note. See Dorsett v. Cross,
106 S.W.3d 213, 217 (Tex. App.--Houston [1st Dist.] 2003, pet. denied).
10. We note that lack of recital of consideration is not "fatal" to the existence of a contract,
as in Texas "[i]t is the general rule that a consideration for a contract need not be recited or expressed
in the writing." Vass v. Fisher, 405 S.W.2d 866, 867 (Tex. Civ. App.--Houston [1st Dist.] 1966,
no writ).
11. Though the 1998 Note includes a promise to pay the principal amount of the note, the
promise does not resolve the issue of the consideration given for the note. See Suttles v. Thomas
Bearden Co., 152 S.W.3d 607, 610, 615-16 (Tex. App.--Houston [1st Dist.] 2004, no pet.)
(considering parol evidence to determine consideration for note despite promise to pay principal
amount on face of note); see also Wilson & Wilson Tax Servs. v. Mohammed, 131 S.W.3d 231, 237
(Tex. App.--Houston [14th Dist.] 2004, no pet.) (holding that wire transfer that promised payment
of $200,000 was "silent as to what consideration supports [it]").
12. In its fourth conclusion of law, the trial court stated that the 1998 Note and the 1998 Letter
could be read together as a single agreement. We disagree. When interpreting a contract, all
executed instruments pertaining to the same transaction will be construed together in order to
determine the intent of the parties. See World Help v. Leisure Lifestyles, 977 S.W.2d 662, 676 (Tex.
App.--Fort Worth 1998, pet. denied) (explaining that "where several instruments, executed
contemporaneously or at different times, pertain to the same transaction, they will be read together
although they do not expressly refer to each other"). However, while "an unsigned paper may be
incorporated by reference in the paper signed by the person sought to be charged," if the unsigned
document is not specifically referenced in the executed instrument, it cannot be considered. Owen v.
Hendricks, 433 S.W.2d 164, 166 (Tex. 1968); see also Teal Constr. Co. v. Darren Casey Interests,
Inc., 46 S.W.3d 417, 420 (Tex. App.--Austin 2001, pet. denied) (noting that, when incorporating
unsigned writing, "[t]he specific language used is not important so long as the contract signed by the
defendant plainly refers to another writing").
In this case, while the 1998 Note is an executed instrument, the 1998 Letter is not, as it bears
no signature. Accordingly, the letter can only be incorporated into the contract if the 1998 Note, an
executed instrument, specifically references it. As the 1998 Note is silent with regard to any
additional explanatory documents, the 1998 Letter cannot be read in conjunction with the 1998 Note.
We note, however, that as we conclude that the 1998 Letter constitutes admissible extrinsic evidence
of the terms of the agreement, the fact that the 1998 Note and 1998 Letter cannot be read together
as a single document does not impact our holding in this case.
13. Caufmann does not argue that the $150,000 principal amount that served as consideration
for the 1995 Note was not received.