A Proven Legal Strategy Rooted in Two Centuries of American Jurisprudence

A Proven Legal Strategy Rooted in Two Centuries of American Jurisprudence

For more than 240 years, courtroom success has followed one enduring structure: state the issue, identify the rule, apply the rule, and conclude. This logical progression — known as IRAC (Issue, Rule, Application, Conclusion) — has guided persuasive legal writing and oral argument from the earliest American courts to the present. Whether drafting pleadings, composing appellate briefs, or arguing before the Texas Supreme Court, every effective advocate builds upon this disciplined analytical framework.

The IRAC Framework

STEP 1: Issue (Framing the Legal Question)

Each paragraph begins with a precise statement of the issue — the controlling legal or factual question before the court. The issue must be narrowly drawn to focus the reader’s attention.

Example: The Bank did not provide legally sufficient consideration to support the Note. The Bank created the loan proceeds through simultaneous accounting entries that debited a loan receivable and credited a deposit liability, thereby suffering no actual detriment and transferring no pre-existing asset to Defendant.

STEP 2: Rule (Stating the Controlling Law)

Follow the issue with the rule of law that governs it. Include the binding authority and proper citation. This is the doctrinal foundation of your argument.

Example: Texas law requires that every enforceable contract rest upon consideration, defined as “a present exchange bargained for in return for a promise.” Roark v. Stallworth Oil & Gas, Inc., 813 S.W.2d 492, 496 (Tex. 1991). Consideration consists of either a benefit to the promisor or a detriment to the promisee. Forbau v. Aetna Life Ins. Co., 876 S.W.2d 132, 133 (Tex. 1994).

STEP 3: Application (Applying the Rule to the Facts)

Demonstrate how the rule operates on your facts. Explain the reasoning, cite analogous cases, and draw logical inferences. Application is where argument lives — it connects principle to circumstance.

Example: Under Roark, consideration requires a “present exchange.” Here, no exchange occurred. The Bank did not transfer anything it previously possessed. It did not give up a legal right. It did not forbear from any action. It simply made accounting entries that increased both sides of its balance sheet simultaneously—asset (loan receivable) and liability (deposit payable)—with net effect of zero. This is not an exchange; it is the creation of offsetting bookkeeping entries.

STEP 4: Conclusion (Drawing the Legal Result)

End with a concise conclusion that follows inevitably from the rule and its application. This directs the court to the requested relief.

Example: Therefore, the Bank provided no consideration to support the Note because it suffered no actual detriment, transferred no pre-existing asset, and gave up no legal right when it created the loan proceeds through accounting entries. Under Roark, Forbau, Campbellton Rd., Light, and City of The Colony, the absence of consideration renders the Note unenforceable.

Bringing It All Together

The Bank did not provide legally sufficient consideration to support the Note when it created loan proceeds through simultaneous accounting entries debiting a loan receivable and crediting a deposit liability, thereby suffering no actual detriment and transferring no pre-existing asset to Defendant. Texas law requires consideration defined as “a present exchange bargained for in return for a promise.” Roark v. Stallworth Oil & Gas, Inc., 813 S.W.2d 492, 496 (Tex. 1991). The promisee must have “done or refrained from doing something he was legally entitled to do” in exchange for the promise. Forbau v. Aetna Life Ins. Co., 876 S.W.2d 132, 133 (Tex. 1994). Substance controls over form—courts examine the actual exchange of value, not merely the labels parties attach to their transactions. Campbellton Rd. v. City of San Antonio, 669 S.W.3d 221, 229 (Tex. 2024).

Under modern fractional reserve banking, the Bank created loan proceeds through accounting entries rather than transferring pre-existing funds. When originating Defendant’s loan, the Bank made journal entries: Dr. Loan Receivable (Asset) / Cr. Deposit Liability (Liability). This double-entry bookkeeping created both the loan asset and deposit liability simultaneously. The Bank did not debit “Cash,” “Reserves,” or any other pre-existing asset account. Expert testimony and the Bank’s own records confirm no funds were withdrawn from reserves, no depositor’s account was reduced, and no pre-existing asset was diminished. The Bank created the deposit through the accounting entry itself.

This process is confirmed by authoritative sources. The Bank of England states: “Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money.” Bank of England, Money Creation in the Modern Economy, Q1 2014 Quarterly Bulletin at 14. Under Roark, consideration requires a “present exchange.” Here, no exchange occurred. The Bank did not transfer anything it previously possessed, give up a legal right, or forbear from any action. It made accounting entries that increased both sides of its balance sheet simultaneously with net effect of zero. This is not an exchange; it is the creation of offsetting bookkeeping entries.

Accordingly, Defendant establishes the defense under Texas law: (1) the Bank suffered no actual detriment; (2) the Bank transferred no pre-existing asset; (3) the Bank gave up no legal right; (4) the transaction substance was offsetting accounting entries, not a present exchange; and (5) absence of consideration renders the Note unenforceable. City of The Colony v. N. Tex. Mun. Water Dist., 272 S.W.3d 699, 732 (Tex. App.—Fort Worth 2008, pet. dism’d) (absence or failure of consideration is complete defense to contract enforcement).

 ANTICIPATORY DEFENSE TO BANK’S EXPECTED ARGUMENTS

THE BANK’S “CREDIT EXTENSION” ARGUMENT FAILS

The Bank will argue that extending credit constitutes consideration. This argument fails because credit created through accounting entries without diminishing any pre-existing asset is not a detriment to the promisee under Texas law.

Texas consideration requires that the promisee “done or refrained from doing something he was legally entitled to do” in exchange for the promise. Forbau v. Aetna Life Ins. Co., 876 S.W.2d 132, 133 (Tex. 1994). The promisee must suffer an actual detriment—a loss, disadvantage, or forbearance of a legal right. Roark v. Stallworth Oil & Gas, Inc., 813 S.W.2d 492, 496 (Tex. 1991). A purely nominal or illusory benefit does not satisfy this requirement. Light v. Centel Cellular Co. of Tex., 883 S.W.2d 642, 644 (Tex. 1994).

The Bank’s extension of “credit” involved no detriment because the Bank created the credit through simultaneous offsetting accounting entries. When the Bank made the entries Dr. Loan Receivable / Cr. Deposit Liability, it did not reduce any pre-existing asset, surrender any legal right, or forbear from any action. The Bank simply exercised its accounting privilege to increase both sides of its balance sheet by equal amounts. This is not “doing something” under Forbau—it is creating matching bookkeeping entries that cost the Bank nothing. The credit extended to Defendant was not drawn from reserves, deposits, or any other pool of pre-existing funds. It was created ex nihilo through the accounting entry itself.

The Bank of England confirms this reality: “Bank lending creates deposits…. Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money.” Bank of England, Money Creation in the Modern Economy, Q1 2014 Quarterly Bulletin at 14. Because the deposit was created simultaneously with the loan receivable, the Bank gave up nothing to create the credit. No asset was diminished. No right was surrendered. No detriment was incurred. Under Forbau, this fails to constitute consideration because the Bank neither “done [anything] or refrained from doing something he was legally entitled to do.” 876 S.W.2d at 133.

Therefore, the Bank’s argument that it provided “credit” fails under Texas law because credit created from nothing—through offsetting accounting entries that impose no present detriment on the Bank—does not satisfy the requirement of actual consideration under Roark and Forbau.

THE BANK’S “RISK INCURRED” ARGUMENT FAILS

The Bank will argue that it incurred the risk of non-repayment, and that this risk constitutes consideration. This argument fails because risk is a future contingency, not a present exchange, and Texas law does not recognize speculative future consequences as sufficient consideration for a present promise.

Consideration must be contemporaneous with the promise. Kroesche v. Wassar Logistics Holdings, LLC, 2023 WL 1195363, at *4 (Tex. App.—Houston [1st Dist.] Jan. 31, 2023, no pet.). Past consideration is invalid: “Past consideration is not consideration.” Alex Sheshunoff Mgmt. Servs., L.P. v. Johnson, 209 S.W.3d 644, 655–56 (Tex. 2006). By logical extension, future consideration—including speculative future risks—cannot satisfy the requirement of a present exchange. Roark demands “a present exchange bargained for in return for a promise.” 813 S.W.2d at 496 (emphasis added). The risk of non-repayment is not a present exchange; it is a future possibility that may or may not materialize.

The Bank’s argument conflates consequence with consideration. Risk is a consequence of entering into the loan transaction, not a detriment the Bank suffered at the moment of contract formation. At the instant the Bank made the accounting entries creating the loan and deposit, the Bank had not yet incurred any loss. The risk that Defendant might default is a future contingency, not a present detriment. If risk alone constituted consideration, every gratuitous promise would be enforceable merely because the promisor might regret the promise or face unforeseen consequences. Texas law does not permit such reasoning. Sheshunoff, 209 S.W.3d at 655–56.

Moreover, the Bank created the very asset (the loan receivable) to which the risk attaches. The Bank did not incur risk by transferring a pre-existing asset; rather, the Bank created both the asset and its attendant risk through the same accounting entry. This circular process cannot bootstrap itself into valid consideration. The risk the Bank faces is self-generated—arising from the Bank’s own act of creating the loan receivable—and therefore cannot constitute the “present exchange” that Roark requires.

Therefore, the Bank’s argument that it incurred risk fails under Texas law because risk is a future contingency and a self-created consequence, not a contemporaneous detriment or present exchange of value required to support an enforceable contract under Roark, Sheshunoff, and Kroesche.

THE BANK’S “REGULATORY CAPITAL REQUIREMENT” ARGUMENT FAILS

The Bank will argue that regulatory capital requirements imposed by federal banking law constitute a detriment sufficient to support consideration. This argument fails because regulatory capital requirements are a future regulatory burden, not a present detriment suffered at the moment of contract formation, and they apply to an asset the Bank created rather than an asset the Bank transferred.

Consideration must be contemporaneous with the formation of the contract. Kroesche v. Wassar Logistics Holdings, LLC, 2023 WL 1195363, at *4 (Tex. App.—Houston [1st Dist.] Jan. 31, 2023, no pet.). The requirement of a present exchange means the detriment must occur at the time the promise is made, not at some future point. Roark v. Stallworth Oil & Gas, Inc., 813 S.W.2d 492, 496 (Tex. 1991). Regulatory capital requirements do not impose an immediate detriment at loan origination; they impose an ongoing regulatory obligation that the Bank must maintain over the life of the loan. This is a future burden, not a present exchange.

Moreover, the capital requirement applies to the loan receivable—an asset the Bank created through accounting entries, not an asset the Bank transferred. The Bank argues, in effect, that because federal regulations require it to hold capital against the loan receivable it just created, the Bank has suffered a detriment. This reasoning is circular. The Bank created the loan receivable by making the entry Dr. Loan Receivable / Cr. Deposit Liability. Federal law then requires the Bank to hold capital against that newly created receivable. But the requirement to hold capital does not mean the Bank gave Defendant anything. The Bank still transferred no pre-existing asset, surrendered no legal right, and incurred no present detriment at the moment of contract formation.

Regulatory capital requirements are externally imposed compliance burdens, not bargained-for consideration. The Bank does not hold capital “in exchange for” Defendant’s promise to repay; the Bank holds capital because federal banking regulators require it. The capital requirement is not part of the bargain between the Bank and Defendant. It is a regulatory condition imposed by third parties (federal regulators) for reasons unrelated to the enforceability of the Note. Texas law does not permit third-party regulatory burdens to substitute for the detriment that must flow from the promisee to the promisor in a bilateral contract. Forbau v. Aetna Life Ins. Co., 876 S.W.2d 132, 133 (Tex. 1994).

Therefore, the Bank’s argument that regulatory capital requirements constitute consideration fails under Texas law because such requirements are future regulatory burdens imposed by federal law, not a present detriment or bargained-for exchange occurring at the moment of contract formation as required by Roark, Forbau, and Kroesche.

THE BANK’S “JUDICIAL PRECEDENT” ARGUMENT FAILS

The Bank will argue that numerous courts have rejected the “no consideration” defense and that this Court should follow suit. This argument fails because no court has been presented with expert testimony and documentary evidence establishing the modern accounting reality of loan creation, and this Court is not bound by decisions rendered without a fully developed factual record.

Texas courts have a duty to examine the substance of transactions rather than merely their form. Campbellton Rd. v. City of San Antonio, 669 S.W.3d 221, 229 (Tex. 2024). When a court decides a question of fact or mixed question of law and fact, the decision is only as reliable as the record upon which it rests. Prior decisions rejecting the “no consideration” defense were rendered in cases where borrowers appeared pro se, failed to retain expert witnesses, and did not present documentary evidence of the bank’s actual accounting entries. Those decisions rest on judicial assumptions about how banking works—assumptions that are contradicted by authoritative sources such as the Bank of England and the Federal Reserve.

Here, Defendant presents a fully developed factual record including: (1) expert testimony from a certified public accountant with banking experience, demonstrating that the Bank made entries Dr. Loan Receivable / Cr. Deposit Liability without debiting any pre-existing asset; (2) the Bank’s own general ledger entries obtained through discovery, confirming that no cash, reserves, or other assets were transferred; and (3) authoritative publications from central banks expressly stating that “bank lending creates deposits” and that loans are not funded from pre-existing deposits. Bank of England, Money Creation in the Modern Economy, Q1 2014 Quarterly Bulletin at 14; Federal Reserve Bank of Chicago, Modern Money Mechanics at 6 (1992).

No prior court has been presented with this evidence. The judicial precedent the Bank cites rests on the assumption that banks lend out depositors’ funds or transfer pre-existing assets. That assumption is factually incorrect under modern fractional reserve banking. Campbellton Rd. requires Texas courts to examine substance over form. 669 S.W.3d at 229. The substance here—established by expert testimony and the Bank’s own records—is that no present exchange occurred. The Bank created offsetting accounting entries with net effect of zero. This factual reality has never been adjudicated by any Texas court with a complete evidentiary record.

Additionally, Texas law evolves as new facts come to light. When courts decide cases based on assumptions later proven false, those decisions do not bind future courts presented with evidence contradicting the original assumptions. Roark requires “a present exchange bargained for.” 813 S.W.2d at 496. If the evidence establishes that no present exchange occurred, then Roark‘s requirements are not met, regardless of how many prior courts—operating under incorrect factual assumptions—ruled otherwise.

Therefore, the Bank’s reliance on judicial precedent fails because no prior court has been presented with the complete factual record and expert testimony demonstrating the accounting reality of modern loan creation. This Court is not bound by decisions resting on factual assumptions contradicted by the evidence now before it. Under Campbellton Rd. and Roark, this Court must examine the substance of the transaction based on the actual evidence, not on outdated assumptions about banking operations.

CONCLUSION

Each of the Bank’s anticipated arguments fails under Texas law. The extension of credit created through offsetting accounting entries is not a detriment under Forbau. The risk of non-repayment is a future contingency, not a present exchange under Roark and Kroesche. Regulatory capital requirements are future regulatory burdens imposed by third parties, not bargained-for consideration. And prior judicial precedent does not bind this Court when those decisions rest on factual assumptions contradicted by the complete evidentiary record now presented. The Bank provided no consideration to support the Note, and the Note is therefore unenforceable under Texas law.