### TEXA S C OU R T OF A PPEAL S, THIR D DIST R ICT , AT AU STIN

NO. 03-0 7 -00 461 -CV

Bair Chase P ropert y Com pany, L LC, a Nevada Lim ited Liabi lity Com pany; Ke nneth A. Barf

ield; and Weste rn P ropert y Deve lopme nt Com pany, L LC , a Delaware Lim ited Liabi lity Com pany, Ap pellants
v. S&K D evelopm ent Com pany, I nc., a Texas Corporat ion , Appellee

F ROM THE DISTRICT CO URT OF TRAVIS COUNTY , 126TH JUDICIAL DISTRICT NO. D-1- GN-06- 0025 84, H ONO RAB LE SCOTT H. JENKI NS , JUDGE PRESIDI NG

O P I N I O N Appellants B air Chase Property Company

(“B CPC ”), K enneth A. B arf ield, and Western Property

Deve lopment Company

(“Wester n Property ”) ( collectively , “B air Ch a s e”) , appea l from a summar

y judgme nt gr anted in fa

vor of S&K Development Company (“S& K”) , as we ll as an
awa rd of attorney ’s fe es to S&K. S &K i n i t i all y broug ht suit aga inst Bair Chase to rec over on a p r o m i s s o r

y n o t e a n d g u ar an t y a g r e e m e n t
. In r e s p o n s e , B a i r C h a s e b r o u g h t a c o u n t e r c l a i m f o r u s u r y, leadingS&K to take corr ective action under the Texas Financ e Code. S& K then filed a traditional motion for summary

judgme nt on the note and a no-e vidence motion for summary judgme nt on the usury counter claim. The tria l court g rante d both motion s an d aw arde d S&K attorney ’s fe es and
c os ts. B e c a

us e we have de te rm ine d th a t the tr ia l court did no t er r in g ra nti ngsu mma

ry jud g me nt,
we a ff ir m th e tr ia l c ourt ’s or de r i n th a t r e sp e c t. Ho we ve r, be c a us e S& K f

a ile d to se g re g a te its2

attorney ’s fe es, the a

war d of attorne y ’s fe es is reve rsed a nd rema nded for a re deter mination after f

ees incurre d by S&K in c orre cting alleg ed usury violations a re seg reg ated from fee s incurre d in pursuing S&K’ s rec overy

on the note.
BACK GR OUND I n J uly 2005, BCPC e x ecute d and deliver ed to S&K a promissory

note for a

loan of $1.4 milli on, and a se cond promissory note for a loan of $100,000. The $1.4 milli on note provided that BCPC would pay interest on the unpaid principal balance at a rate equal to the lesser of 12% per
a n nu m o r t h e m a xi m u m r a t e o f i n t e r e s t p e r m i t t e d b y a

p p l i c a b l e u s u r y l aw s . T h e $ 1 0 0 , 0 0 0 n ote included a similar pr ovision, capping interest at a rate equal to the lesse r of 6% per an n u m or the maxi mum r a te p e r

mi tt e d b y la

w . E a c h n o te w a s a c c o mp an ie d b y a g u ar an ty a g r e e me n t, b o th of which we re sig ned by

Ba rfield and W estern Prope rty as g uara ntors. I n addition, BCPC, Bar field,
and Wes te rn Pr op e rt y e a c h s ig ne d a

se c ur ity a g re e me nt, g ivi ngS& K s e c ur ity int e re sts in c e rt a in proper ty to secure pay

ment of the notes. I n September 2 0 0 5, and ag ain in October 2005, S&K a g ree d to ext ensions of the $ 1
. 4 mi ll io nn o te ’ s ma

tu r it y d a te
. On Decem be r 3 0, 20 05 , S& K p ro vid e d w ri tte n n oti c e to B a ir Cha se that bo th n ote s h a d matur e d a nd we re in d e fa

ult . Wh e n B a ir

Cha se did

no t make pa

y me nts in response to S&K’ s demand letters, S&K broug ht suit in T ravis County to rec over unpa id principal
and int e re st d ue on the no te s, a s w e ll a s atto rn e y ’s fe e s a nd c oll e c tio n c os ts. On Dec ember

4, 2006, Ba ir Chase filed a counter claim, alleg ing usur y in connec tion with the notes. Eig ht day s later, S& K filed a plea in abatement, pursuant to sec tion 305.006(d) of3

the financ e code
. See Tex. F in. Code Ann. § 305.006(d) ( West 2006). Section 305.006(d) provide s that when a debtor files a counter claim alleg ing usurious interest in an or igina l action by a cr editor, the ac tion is subj ect to abate ment at t he creditor’s r equest, to g ive the cr editor a c hance to corre ct any usury violation. Id. I f the violation is corre cted, the c reditor avoids liabili ty
. Id. I n co mpl ianc e wi th se c tio n 305 .0 06 (d ), the tr ia l court iss ue d anor de r a batin g the c a se fo r 6 0 d ay s and

re qu ir ingS& K t o p ay

B a ir Cha se $6 ,0 00 in atto rn e y ’s fe e s. During the abate ment period, S&K paid the attorney ’s fee s as require d by t h e trial court’s or der a

nd sent Ba ir Chase a corr ective- action letter decla ring that the $100,000 note and the g uara nty ag ree ment executed in conne ction wi t h i t we re void. The letter a lso voided two other ag ree ments that had been ex ecute d in relation to the notes: (1) a n assig nment of member ship and ri g ht o f f ir st r e fu sa l betwe e n BC PC and S& K re la tin g to a pr ivate g olf and re sid e nc e c lub that B CPC intended to de velop, and (2) a participation a g ree ment betwee n S&K and PI P Ma nag ement, L .P., involving a mineral interest in Australia. In connec tion with the $1.4 mil lion note, the corr ectiveaction letter

provided a

corr ecte d pay off sheet de tailing the r emaining principal a nd interest due a

nd
cre diting B air Chase with previous pay ments made. S&K then f

iled an ame nded petition, seekingto rec over the unpaid amounts due
un de r t he $1 .4 mil lio n n ote and g ua ra nty , a s we ll a s a

tr a dit ion a l mo tio n f

or su mma ry jud g me nt w ith
re sp e c t to br e a c h of the $1 .4 mil lio n no te and a no -e vid e nc e mot ion fo r s umm ary

jud g me nt o n B a ir Ch ase’ s u su ry

cou nt ercl aim . T he t ri al c ou rtgrant ed t he mot io ns and rend ered ju dgmen t th at S &K
rec over actua l da

mag es of $1,608,263.78, repr esenting amounts due under the $1.4 million not e and4

g uara nty as of F ebrua

ry 8, 2007, plus $50,000 in attorney ’s fees. Ba ir Chase’s moti on for new trial
was ove rruled by

operation of law, and this appe al followed.

STA ND AR

D O F RE VI EW Summary judgme nts are r eviewe d de novo. Va le nc e Opera ti ng Co. v . D or se tt , 164 S.W .3d 656, 661 (Tex. 2005). To preva il on a traditional motion for summary judgme nt, the
mov ant m

us t sh owtha

t th e re is no is su e of mate ri a l f a c t and that it is e nti tle d to jud g me nt a s a matter of la

w. TX Far W

est, Ltd. v. Texas Inv

s. Mgmt., Inc

. , 127 S
. W
. 3 d 2 9 5 , 3 01 (Tex. App.—Austin 2004, no pet.). Evidence favor able to the non-movant is taken as true and eve ry
re a s o n a b l e i n f e r e n c e m u s t b e i n d

u l g e d i n f

a v o r o f t h e n o n - m o v an t an d an y d o u b t s r e s o l v e d in its favor. Id. A no -ev ide nc e mot ion fo r s umm ary

jud g me nt m

us t be g ra nte d if the mov ingpa

rt y
asser ts that there is no evide nce of one or more essential elements of a c laim or defe nse on which the non-movant would have the bur den of pr oof at trial, and the nonmovant fails to produce more tha n a sc int ill a of su mma ry -j ud g me nt e vid e nc e ra isi nga g e nu ine iss ue of

materia l f

a c t on tho se
e le me nts . T e x. R. C iv. P. 1 66 a (i ); Cox Tex. Newspapers, L.P. v . Penick , 219 S.W .3d 425, 432-33 (Tex. App.—Austin 2007, pet. denied).

Reasonable attorney ’s fe es ar e re cover able in a suit for brea ch of c ontrac t. See Te x. Civ . Pr a c . & R e m . C o d e A n n . § 3 8
. 0 0 1 ( 8 ) ( W e s t1 9 9 7 )
. T h e d e t e r m i n a t i o no f

r e a s o n a b le attorney ’s fee s is a question for the trier of fac t. Stewart Ti tle Guar. Co. v. Sterling , 822 S.W .2d 1, 12 (T e x. 19 91 ). Th e a mou nt o f a fe e awa rd re sts in th e so un d disc re tio n o f t he tr ia l c ourt , a

nd its judgme nt will not be rever sed on appe al abse nt a clear abuse of discre tion. Alford v. Johnston ,5

22 4 S
. W
. 3 d 2 9 1 , 2 9 8 ( T e x. A p p . — E l P a s o 2 0 0 5 , p e t
. d e n i e d )
. T h e n e e d t o s e g r e g a te fe e s is a question of law, while the extent to which certa i n cl aim s can or cannot be seg reg ated is a mixed question of law a

nd fac t. Tony Gullo M

otors I, L.P. v. Chapa , 212 S.W .3d 299, 313 (Tex. 2006).
DI SCU SSIO N Original L oan Agreem ent

I n i t s fi rs t issue on appea l, Ba ir Chase a rg ues that the orig inal $1.4 milli on loan ag ree ment betwee n Ba ir Chase and S&K was usurious. Howeve r, in light of our deter mination of Ba ir Chase’s ot h er i s s u es, par ticularly our holding that S&K pr operly corr ecte d the alleg ed usury vio la tio ns purs ua

nt t o s e c tio n 3 05 .0 06 (d ) o f t he finan ce cod e, it is no t ne c e ssa ry fo r t his Court to deter mine whether

the i nitial loan t ransa ction was usurious. See Tex. R. App. P . 47.1 (providing that appellate court ne ed addr ess only those issues nece ssary

to final dispositi on of appe al).
Constit utional Usury Provision

Ba ir Chase’s se cond, third, four th, fifth, and six th issues on a p p eal de al with the usury provisions of the Texas Constit ution. Bair Cha se ar g ues that the Texas Constit ution includes a selfexecuting pr ovision that render s usurious contra cts illeg al and void, but only to the extent that the
c re dit or ha s n o v a lid

c la im f or int e re st a nd a ll p ay me nts are a

pp lie d to th e pri nci pal . Ba ir Cha se further argues that this constitutional voidness is not a “penalty ,” and theref ore se ction 305.007 of the financ e code , which states that the pe nalties provided in the finance code a re the only

penalties available for a

violation of the usury

statute, does not a ffe ct the constitutional voidness doctrine. See Te x. F in. Cod e Ann. § 305 .0 07 (We st 200 6) (“ Th e pe na lti e s pro vid e d by thi s cha pte r ar e the on ly“A c ourt may take judicial notice of .
. . information published in the Texas Reg ister under 1 Section 303.011.” Te x . Fin. Code Ann. § 303.012 ( West 2006). 6 penalties for

violation of this subtitle for c ontrac ting f or, cha rg ing, or rec eiving interest in an amount that produce s a rate in excess of the maximum rate allowed by law. Common law pena lties do not apply .”). A s a result, Ba ir Chase claims that the cure provisi on of sec tion 305.006(d) does not allow S& K t o avo id t

he c on sti tut ion a l vo idn e ss a nd the re fo re , no in te re st i s d ue on the $1 .4 mil lio n n ote
and a ll i nte re st p re vio us ly

pa id s ho uld

be c re dit e d to the pr inc ipa l.
Ar tic le 16 , s e c tio n 1 1 o f t

he Te xas C on sti tut ion

state s:
The L eg islature shall have authority to define inter est and fix max imum rates of interest; provided, how ever , in the absenc e of le g islation fix ing ma x im u m rates of interest all contr acts for

a g reater rate of intere st than ten p er centum (10% ) per annum s ha ll b e de e me d u suri ou s; p ro vid e d, fu rt he r, that in

c on tr a c ts w he re no rate of intere st is agr eed upon, the rate shall not exceed six per centum (6% pe r annum).
Tex. Cons t. art. XVI , § 11.

As a uth or ize d b y

th e C on st it ut io n, th e le gisl atu re ha s fi x ed m ax im um ra te s o f i nte re st. See Te x. F in. Cod e Ann. § 302 .0 01 (We st 200 6) (s e tti ng ma ximumrate a t 10 % e xce pt a s o the rw ise provided by

law), § 303.001 ( West 2006) ( allowing parties to c ontrac t f or interest rate s that do not exceed r ate c eilings c reated by chapte r 303 of the financ e code) , § 303.011 (West 2006) (providing that c on su me r c re dit

c omm iss ion e r s ha ll s e nd rate c e ili ngs to se c re tary of state fo r p ub lic a tio n in Texas Reg ister). On J uly 15, 2005, the rate ceiling established by the consumer cre dit commissi oner was 18%. N otice of Rate Ceil i n gs , 30 Tex. Reg. 4148 ( 2005). Fur thermore , the financ e code 1 imposes a m inimum rate ceiling of 18% per y ear . Tex. Fin. C ode Ann. § 303.009(a) ( West 2006).7 Ba i r C h as e a s s er t s t h at t h e u s u ry p rovi sion of the Texas Constitutio ni s s el f- ex ec u t i n g, making all usurious contra cts illega l a nd void a s to inter est, and that such voidness is an independe nt
c on se qu e nc e fr om t

he us ur y pe na lti e s p ro vid e d b y

the fi na nc e c od e . We a g re e that T e xas c ourt s have historica lly treated t he constit utional prohibition on usury as a se lf-executing provision. See, e.g. , Hemphill v. W

atson , 6 0 T e x. 67 9, 68 1 ( 18 84 ); Ha tri dg e v . Home L if e & Ac c ide nt I

ns . Co ., 246 S.W .2d 666, 668 (Tex. Civ. App.—Dallas 1951, no writ) (“ [A] fore said constitutional provision is s e lf -e xec uti ngon ly

to t he e xten t of

re nd e ri ngill e g a l a ll u suri ou s c on tr a c ts. ” ); W att s v. Mann , 187 S.W .2d 917, 925 (Tex. Civ. App.—Austin 1945, writ ref’d)
.

Rely ing pr imarily

on Allee v. Benser , 7 79 S.W. 2d 61 (T e x. 19 88 ), B a ir

Cha se a sse rt s that the self- executing c onstitut ional pro v i s i o n remains unaffe cted by the cur rent usury

penalties provided in the fina

nce c ode. The Texas Supreme Court held in Allee that a junior lienholder ha d
n o s t an d i n g t o as s er ta b o rr o we r’ s s t at u t o ry cl ai m fo r u s u ry

i no rd er t o d ef

ea ta s en i o r l i en , s t at i n g:
Since a c onstitut ional provision s t i l l ex pressly condemns usury , if the re newa l contra ct wer e to collect usurious interest, that portion of the contra ct would be illeg al an d v o id
. We d o n o t d e c id e an d e xp r e s s ly

d o n o t p r e c lu d e th e [j u n io r lienholder] from asse rting on rema

nd that constitutionally void usur ious inter est was c ollected that must be applied ag ainst the principal indebte dness of the note
. . . . The pre sent state of the [junior lienholder’s] pleading s would not allow such a r emedy , so we do not decide e ither whe ther such a “common law” usury

doctrine is viable.
Id. at 65 (c itations omi tted).

Significa ntly , the court in Allee specific ally ref ers to constitutionally

void usurious interest as “ a ‘c ommon law’ usury doctrine.” Id. After

the Allee opinion was i s s u ed, the Texas L e g is latu

r e e n a c te d arti c le 1 F
. 0 0 7 o f th e T e xa s Cr e d it T it le in 1 9 9 7 , e xp r e s s ly s ta ting thatSee Act of A pr. 2 3 , 1 9 9 9 , 7 6th L eg ., R.S., ch. 62, § 7.18(a), 1999 Te x . Gen. L aws 234, 2 254. Other jurisdictions have noted that re medies pursua nt to self-executing constitutional 3 provisions a

rise under common law. See Spac kman v . Board of Educ. , 16 P.3d 533, 538 (Utah 2000) (holding that “cour

t’s ability to awar d damag es for violation of a self-e x ecuting provision r ests on the common law” ); Swi

ft &Co. v . Ci ty

of N e wpo rt N e ws , 52 S.E. 821, 8 2 4 (V a. 1906) (“So that when the pr ovision of a Constitut ion .
. . points out no reme dy , and no statute a ffor ds one, . . . the pr ov isi on is s e lf -e xec uti ng , a

nd the c omm on

law, wh ic h p ro vid e s a

re me dy fo r e very wro ng , w ill 8 common law penalties no longe r apply
. See Act of June 2, 1997, 75th L eg ., R.S., ch. 1396, § 1, 1997 Tex. Gen. L aws 5214. Article 1F.007 w as re codified in 1999 as sec tion 305.007 of the 2 financ e code , which states, “ The pe nal t i es p ro vided by this chapter a

re the only

penalties for violation of this s ubtitle for contra cting for, c harg ing, or rec eiving interest in an amount that produce s a rate in excess of the maximum rate all o we d b y law. Common law penalties do not ap ply .” (Empha sis added).

B e fo re c omm on

law p e na lti e s w e re e xpre ssl y e xclu de d b y

se c tio n 3 05 .0 07 a nd

its prede cessor

statute, the statutory

penalty and the se lf-executing constitutional penalty of re ndering usurious interest void and a pply ing it to re duce the principal we re r ecog nized as indepe ndent
cause s of ac tion. Se e Su

gg v . S mi th , 205 S.W
. 363, 374 (Tex. Civ. App.—Austin 1918, writ ref ’d). Howeve r, the issue of a

pply ing void inter est t o re duce pr incipal was c hara cter ized as a common law cla im. See A llee , 7 79 S.W. 2d a t 65 (r e fe re nc ingc on te nti on that c on sti tut ion a lly

vo id usurious interest must be applied a g ainst principal as “ ‘common l aw ’ usury doctrine” ); Danziger v. San J

acinto Sav. Ass’n , 732 S.W .2d 300, 304 (Tex. 1987) (holding that appe llants were
e nti tle d to pr e va il on “c omm on law cl a im fo r re tur n of al l inte re st pa id a

nd c anc e llatio n o f i nte re st not y et paid” be cause usurious contrac t is unenforc eable as to interest). 3furnish the a ppropriate action for

the re dress of suc h g rieva nce.” ). 9 Fur thermore , courts that have rec og nized a cause of ac tion under the self -executing constitutional provision emphasized that, at that time, the leg islature had not spe cifica lly fore closed constitutional relief whe n enac ting statutory penalties for

usury . See Sugg , 2 0 5 S
. W
. at 3 7 2 (s t at i n g, in response to a

rg ument that usury penalty statute impliedly fore closed c onstitut ional relief , that “we fi nd no thi ng in the langua g e of the statut e wh ic h n e c e ssa ri ly re qu ir e s su c h c on str

uc tio n” ); se e als o Hardwick v. Austin Gallery of Oriental Rugs, Inc. , 779 S.W .2d 438, 448 (Tex. App.—Austin 1989,
wr it d e nie d) (o p. on re h’ g ) ( “ No thi ngin t hat [us ur y ] statut e e vid e nc e s a

le g isl a tiv e int e nti on

to supplant the common-law reme dy ”). I n 1997, howeve r, the leg islature spec ifically fore closed such relief by enac ting what is now section 305. 0 0 7 o f the fina nce c ode, expressly

stating that the
s t a tu t o r y p e n a l t i e s f

o r u s u r y ar e e x c l u s i v e an d

t h a tc o m m o n

l aw p e n a l t i e s n o l o n g e r

a p p l y. B a ir Cha se argue s th a t th e c omm on law usury do c tr ine a pp lie s o nly

to s itu a tio ns in which a bor

rowe r has a lrea dy

paid more tha

n enoug h to pay back the principal a nd seeks the r eturn of intere st alre ady paid. W hile case law does disting uish betwee n a common law r ight of restitution and the c onstitut ional voidness penalty , compare Hardwick , 779 S.W .2d at 448 (holding that “[t] he amount of usury

paid is rec overa

ble at common law in a

n action for equitable r estitution” based on theory that usury

is money

fra udulently had and r ece ived), with Danziger , 732 S.W .2d at 304 (upholding “common law c laim for re turn of all intere st paid and ca ncellation of i n t er es t n o t y et pa id” be c a

us e us ur iou s c on tr a c t is un e nf or c e a ble a s to inte re st) , this dis tin c tio n doe s n ot l e a d u s to conclude that the leg islature, in ena cting section 305.007, intended to for eclose the common law penalty of the re turn of usurious intere s t al re ady paid, y et did not intend to forec lose theBa ir Chase’s arg ument also fails base d on the lang uag e of the applicable cure provision, 4 section 305.006(d) , which states, “A cre ditor who corr ects a violation as provided by this subsection is not liable to an obligor for the violation.” See Tex. Fin. Code Ann. § 305.0 06(d) ( West 2006) (empha sis added). Nothing in se ction 305.006(d) sug g ests that t h e cr ed itor who cure s an alleg ed usury violation is l imited only

to avoiding the sta tutor

y pe na lti e s f

or us ur y , b ut r e ma ins su

bje c t to other pe nalties, such as the constitutional voidness doctrine. A s commentators have noted, “ [T] he better r easone d position i s that the cure p ro cedur es ar e ef fec tive as to all usury

claims[,] g iven, a mon g oth e r c on sid e rations , th e ‘c omp re he ns ive ’ n a tur e of the us ur y statut e sin c e its inc e pti on in 1967, the rule of

strict construction, and th e p o l i cy of promoting cure s, not discourag ing c ures.” Dan L . Nicew ander

et. al., Texas Usury Law Handbook § 22.1 (2d ed. 2005)
. 10 constitutional pe n al t y t hat all intere st paid or pay able unde r a usur ious contrac t is forfeited by the
c re dit or and mus t be a

pp lie d to re du c e the pr inc ipa l. B e c a us e the se lf

-e xec uti ngc on sti tut ion a l pr ov i s i o n r e n d e r i n g u s u r i ou s c on tr a c ts v oid as to interest c onstitut es a c ommon law penalty that is now prec luded by section 305.007 of the financ e code , we hold that the $1.4 million note is not voi d as to interest unde r the c on s t i t u t i o n al voidness doctrine. As a re su lt, B a ir

Cha se ’s se c on d, thi rd , f ourt h, fi ft h, and

sixth 4 issues are overr

uled. Effect of S&

K’s Corrective Ac tion B a ir Cha se argue s, in its se ve nth , e ig hth , n int h, te nth , a nd e le ve nth iss ue s o n a

pp e a l, that S&K ha s not successf ully corr ecte d the alleg ed usury violation. S& K, in i ts ef

fo rt s to cor

re c t any a lle g e d usury vio la tio ns , p re se nte d B a ir Cha se wi th
a cor rec ted payoff she et, cha

rg ing 18% per y ear

compounded inter est on all ac cr u ed i ntere st and pr inc ipa l a ft e r d e fa

ult on the $1 .4 milli on no te . B a ir Cha se a sse rt s th a t S& K h a s n ot s uc c e ssf ull y
c or re c te d th e a lle g e d us ur

y vio la tio n be c a

us e thi s c or

re c te d pa y of f sh e e t de mand s in te re st i n e xce ss of wh a t th e law allo ws . As pr e vio us ly no te d, the rate c e ili nge sta bli sh e d b y

the c on su me r c re dit11

c omm iss ion e r w a s 1 8% a t th e tim e the tr ans a c tio n wa s e nte re d int o o n July 15 , 2 00 5. No tic e of

Ra te Ce ili ng s, 30 Te x. Re g . 41 48 (2 00 5)
. F ur the rm or e , b e c a

us e the fi na

nc e c od e imp os e s a

min imum r a te ceiling of 18%, the ma x imum rate allowe d by law would not have fallen be low 18% throug h the d u ra t i o no f B ai r C h as e’ s co rr ec t edp ay o ff s h ee t , wh i ch d et ai l s am o u n t s o we d t h ro u gh Fe bruar y 8, 2007. See Tex. Fin. Code Ann. § 303.009(a) (West 2006)
. Whil e the corr ecte d pay off sheet doe s not, o n i t s fac e, excee d the maxim um lawful rate of 18%, B air Chase argues that compounding the intere st on an annua l basis cause s the ac tual rate to exceed the maxi mum lawful rate
.

“ [I ]nte re st w hic h h a s al read y lawf ull y ma tur e d, may , to g e the r w ithpr inc ipa l, there afte r bea

r intere st at the hig hest lawful r ate.” Bo thw ell v. Fa rm e rs & Me rc hs . S

tat e Bank & Trust Co. , 30 S.W .2d 289, 291 (Tex. 1930). When interest is compounded, “ [p] ast due or ‘mature d’ intere st becomes a new a nd independe nt debt for which additional interest may be cha rg ed at the maximum lawful rate.” Pentico v . Mad-W ayler, Inc

. , 964 S. W
. 2 d 7 0 8 , 717 (T e x. Ap p. —Co rp us Chr ist i 19 98 , pe t. d e nie d) . E ve n w he n a de bt b e ars the hig he st r a te of int e re st allowed by law, a stipulation that both a ccr ued interest and principal shall bear interest at t he highe st rate a fter maturity is not usurious. Crider v. San Antonio Real Estate Bldg. & Loan Ass’n , 35 S.W . 1047, 1048 (Tex. 1896).

Ba ir Chase a

rg ues that the intere st charg ed in t he pre sent ca se is “true ” compound interest, as oppose d to the char g e of simple intere st u p o n matured inter est, and ther efor e any authorit i es fo r t h e propositi on that interest may bear interest at the hig hest lawful r ate a re inapplicable. T exas c ourts have, at times, disting uished simple interest upon mature d interest fr om true c omp o u n d i n tere st, in which acc rued inter est is added pe riodically to the principal. SeeBa ir Chase c ites to a treatise stating that while some jurisdictions do not pe rmit overdue 5 interest to bea

r intere st, othe rs “hold overdue installments of interest bear simple inter est on failure to make pay

ment as stipulated. . . . This r ule does not pe rmit true compounding of interest such a s occur s when a ccr

ued intere st is added t o the principa l. . . . Texas follows the latter view.” 13 Tex. J ur. 3d In te re

st o n O v e rd

ue In te re st § 38 (1993). This tre atise wa s cited in Spiller v. Spiller , 901 S. W. 2 d 5 5 3 , 5 5 7 ( T e x. A p p . — Sa n A n to n io 1 9 9 5 , w r it d e n ie d ) , w h ic h d e s c r ib e s in d icta the dis tin c tio n be tw e e n inte re st on inte re st an d tru e c omp ound int e re st, no tin g tha

t Bo thw e ll v . F

ar me rs & Merc hs. State Bank &Trust Co. , 30 S.W .2d 289, 291 (Tex. 1930), d o e s n o t s p e c if ic a ll y a u th o r iz e true c ompound interest. The c ourt in Sp ill e r did not hold that a contra ct imposing true c ompound i n t er es to ni n t er es twa s n e c e s s ar i l y u s u ri o u s , n o r h av e w e f

o u n d an y au th o ri t y fo r s u ch a h o l d i n g. Fur thermore , a treatise i s not binding on this Court. Simplex Elec. Corp v. H olcomb , 949 S.W .2d 446, 448 (Tex. App.—Austin 1997, pet. denied). 12 Spiller v. Spiller , 901 S.W .2d 553, 5 5 7 (Tex. App.—San Antonio 1995, writ denied) ( noting that while Bo thw e ll ho ld s th at matur e d in te re st m ay the re a ft e r b e ar i nte re st, “ it d oe s n ot s pe c if ic a lly provide for

the ca lculation of ‘c ompound interest’” ). Bu t se e Sh ob e rg v . S ho be rg , 830 S.W .2d 149, 15 3 ( Te x. Ap p. —H ou sto n [14 th D ist .] 19 92 , n o wr i t ) ( “ A p p e l l a nt c on te nd s th a t in te re st compounde d monthly is usurious. This contention is wit hout merit. I ntere st on past due intere st is not us urious.” (empha sis added)) . Howeve r, while Bo thw e ll do e s sp e c if ic a lly a uth or ize a c ha rg e of sim ple int e re st upon on overdue interest without expli citly addre ssing true compound intere st, 30 S.W .2d at 291, Ba i r C h ase has not provided, nor have we found, any authority

for the pr oposition t hat true
c omp ound int e re st ne c e ssa ri ly re nd e rs a c on tr a c t us ur iou s. See Tex on Energy Corp. v. D ow Chem. 5 Co. , 733 S.W .2d 328, 331 (Tex. App.—Houston [14t h Dist.] 1987, writ ref ’d n.r.e.) (upholding parties’ ag ree ment to compound interest monthly in event of de fault). There fore , while prior c ases have dis tin g uis he d tr

ue c omp ound ingint e r e s t

f r om a c ha rg e of sim ple int e re st u

po n matur e d in te re st, we f ind, for purpose s of S&K’ s corr ective a ction in t h e prese nt case , that this is a dist inction without a differ ence .13 Ba ir Chase fur

ther a rg ues that S&K may not c ompound interest bec ause the parties did not expressly ag ree to do so. Howeve r, t he note contains an express provision allowing f or the compounding of intere st, stating, “A ll past due principal and/or interest shall bear interest fr om and afte r maturity

at a r ate e qual to the lesser of (a ) eig hteen perc en t (1 8 %) p erannum or (b) the Ma ximumRa te .” B a ir

Chas e takes the po sit ion that th is l angua g e me re ly pr ov ide s f

or sim ple interest on ac crue d interest, dis t i ng uishable fr om “true” compound intere st, as discussed above
. Howeve r, we must give la ng uag e in a c ontrac t its pl ain meaning and construe it to avoid rende ring
an y l an guag e mea

ningle ss. See Northern Natural Gas Co. v. Conoco , 986 S.W .2d 603, 606 (Tex. 1998) (op. on re h’g ). The $1.4 milli on note spec ifically states that “pa st due principal a nd/or int e re st s ha ll b e ar i nte re st from an d a fte r ma tur ity” (e mph a sis a dd e d) . F ur the rm or e , w e mus t presume that the parties intende d to enter into a le g al contra ct, validating the contra ct as nonusurious if rea sonably

possible. See W

alker v . Temple Trust Co. , 80 S.W .2d 935, 936-37 (Te x . 1935). B ased
o nt h e p l a i nl an g u a g e o f t h e n o t e s t a t i n g t h a t i n t e r e s t s h a l l b e ar i n t e r e s t “ f r o m an d a f t e r ” m a tu r i t y, we hold that the pa

rties unambig uously

ag ree d that interest on p as t due intere st would be
c on tin uo us ly inc ur re d o n th a t in te re st af

te r ma tur ity , so that any pa st due int e re st w ou ld b e a dd e d to the principal. Ba ir Chase’s construction would rende r the wor ds “fr om and af ter” meaning less and
wo uld de fe a t the pr e su mpt ion that the pa rt ie s a g re e d to a no nu suri ou s c on tr a c t. A s a re su lt, we ho ld that the par

ties expressly

ag ree d to compound interest. I n ad di ti on to th e is su es r egardi ng com po un d i nt eres t, Bair C has e con ten ds th at S &K failed to take sufficie nt c orre ctive action under section 305.006(d). The statute does no t p ro v i de g uidance on how a c reditor may corr ect a n alleg ed usury

violation. However , “[u] sury statutes arePagel v. W hatley , 82 S.W .3d 571, 577 (Tex. App.—Corpus Christi 2002, pet. denied), wa s 6 cited with appr oval by this Court in Stras bu rg e r E nte rp ris es v . TD GT L td. Pa rtn e rsh ip , 110 S.W .3d 566, 576-77 (Tex. A

pp.—Austin 2003, no pe t.). Howe ver, the holding in Stras bu rg e r was ba sed on the cred i t o r’s failure to prope rly notify the obligor

of the usury

violation as require d by section 305.103 of t h e fi n an ce code, see Tex. Fin. Code Ann. § 305.103 (West 2006), and the re is no discussion in Stras bu rg e r of any particula r m easur es t hat must be taken in orde r to sufficie ntly cure an alleg ed usury

violation. See id. at 577. In re Kem

per , 263 B.R. 773, 783 (B ankr. E.D. Tex. 2001), also noted that a cor rec tion of 7 a usury v i o l at i o n under se ction 305.103 of the fina nce c ode must be ac companied by an acknow ledg ment of the e x i s t en ce of such violation. B eca use S&K ’s cor

rec tive action wa s taken u n d er s ec t i o n 3 0 5
. 0 0 6 , ra t h er t h an s ec t i o n 3 0 5
. 1 0 3 , t h e re qu i re m en t t h at t h e c re d i t o r a ck n o wl ed ge the exist ence of a usur

y violation is i napplicable to the prese nt case
.

14 penal in natur e and, a s a re sult, t h ey m u s t b e strictly construed in suc h a wa y as to g ive the lender the bene fit of the doubt.” Fi rst Sta te Ba nk

v . D or st , 8 43 S.W. 2d 79 0, 79 4 ( Te x. Ap p. —A us tin 19 92 , w ri t de nie d) . Wh ile B a ir Cha se c ite s Pagel v. W hatley , 8 2 S. W. 3 d 5 7 1 , 577 (Tex. App.—Corpus Christi 2002, pet. denied) , in w hich a c reditor c ured a lleg ed usury violations by deleting all interest cha

rg es and dem an d i n g o n l y the principa l amount due, nothing in Pagel indicates that such me asure s are required in order to suc cessf ully take c orre ctive ac tion. A fe dera l 6 ba nk ru ptc y c ou rt app ly ingTe xas l aw h a s su g g e ste d th a t c or re c tio n o f a

us ur y vio la tio n is
a c c omp lis he d b y

“ the a dju stment or

c or re c tio n r e qu ir e d in

or de r t o b ri ngthe tr ans a c tio n in to compliance with the applicable usury standard.” In re Kem

per , 263 B.R. 773, 78 3 (Bankr. E.D
. T e x. 2001). As previously discussed, the a

pplicable usury

standard at all times relevant to the 7 transac tion at issue was a ma x imum int ere st rate of 18%. We hold that the actions of S &K in the present case demonstrate suf ficient c orre ctive
a c tio n to a vo id l ia

bil ity un de r se c tio n 30 5. 00 6( d)
. I n its a tte mpt to c ur e the a lle g e d u sury

vio la tio ns , S&K de clar ed void the $100 , 000 note and a pplicable guara

nty ag ree ment, the assig nment of15

membership and r ight of

first ref usal, and the participation a g ree ment. I n addition, S&K cr eate d a
corr ecte d payoff she et, which applied all pay ments previously made by Ba ir Chase to out standing interest and pr incipal due unde r the $ 1
. 4 milli on note and imposed a n interest rate of 18%—the maxi mum rate a llowed by law—on all princ ipal and ac crue d interest. I n light of the fac t that the cure provisions should be favor ably construed so a s to encoura g e cur es, see I n re CPDC, Inc. , 337 F.3d 43 6, 44 2 ( 5th

Cir . 2 00 3) (“ Th e Te xas l e g isl a tur e int e nd e d c ur e pr ov isi on s in the us ur y statut e to
enco urage s elf

-cor rect io n b y

len ders of k no wn u su ry vi ol ati on s . . . .” ), w e ho ldth at S &K
succe ssfully

cure d the alleg ed usury

violations by

limit ing its dema

nd for inter est to 18% o n the $1.4 milli on note. B air Chase ’s seve nth, eig hth, ninth, tenth, and eleventh issues a re ove rruled.
RetroactiveNature of Finance Code Sec tion 305.006( d) I n its twelfth and thirteenth issues, B air Chase argue s t h at S &K could not take
co rr ec t i v e a ct i o nu n d er

s ec t i o n3 0 5
. 0 0 6 (d ) o f t h e f i n an ce co d e b ec au s e t h e a m en d m en tal l o wi n g a
c re dit or to a vo id lia

bil ity by takin g c or

re c tiv e a c tio n wh e n a de bto r fi le s a us ur y c ounte rc la im did not take ef

fec t until S eptember

1, 2005, wh i l e t h e allege d usurious transac tion took place in J uly 2005. Court s g e ne ra lly

pr e su me that an ame ndme nt t o a statut e a pp lie s p ro sp e c tiv e ly

un le ss it is expressly

made r etroa ctive. See Te x. Go v’ t Co de Ann. § 3 11 .0 22 (We st 2 00 5) ; In theIn te re st
o f M

. C.C. , 1 8 7 S
. W
. 3d 383, 384 (Tex. 2006). Howe ver, this g ener al rule f or prospe ctive op erat io n do e s n ot a

pp ly to a statut or y a me ndme nt t

hat is me re ly

pr oc e dura l or

re me dia l. State v. Fidelity &Deposit Co. of Md. , 223 S.W .3d 309, 312 n.2 (Tex. 2007).16 I n Jim W

alter Homes, In c. v. Gibbens , 608 S.W .2d 706, 711 (Tex. App.—San Antonio 1980, writ ref ’d n.r.e .), the c ourt held that a “ cure provision” adde d to the Texas Consumer Credit Code b y amendment in 1977 wa s “re medial and c urative in nature,” and should be applied re troac tively to allow a cr editor to cure a violation of the code that occur red pr ior to t he a me ndme nt.

The c ure pr ovision at issue in J im W alte r H om es stated: A per son has n o liability

to an obligor

for a violation of this S ubtitle or of Chapter 14 of this Title if within 60 day s after having actua lly

discovere d such violation such person c orre cts such violation as to suc h obligor by perf orming the require d duty

or act or by ref unding a ny amount in excess of that authorized by law.
Tex. Rev. Ci v. Stat. Ann. art. 5069-8.01( c)( 1) (West 1987) (r epea led 1997).

T h e c o u rtn o t e d t h a t s t a tu t o r y a m e n d m e n t s ar e n o t o r d i n ar i l y a p p l i e d r e t r o a c t i v e l y, but stated that the ame ndment, being reme dial and cur ative in nature , should be “libera lly construed to acc omplish [ its] purpose o f re m ed y ing the problem under the old law.” Jim W

alter Homes , 608 S.W .2d at 711. The co u rt h el d t h at wher e the a ppellant’s cur e ac tion took place af ter the
a me ndme nt’ s e ff

e cti ve dat e, th e a

pp e lla nt s uc c e ssf

ull y c ur e d it s v iol a tio n o f t

he c on su me r c re dit code, e ven thoug h the t ransa ction at issue was e ntere d into before the cur e provision was e nacte d. Id. at 710-11. The leg islatur e’ s intent in passing the c ure pr ovision at issue in Jim W alter Homes
was to a ll o w c r e d it o r s to r e me dy p a s t v io lati o n s an d r e li e v e th e ms e lv e s o f s tr ic t p e n a lties. Id. Simi larl y , th e le g isl a tur e ’s int e nt i n e na c tin g se c tio n 3 05 .0 06 ha s b e e n c ha ra c te ri zed a s an i nte nt t o17

“enc ourag e self- corr ection by lender s o f k n o wn us ury violations so that they

could avoid being sued.” In re CPDC , 337 F.3d at 446.

J im W alter H om es is analog ous to the prese nt case , in that the transac tion at issue took place pr ior to the amendme nt, but the cure action—which w oul d al l o w S &Kto avoid a potential usury

violation—took place afte r the e ffe ctive date of the amendment. As a g ener al rule, a dete rmination of whethe r a c ontrac t is usurious is made a ccor ding to the usur y statutes in effe ct at the time the usurious transa ction took place. Se e Stras bu rg e r E nte rs. v . TD GT L td. P’

sh ip , 11 0 S.W.3 d 566 , 5 73 n. 8 ( Te x. Ap p. —A us tin 20 03 , n o p e t.) ; Do mi

zio v . P ro gr essi v e Cou nty Mu t. Ins. Co. , 54 S.W. 3d

86 7, 87 2 n .2 (T e x. Ap p. —A us tin 20 01 , p e t. d e nie d) . H ow e ve r, Te xas c ourt s have not y et specific ally addre ssed whethe r the amendment to 305.006(d) should be a pplied
re tr oa c tiv e ly

to i nc lud e tr ans a c tio ns that to ok pla c e pr ior

to Sep te mbe r 1, 200 5. Whil e it i s a c los e
case , we hold that the a

mendment to 305.006( d) was reme dial and curative in nature a nd there fore app lies retroa ctively . As a re sult, S &K was not prohibited fr om taking c orre ctive ac tion under 305.006(d). B air Chase ’s twelfth a nd thirteenth issues ar e over ruled. Attorney’s Fe es

I n it s f ourt e e nth iss ue on a pp e a l, B a ir

Cha se argue s th a t S& K is no t entitle d to
re imb ur se me nt fo r a tto rn e y ’s fe e s inc ur re d in re la tio n to the c ounte rc la im f or us ur y . Si mil arl y , in its fi ft e e nth

iss ue , B a ir

Cha se argue s th a t S& K is n ot e nti tle d to any fe e awa rd , d ue to i ts f a ilure to seg reg ate r ecove rable fee s from unre cover able f ees. The $1.4 mil li o n

n o te p rovided for

the re cover

y of S&K ’s “c ollection costs, including
a re asonable amount for attorney ’s fe es,” in the event of default, and the gua ranty ag ree ment related18

to t he $1 .4 mil lio n note c on ta ine d a sim ila r p ro vis ion . S& K r e qu e ste d atto rn e y ’s fe e s o n th e ba sis of these c ontrac tual provisions. See Tex. Civ. Prac. & Rem. Code Ann. § 38.001(8) (W es t 1 997) (providing that attorney ’s fe es ar e recove rable for breac h of written or oral contra ct). An a war d of
a tto rn e y ’s fe e s to a

pla int if f r e c ov e ri ngon

a va lid c la im f ound e d o n a

writte n o r o ra l c on tr a c t is mandatory , while a de termination of the amount of a rea sonable fee awa rd is up to the tria l court’s discretion. Se e Al

for d , 224 S.W .3d at 298. A par ty seekingattorney ’s fe es has a duty to seg reg ate the f

ees inc urre d in pursuing claims for which fe es ar e re cover able f rom those in which they

are not. W

est Beac h Marina, Ltd. v. Erdeljac , 94 S. W.3 d 2 48 , 2 67 (T e x. Ap p. —A us tin 20 02 , n o p e t.) . S& K s ta te s in its br ie f t hat it “wa s not require d to seg reg ate its fee s beca use S&K ’s contra ct cl ai m and Appe llants’ usury counter claim wer e inextricably in t ertwine d.” Howe ver, the Texas Supreme Court has held that intertwined fa cts alone do not re lieve a pa rty of the duty

to seg reg ate a

nd that “it is only

when di scr ete le g a l se rv ic e s a dv anc e bo th a re c ov e ra ble and un re c ov e ra

ble c la im t

hat th e y a re so intertwined that they

need not be seg reg ated.” Chapa , 212 S.W .3d at 313-14. While a par ty ’s fa ilure to seg reg ate does not prec lude re cover y of attorne y ’s fe es, “a

n unseg reg ated damag es aw ard r equire s
a re mand.” Id. at 314.

S& K a rgue s that it is no t re qu ir e d to se g re g a te a tto rn e y ’s fe e s be c a us e S& K h a d to defe at Ba ir Chase’s usury claim in order to pr evail on its contrac t claim. See Varner v. Cardenas , 21 8 S. W.3 d 6 8, 69 (T e x. 20 07 ) ( ho ldi ngthat f e e s incurre d in s uc c e ssf

ull y de fe nd inga g a ins t counter claim in order

to collect full amount of note need not be seg reg ated) . Howeve r, unlike the plaintiff in Varner , S&K did not succ essfully defe nd ag ainst Ba ir Chase’s c ounterc laim, but inst ead19

too k c or re c tiv e a c tio n in

or de r t o avo id l ia

bil ity fo r u sury . B e c a

us e S&K ’s a tto rn e y ’s e ff or ts i n
c or re c tin g the all ege d u sury

vio la tio n c ann ot b e c ha

ra c te ri zed a s su c c e ssf

ull y de fe nd inga g a ins t a counter claim, we hold that S& K was r equire d to seg reg ate its attorney ’s fees. Ther efor e, we rema nd fo r t he purp os e of

de te rm ini ngthe a mou

nt o f a tto rn e y ’s fe e s th a t S& K i nc ur re d in pursui ngits contra ct claim, excluding a ny fee s incurre d in corre cting the alleg ed usury violations. Ba ir Chase’s fourtee nth issue is sust ained.

Ba ir Ch a s e ’ s f

if te enth issue—that S&K is not entitled to any claim for r eimbursement for attorney ’s fe es bec ause of its failure to seg reg ate—is overr uled. The prope r re medy

for a failure to seg reg ate f

ees is r emand for an opportunity to seg reg ate, r ather

than denial of

the fe e aw ard. See Chapa , 212 S.W .3d at 314. Standing For

the first time at ora l argument, S&K c ontended that Bar field and Wester n Property , as g uara

ntors, lack s t an ding to a ssert a c laim for usury . The issue of sta nding ma y be raised f or the fir st tim e o n ap p eal. Austin Nurs ing Ctr., Inc. v . Lo v ato , 171 S.W .3d 845, 849 (Tex. 2005). As a matter of Texas law, a

g uaran t o r d o es n o t have sta nding to a ssert a usur

y
c a u s e of ac tion. E l Paso Refining, Inc. v. Sc urlock Pe rmian Corp. , 77 S.W .3d 374, 384 (T e x. Ap p. —E l Pa so 20 02 , p e t. d e nie d) (o p. on re h’ g ). B arf

ie ld a nd Wes te rn Pr op e rt y argue that th is rule doe s not apply

beca use they are not making a

claim for pe nalties under the usury statutes, but
are merel y ra i s i n g a def

ense that the contra ct was usur ious and that there fore no interest is owed. Howeve r, “Te x as law doe s not permit a g uara ntor to es ca pe its obligation by asser ting a usuryB e c a us e we a ff ir m th e tr ia l court ’s su mma

ry jud g me nt in favo r of S& K on the c ounte rc la im 8 for usury , our dete rmination that Ba rfield a nd Western Property

lack s t anding to pursue the c ounte rc la im d oe s n ot a ff e c t th e dis po sit ion

of thi s a pp e a l. 20 defe nse base d on a usurious principal obligation.” Ginsberg 1985 Real Estate P’ ship v. Cadle Co. , 39 F.3d 528, 534 (5th Cir. 1994)
. A usury defe nse is persona l to the debtor and ma y not be asser

ted by a g u ar an to r u n le s s th e g u ar an ty a g r e e me n t a ls o c o n ta in s th e u s u r io u s p r o v is io n , w h ic h h a s not been a rg ued in the present case . See id. ; Houston Sash & Door Co. v. Heane r , 577 S.W .2d 217, 222 (Tex. 1979). As a result, Ba rfield a nd Western Property , as g uara ntors, lack standingto assert the
c o u n t e r c l a i m f

o r u s u r y. 8
CO NC LU SION Be cause we ha

ve dete rmined that the trial c ourt did not er r i n g ranting summary judgme nt, we af

firm the trial c ourt’s orde r g rantin g summary judgme nt. The aw ard of

attorney ’s fe es in favor of

S&K is re verse d and re manded f or a de termination o f t h e appropriate a mount of the
awa rd af ter fe es incurr ed in cor

rec ting the al l ege d usury violations are se g reg ated f rom the fe es inc ur re d in purs uin g S& K’ s r e c ov e ra ble c la im.

_______________

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _____ Diane M. H enson, Jus tice Be fore J ustices Patterson, Pury ear and He nson Affir med in part; Rever sed and Rema nded in par

t Filed: June 5, 200821