*Local Rule 47.5 provides: "The publication of opinions that

have no precedential value and merely decide particular cases on

the basis of well-settled principles of law imposes needless

expense on the public and burdens on the legal profession."

Pursuant to that Rule, the Court has determined that this opinion

should not be published.

UNITED STATES COURT OF APPEALS

For the Fifth Circuit

No. 94-60831

Summary Calendar

C.C. PORT, LTD., A TEXAS LIMITED PARTNERSHIP, 

and WEIL PROPERTIES, INC.,

Plaintiffs-Appellants,

VERSUS

DAVIS-PENN MORTGAGE COMPANY,

FEDERAL NATIONAL MORTGAGE ASSOCIATION and FANNIE MAE,

Defendants-Appellees.

Appeal from the United States District Court

For the Southern District of Texas 

(C-94-182)

(June 1, 1995)

Before REYNALDO G. GARZA, SMITH, and WIENER, CIRCUIT JUDGES.

REYNALDO G. GARZA, CIRCUIT JUDGE:*

This is a usury case. Before this Court is the issue of

whether a prepayment penalty is usurious. For the reasons

discussed below we affirm.
 

1Davis-Penn and Fannie Mae will be referred to collectively as

the "Lender."

2

On August 22, 1991, Appellants C.C. Port, Ltd. and Weil

Properties, Inc. (collectively, the "Borrower") executed the MultiFamily Note (Note) in the amount of $3,288,500.00 payable to DavisPenn Mortgage Company (Davis-Penn). Davis-Penn promptly assigned

the Note to the Federal National Mortgage Association (Fannie

Mae).1 The Note was secured by a Deed of Trust on the Kingston

Port Apartments located in Corpus Christi, Texas and provided for

an interest rate of 10.875 percent. The Note provided for a

maturity of fifteen years, with repayment to take place in monthly

installments:

The principal and interest shall be payable .

. . in consecutive monthly installments of

THIRTY-ONE THOUSAND SIX AND 94/100 Dollars

(U.S. $31,006.94) on the first day of each

month beginning October 1, 1991, (herein

"amortization commencement date"), until the

entire indebtedness evidenced hereby is fully

paid, except that any remaining indebtedness,

if not sooner paid, shall be due and payable

on September 1, 2006.

The Note also provided that the Borrower may prepay the entire

unpaid principal balance upon providing the Lender sixty days prior

written notice and upon payment of a prepayment premium to be

calculated by a formula provided in the Note.

The Borrower sought to prepay the entire unpaid principal.

Upon request, the Lender calculated the prepayment premium on the

unpaid principal balance to be $1,174,538.09. Unwilling to tender

the prepayment premium, the Borrower filed suit on March 4, 1994 in

the 94th Judicial District Court of Nueces County, Texas. On April
3

22, 1994, the Lender removed the case to the district court under

12 U.S.C. § 1723a(a) and Article III of the Constitution of the

United States. On the 27th day of October, 1994, the district

court granted the Lender's motion to dismiss.

Discussion

This case was decided below upon motions to dismiss under Rule

12(b)(6) of the Federal Rules of Civil Procedure. This Court

reviews de novo a district court's dismissal on the pleadings,

accepting as true those well-pleaded factual allegations in the

complaint. Guichy v. Bank of LaPlace, 954 F.2d 278, 281 (5th Cir.

1992). Taking the facts alleged in the complaint as true, if it

appears certain that the plaintiff cannot prove any set of facts

that would entitle it to the relief it seeks, affirmance is in

order. Scheur v. Rhodes, 416 U.S. 232, 236 (1974); Benton v.

United States, 960 F.2d 19, 21 (5th Cir. 1992).

The Borrower's sole basis for its usury claim is premised on

the assertion that the prepayment premium is interest.

Accordingly, we limit our review to this single issue. Interest is

defined under Texas law as "compensation for the use, forbearance

or detention of money." Tex. Rev. Civ. Stat. Ann. art. 5069-1.01

(Vernon 1987). The essential elements of a usury transaction are

(1) a loan of money; (2) an absolute obligation to repay the

principal; and (3) the exaction of a greater compensation than

allowed by law for the use of the money by the borrower. Nijarro

v. Sasi Int'l, Ltd., 904 F.2d 1002, 1005 (5th Cir. 1990), cert.
 

2This doctrine, which the Borrower conveniently labels the

"perfect tender in time" rule, provides that "[a] debtor cannot,

before the maturity of his debt, compel his creditor to accept

payment, and a tender before maturity is without effect." Bell v.

Mast, 7 S.W.2d 102, 104 (Tex.Civ.App.--Beaumont 1928, writ dism'd

w.o.j.).

4

denied, 498 U.S. 1048 (1991); Holey v. Watts, 629 S.W.2d 694, 696

(Tex. 1982).

Under Texas law, a borrower has no right to prepay a loan in

the absence of a contract permitting it.2 Parker Plaza West

Partners v. Unum Pension & Ins. Co., 941 F.2d 349, 352 (5th Cir.

1991); Groseclose v. Rum, 860 S.W.2d 554, 557 (Tex.App.--Dallas

1993, no writ); Ware v. Traveler's Indem. Co., 604 S.W.2d 400, 401

(Tex.Civ.App.--San Antonio 1980, writ ref'd n.r.e.). Where the

contract grants the borrower the right to prepay, a prepayment

premium is not compensation for the use, forbearance, or detention

of money, rather it is a charge for the option or privilege of

prepayment. Parker Plaza, 941 F.2d at 352; Hettig & Co. v. Union

Mut. Life Ins. Co., 781 F.2d 1141, 1145 (5th Cir. 1986); Bearden

v. Tarrant Sav. Ass'n, 643 S.W.2d 247, 249 (Tex.App.--Fort Worth

1982, writ ref'd n.r.e.); Boyd v. Life Ins. Co. of the Southwest,

546 S.W.2d 132, 133 (Tex.Civ.App.--Houston [14th Dist.] 1977, writ

ref'd). The rationale for this rule is that the borrower may avoid

paying the prepayment premium by paying the note according to its

terms.

The Borrower presents two arguments for the proposition that

the prepayment premium is usurious interest. First, the Borrower

contends that the Lender is not entitled to perfect tender in time
5

because the contract to accept payment over time is illusory.

Second, the Borrower contends that the prepayment premium is

usurious because it is involuntarily payable upon "act of Lender."

We find both arguments to be meritless.

The Borrower focuses on a portion of a clause in the Note,

contending that the contract to accept payment over time is

illusory. The clause provides, in full, as follows:

From time to time, without affecting the

obligation of the undersigned or the

successors or assigns of the undersigned to

pay the outstanding principal balance of this

Note and observe the covenants of the

undersigned contained herein, without

affecting the guaranty of any person,

corporation, partnership or other entity for

payment of the outstanding principal balance

of this Note, without giving notice to or

obtaining the consent of the undersigned, the

successors or assigns of the undersigned or

guarantors and without liability on the part

of the holder hereof, the holder thereof may,

at the option of the holder hereof, extend the

time for payment of said outstanding principal

balance or any part thereof, reduce the

payments thereon, extend the time for payment

of said outstanding principal balance or any

part thereof, reduce the payments thereon,

release anyone liable on any of said

outstanding principal balance, accept a

renewal of this Note, modify the terms and

time of payment of said outstanding principal

balance, join in extension or subordination

agreement, release any security given herefor,

take or release other or additional security,

and agree in writing with the undersigned to

modify the rate of interest or period of

amortization of this Note or change the amount

of the monthly installments payable hereunder.

The Borrower contends that the language "without giving notice or

obtaining the consent of the undersigned . . . the holder hereof

may . . . modify the terms and time of payment of said outstanding
6

principal balance. . ." gives the Lender the right to modify the

time and terms of payment. Using terms such as "absolute right to

modify," "absolute control over the time and terms of payment," the

"untrammelled right to modify the time and terms of repayment,"

"the right to modify the repayment terms of the note at will"

"absolute discretion in modifying the terms of repayment," and "the

right unconditionally to modify the time and terms of repayment,"

the Borrower likens the Note to a demand note -- the Borrower

contends that the repayment provisions are illusory because the

Lender can alter the time and manner of payment. The Borrower's

illusory argument can be summarized in the following syllogism:

because the Lender can alter the time and manner of payment, the

Lender retains no right to demand perfect tender in time; because

the Lender cannot demand perfect tender in time, a prepayment

premium is not consideration for giving up this right and is

therefore interest. 

We disagree. First, the Borrower cites no federal or Texas

authority in support of its proposition that a prepayment premium

is usurious in a situation even remotely similar to the case sub

judice. Second, the Borrower mischaracterizes the language of the

Note. "A mortgage is governed by the rules which apply to

interpretation of contracts. Parker Plaza, 941 F.2d at 352

(quoting Meisler v. Republic of Texas Saving Assoc., 758 S.W.2d

878, 885 (Tex.App.--Houston [14th Dist.] 1988, no writ)). Courts,

in construing a contract, review the entire agreement in order to

determine its meaning; courts should not consider a single
7

provision in isolation. Tennessee Gas Pipeline Co. v. F.E.R.C., 17

F.3d 98, 102 (5th Cir. 1994). Moreover, under Texas law, there is

a specific presumption against a finding of a usurious interest.

Federal Deposit Ins. Corp. v. Claycomb, 945 F.2d 853, 860 (5th Cir.

1991), cert. denied, 112 S.Ct. 2301 (1992). "In construing the

loan documents, we must ascertain and give effect to the objective

intention of the parties as expressed in the written instruments.

. . . We must presume that the parties intended to obey the law

unless the contrary plainly appears." Woodcrest Ass'n, Ltd. v.

Commonwealth Mtg. Corp., 775 S.W.2d 434, 438 (Tex.App.--Dallas

1989, writ denied). Therefore, applying the same standard as the

court below, we must look at the contract as a whole and presume

that the parties intended to obey the law. 

Contrary to the Borrower's assertions, the Lender may not

demand payment before the due date. Neither the language of the

Note nor the law contemplates such an interpretation. When the

clause is read in its entirety and in context to the other

provisions in the Note it becomes apparent that the Note is payable

at a definite time. The clause, of which the Borrower quotes only

selected portions, insures that persons such as guarantors or

general partners of the Borrower are not released in the event

payment terms are extended, payments are reduced, or collateral

released. The clause was placed in the Note to allow the Lender

some flexibility in dealing with a borrower who cannot make

payments or requests that certain collateral be released. The

benefit of this clause flows to the Borrower. If this clause were
 

3Relevant to this analysis is the scenario of the Lender

attempting to construe this language as empowering it to demand

payment or change the terms of payment in such a way as to harm the

Borrower. If that were the case, we would be unable to entertain

such a construction.

 

4The portion provides: "and agree in writing with the

undersigned to modify the rate of interest or period of

amortization of this Note or change the amount of the monthly

installments payable hereunder."

 

5This Court, under facts properly raising this issue, rejected

this argument in Parker Plaza, 941 F.2d at 352. 

8

redacted from the Note the Lender would be unable to extend the

time for payment, resulting in a default, acceleration, and

foreclosure when the Borrower falls on bad times. We recognize the

commercial realities of this situation and refuse to construe the

Note in such a way as to do injustice to the parties' intentions.3

Furthermore, the last portion of the clause states clearly that in

order to modify the rate of interest or the period of amortization

or change the amount of the monthly installments, the Lender must

obtain the undersigned's written agreement.4 Lastly, the terms of

the Note support the Lender's construction and our interpretation.

The Note states that it is for a term of fifteen years and provides

for acceleration of the principal and interest only upon default.

Reading the clause in its entirety and in context to the other

provisions of the Note reveals clearly the intentions of the

parties and the futility of the Borrower's position.

The Borrower's argument that a prepayment premium due upon

"act of Lender" somehow converts the premium into interest is

similarly without merit. The Lender has taken no "action"

whatsoever. Therefore, this issue is not before this Court.5 The
9

decision of the court below is AFFIRMED.