Echols v. Professional Financial Associates, Inc., 8804

• Decision Date: 14 October 1980
• Docket Number: No. 8804,8804
• Citation: 607 S.W.2d 292
• Parties: Victoria ECHOLS, Appellant, v. PROFESSIONAL FINANCIAL ASSOCIATES, INC., Appellee.
• Court: Texas Court of Appeals

Page 292

607 S.W.2d 292

Victoria ECHOLS, Appellant, v. PROFESSIONAL FINANCIAL ASSOCIATES, INC., Appellee.

No. 8804.

Court of Civil Appeals of Texas, Texarkana.

Oct. 14, 1980.

Rehearing Denied Nov. 10, 1980.

Mark Perlmutter, Hilgers, Watkins & Hays, Austin, for appellant.

Milton L. Bankston, J. Stockton Williams, Jr., Stubbeman, McRae, Sealy, Laughlin & Browder, Austin, for appellee.

HUTCHINSON, Justice.

This appeal involves the construction of the payment provisions of a note awarded to appellant, Victoria Echols (now Ms. Huber), by the divorce decree entered in her suit against her husband, James Echols.

Mr. Echols was one of the incorporators of appellee, Professional Financial Associates, Inc. When the corporation was formed additional capital was needed and the instrument at issue here was used to obtain additional funds. Mr. Echols loaned appellee $20,000.00 in June of 1969 and took its note for that amount at 71/2 annual interest, 10% at maturity, with the principal sum being due and payable in three years. The loan instrument contained a stock conversion provision permitting the payee to convert the amount due on the note to shares of appellee's common stock. It also contained a subordination clause providing that: "This note is second, inferior and subordinate to any and all past or future indebtedness of maker and liens securing same." The subsequent extensions of the instrument have been labeled as a "convertible subordinated debenture." However, there was no trust indenture accompanying the instruments and no further explanation of the payment provisions.

Appellant and Mr. Echols were divorced in 1971 and the note was awarded to her in the division of the community estate. With appellant's approval the note was renewed for one-year periods in both 1972 and 1973. The 1973 note is identical to the 1969 note except for the date, the name of the payee, the time for payment and the title of the instrument (the first note was untitled and the 1973 note is called a "Convertible Subordinated Debenture"). The 1973 note also provides that: "This debenture is given in renewal and extension of a debenture dated June 6, 1969, made by the maker hereof to James D. Echols for the same identical debt and of a debenture dated June 6, 1972 to Victoria H. Echols for the same identical debt." Appellant refused to agree to an extension of the note in 1974 and appellee began paying her 10% interest which she accepted. A copy of the proposed renewal note for 1974 was introduced into evidence and it provides for interest before maturity to be at the rate of 10% per annum. Appellant denied having been made aware of the existence of this 1974 note.

Trial was to the court and a take nothing judgment was entered. Findings of fact and conclusions of law were made and filed which are as follows: 1) the original note payable to Mr. Echols was executed on June 6, 1969; 2) the renewal notes were issued on June 6, 1972, and June 6, 1973; 3) appellant accepted interest payments continually from June 6, 1973; 4) the note's promise to pay is qualified by the subordination clause; 5) appellee is currently burdened with outstanding indebtedness owed to several creditors; and 1) the continual payment of interest by appellee and its acceptance by appellant expresses their intent to extend the payment of the note; 2) appellee did not waive its right to claim the payment of the note to be extended; 3) the qualification of the promise to pay was clearly expressed; 4) the subordination clause precludes the payment of the note until all other debts of appellee have been paid; and 5) because appellee is currently burdened with other debts, the note is not now due and owing.

Appellant first asserts that the trial court erred as a matter of law in concluding that the continued payment and acceptance of interest on the 1973 note expressed the intention of the parties to extend the payment of the principal. The basis for such an assertion is that the legal requirements for a valid extension were not shown to have existed. It is undisputed that appellant never accepted or agreed to the 1974 written extension and the evidence from each party is to the effect that appellant categorically refused to extend the payment of the note. No definite period for such an extension was suggested or established. The accepted interest payments were specifically provided for in the 1973 note and the acceptance of such payments is not consideration for the extension of the payment of the principal. An agreement to extend the time of payment of a note must contain all of the elements of a contract in order to be enforceable. There must be consideration for the extension and the extension must be for a definite time. Tsesmelis v. Sinton State Bank, 53 S.W.2d 461 (Tex.Com.App. 1932, jdgmt. adopted); Thompson v. First Austin Co., 572 S.W.2d 80 (Tex.Civ.App. Fort Worth 1978, writ ref'd n.r.e.); Maceo v. Doig, 558 S.W.2d 117 (Tex.Civ.App. Austin 1977, writ ref'd n.r.e.); Mabry v. Abbott, 471 S.W.2d 442 (Tex.Civ.App. Waco 1971, writ ref'd n.r.e.); Sonfield v. Eversole, 416 S.W.2d 458 (Tex.Civ.App. Texarkana 1967, writ ref'd n.r.e.); ...