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Opinion issued August = 2, 2007=20




















In=20 The

Court of=20 Appeals

For=20 The

First=20 District of Texas


NO. 01-05-01113-CV

__________


C&K=20 INVESTMENTS, KEN D. PARR A/K/A KENNETH DARWIN PARR, SR., CORINE = THORNTON=20 PARR, AND PARR FAMILY LIMITED PARTNERSHIP D/B/A C&K = INVESTMENTS,=20 Appellants


V.


FIESTA GROUP, INC., Appellee


On = Appeal=20 from the 189th District Court

Harris County, Texas

Trial Court=20 Cause No. 2001-64877



O = P I N I O=20 N

Appellants/cross-appellees,=20 C & K Investments, Ken D. Parr also known as Kenneth Darwin = Parr, Sr.,=20 Corine Thornton Parr, and Parr Family Limited Partnership doing = business=20 as C & K Investments (the "Partnership") (collectively "the = Parr=20 defendants"), challenge the trial court's judgment, rendered after = a jury=20 verdict, awarding appellee/cross-appellant, Fiesta Group, Inc. = ("Fiesta"),=20 damages and attorneys' fees for the Parr defendants' contracting = for,=20 charging, and receiving usurious interest in violation of the = Texas=20 Finance Code.=20 (1) =

In nine=20 points of error, the Parr defendants contend that the evidence is = legally=20 and factually insufficient to support the jury's findings that the = Partnership and Ken and Corine, as general partners, contracted = for,=20 charged, or received usurious interest; the judgment of $92,245.23 = against=20 the Partnership and Ken and Corine for charging usurious interest = in=20 violation of section 305.001 of the Finance Code; the judgment of = $101,400=20 against the Partnership and Ken and Corine for charging and = receiving=20 usurious interest in violation of section 305.002 of the Finance = Code; the=20 judgment of $238,178.46 against Ken for contracting for usurious = interest=20 in violation of section 305.001 of the Finance Code; and the trial = court's=20 conditional award of appellate attorneys' fees to = Fiesta.

In its=20 first two cross-issues, Fiesta contends that its wrongful = foreclosure=20 claim was a separate cause of action for compensatory damages and = not=20 cumulative of its usury claim and that the trial court erred in = dismissing=20 its wrongful foreclosure claim without giving it the opportunity = to amend=20 its pleadings. In its third cross-issue, Fiesta contends that it = "is=20 entitled to the statutory post-judgment interest rate."

We affirm=20 in part, reverse and render in part, and reverse and remand in = part.=20

Factual and Procedural = Background

Fiesta sued=20 the Parr defendants for usury and wrongful foreclosure, alleging = that Ken=20 made two loans to Fiesta and that Ken required Fiesta to return a = portion=20 of the loan proceeds upon funding "as a condition" of making the = loans.=20 The loans were secured by properties owned by Fiesta and were = evidenced by=20 separate notes. Ken eventually assigned the notes to the = Partnership.=20 Fiesta later defaulted, and the Partnership accelerated the notes = and=20 foreclosed on Fiesta's properties. In its usury claim, Fiesta = alleged that=20 the Parr defendants "contracted for, charged and/or received = interest and=20 other charges" in excess of the amount authorized by law. Fiesta = sought=20 statutory penalties for the Parr defendants' violation of the = Finance=20 Code.

The trial=20 court dismissed Fiesta's wrongful foreclosure claim, and Fiesta's = usury=20 claim was tried to a jury. The basic facts relevant to this = appeal, which=20 were established by the testimony of Ken Parr and Nicholas Rocha, = Fiesta's=20 president, and other documentary evidence presented at trial, are = largely=20 undisputed. On December 30, 1999, Ken made the first of two loans = to=20 Fiesta, evidenced by a "balloon note" of the same date. The note, = with an=20 interest rate of 18%, was executed by Rocha on behalf of Fiesta = and=20 payable to Ken, the principal amount was $174,000, and the = original term=20 was December 30, 1999 to December 30, 2004. It required monthly = payments=20 of $2,802.13, beginning on January 30, 2000 and ending in a = balloon=20 payment on December 30, 2004, and the loan was secured by a deed = of trust=20 in multiple properties owned by Fiesta.

On February=20 3, 2000, Ken made the second of two loans to Fiesta, evidenced by = a "real=20 estate lien note" of the same date. The note, with an interest = rate of=20 18%, was executed by Rocha on behalf of Fiesta and payable to Ken, = the=20 principal amount was $101,400, and the original term was February = 3, 2000=20 to February 3, 2007. It required monthly payments of $1,632.97, = beginning=20 on March 3, 2000 and ending in a balloon payment on February 3, = 2007, and=20 the loan was secured by a deed of trust in multiple properties = owned by=20 Fiesta.

Following=20 each closing, Fiesta began making payments to Ken on each loan. On = April=20 18, 2000, Ken assigned both notes to the Partnership, whose = general=20 partners were Ken and Corine. After the assignment, Fiesta = defaulted on=20 both loans. The Partnership sent Fiesta a notice of default and=20 acceleration. Fiesta did not cure the default, and, on December = 11, 2000,=20 the Partnership sent Fiesta a notice of acceleration. The = Partnership=20 accelerated the maturity of both notes and provided notice of = foreclosure.=20 As stated in the Parr defendants' answers to interrogatories, = which were=20 introduced into evidence, the Parr defendants claimed that on the = date of=20 acceleration, the principal due on the first note was $172,593.03, = plus=20 interest of $11,409.76, and that the principal due on the second = note was=20 $100,702.49, plus interest of $6,458.42. Trustees deeds, which = were=20 introduced into evidence, established that the properties secured = by the=20 first and second notes were sold at a public sale on May 1, 2001, = and that=20 the sales proceeds equaled the balances due on both notes. Ken = maintained=20 a record of the payments made by Fiesta under each loan, which was = introduced into evidence. Ken's record showed that Ken credited = Fiesta's=20 payments against the full face amount of the principal. =

The=20 specific evidence giving rise to the usury claims was disputed at = trial.=20 Rocha testified that as a condition for both loans, Ken told him = that "he=20 would charge [] 18%" and that "it would be a 10% fee for him to do = the=20 deal." Rocha, who stated that he was confused by the condition for = the 10%=20 fee, questioned why he was required to "giv[e] back ten," but = ultimately=20 agreed to the condition in light of his need for funds. Ken = described the=20 payments as a "fee," "commission," or "equity." The first loan = closed on=20 December 30, 1999, and, in light of the front-end payments, Rocha = received=20 only "a portion" of the principal. Pursuant to Ken's condition, = Rocha=20 instructed the title company to make two checks in the amount of = $9,000=20 each, for a total of $18,000. Rocha then endorsed the checks "over = to" Ken=20 and gave them to him. Consequently, Fiesta actually received only = $156,000=20 of the $174,000 stated principal of the loan. When Rocha asked Ken = how he=20 planned to cash the checks, Ken told him that he had connections = at the=20 bank. Fiesta introduced into evidence copies of both $9,000 = checks, which=20 were dated December 30, 1999, and made payable to and endorsed by = Rocha.=20

In regard=20 to the second loan for $101,400, Rocha testified that he and Ken = followed=20 a similar course of conduct. As "a prerequisite to the deal," Ken = "wanted=20 10% back under the table." At the second loan's closing on = February 3,=20 2000, Rocha had the title company make two checks in the amount of = $5,070=20 each, for a total of $10,140. Rocha then endorsed these checks and = gave=20 them to Ken. Consequently, Fiesta actually received only $91,260 = of the=20 $101,400 stated principal of the loan. The $5,070 checks, which = were also=20 both introduced into evidence, were dated February 3, 2000, and = made=20 payable to and endorsed by Rocha.

Contrary to=20 Rocha's testimony, Ken denied receiving the front-end payments at = the=20 closings. Ken agreed, however, that Rocha's endorsement and Ken's = bank=20 account numbers appeared on the back of the checks and that the = checks=20 were cashed or presented at Ken's bank shortly after the closings. = However, Rocha testified that the bank account numbers did not = appear on=20 the checks at the closings and that he had no knowledge of Ken's = bank=20 account numbers. Fiesta asserted, thus, that Ken's bank account = numbers=20 were placed on the checks by or at the direction of Ken and that = Ken=20 received the proceeds from the checks. Ken also agreed that he was = familiar with banking regulations requiring banks to take certain=20 reporting measures if checks in excess of $10,000 are cashed. = Fiesta used=20 this admission to suggest that Ken intentionally structured the=20 transactions to avoid reporting the payments.

Although=20 the parties presented conflicting testimony on the occurrence of = the=20 front-end payments, on appeal, Ken does not challenge the jury's = finding=20 that "as a condition to making the loans" he "request[ed] and = receive[d]=20 the proceeds" from all four checks. The record established that, = despite=20 these "front-end" payments, Fiesta made its monthly payments in = accordance=20 with the terms of the notes and that Ken and the Partnership = credited=20 Fiesta's monthly payments against the full face amount of the = notes. The=20 record further established that as a result of its foreclosure on = Fiesta's=20 properties, the Partnership received all amounts due on the notes, = including unpaid principal and interest, based on the full face = amount of=20 the notes and without any credit for the front-end = payments.

At the=20 conclusion of the trial, the jury found that Ken requested and = received=20 the proceeds from the checks "as a condition to making the loans," = the=20 loans were accelerated on December 11, 2000, and Ken, both = individually=20 and as a general partner, and the Partnership contracted for, = charged, or=20 received interest greater than the amount authorized by law. Based = on=20 these findings, the trial court determined, as a matter of law, = the=20 applicable statutory usury penalties and the amounts of those = penalties.=20 See Duggan v. Marshall, 7 S.W.3d 888, 892 (Tex. = App.--Houston=20 [1st Dist.] 1999, no pet.) ("When usury is properly pleaded and = supported=20 by the evidence, then the measure of damages is a matter of law, = and the=20 court has the duty to apply the proper measure of damages."). The = trial=20 court signed a final judgment awarding Fiesta (1) $238,178.46 from = Ken for=20 "contracting for" usurious interest in violation of section = 305.001, (2)=20 $92,245.23 from the Partnership, Ken, and Corine, jointly and = severally,=20 for "charging" usurious interest in violation of section 305.001, = and (3)=20 $101,400 from the Partnership, Ken, and Corine, jointly and = severally, for=20 "charging" and "receiving" usurious interest in violation of = section=20 305.002.

Standard of=20 Review

We will=20 sustain a legal sufficiency or "no-evidence" challenge if the = record shows=20 one of the following: (1) a complete absence of evidence of a = vital fact,=20 (2) rules of law or evidence bar the court from giving weight to = the only=20 evidence offered to prove a vital fact, (3) the evidence offered = to prove=20 a vital fact is no more than a scintilla, or (4) the evidence = establishes=20 conclusively the opposite of the vital fact. City of Keller v. = Wilson, 168 S.W.3d 802, 810 (Tex. 2005). In conducting a = legal=20 sufficiency review, a court must consider evidence in the light = most=20 favorable to the verdict, and indulge every reasonable inference = that=20 would support it. Id. at 822. If there is more than a = scintilla=20 of evidence to support the challenged finding, we must uphold it.=20 Formosa Plastics Corp. USA v. Presidio Eng'rs & = Contractors,=20 Inc., 960 S.W.2d 41, 48 (Tex. 1998). "When the evidence = offered to=20 prove a vital fact is so weak as to do no more than create a mere = surmise=20 or suspicion of its existence, the evidence is no more than a = scintilla=20 and, in legal effect, is no evidence." Ford Motor Co. v. = Ridgway,=20 135 S.W.3d 598, 601 (Tex. 2004) (quoting Kindred v. Con/Chem,=20 Inc., 650 S.W.2d 61, 63 (Tex. 1983)). However, if the = evidence at=20 trial would enable reasonable and fair-minded people to differ in = their=20 conclusions, then jurors must be allowed to do so. City of=20 Keller, 168 S.W.3d at 822; see also King Ranch, Inc. v.=20 Chapman, 118 S.W.3d 742, 751 (Tex. 2003). A reviewing court = cannot=20 substitute its judgment for that of the trier-of-fact, so long as = the=20 evidence falls within this zone of reasonable disagreement. = City of=20 Keller, 168 S.W.3d at 822.

In=20 conducting a factual sufficiency review, we must consider, weigh, = and=20 examine all of the evidence that supports or contradicts the = jury's=20 determination. Plas-Tex, Inc. v. U.S. Steel Corp., 772 = S.W.2d=20 442, 445 (Tex. 1989); London v. London, 192 S.W.3d 6, = 14-15 (Tex.=20 App.--Houston [14th Dist.] 2005, pet. denied). We may set aside = the=20 verdict only if the evidence that supports the jury's finding is = so=20 contrary to the overwhelming weight of the evidence as to be = clearly wrong=20 or unjust. Cain v. Bain, 709 S.W.2d 175, 176 (Tex. 1986); = Steinberg v. Comm'n for Lawyer Discipline, 180 S.W.3d = 352, 355=20 (Tex. App.--Dallas 2005, no pet.); Nip v. Checkpoint Sys., = Inc.,=20 154 S.W.3d 767, 769 (Tex. App.--Houston [14th Dist.] 2004, no=20 pet.).

Usury

The=20 essential elements of a usurious transaction are "(1) a loan of = money, (2)=20 an absolute obligation to repay the principal, and (3) the = exaction of a=20 greater compensation than allowed by law for the use of the money = by the=20 borrower." Anglo-Dutch Petroleum Int'l, Inc. v. Haskell, = 193=20 S.W.3d 87, 96 (Tex. App.--Houston [1st Dist.] 2006, pet. denied). = "Usury=20 statutes are penal in nature and should be strictly construed."=20 Id. "The purpose of the usury statute is to penalize = those who=20 intentionally charge an interest in excess of that allowed by = law."=20 Pentico v. Mad-Wayler, Inc., 964 S.W.2d 708, 714 (Tex.=20 App.--Corpus Christi 1998, pet. denied). "When construing a = contract under=20 a usury claim, courts presume the parties intended a nonusurious=20 contract." Anglo-Dutch Petroleum Int'l, Inc., 193 S.W.3d = at=20 96.

Contracting=20 for Usurious Interest

In their=20 sixth and seventh points of error, the Parr defendants argue that = the=20 trial court erred in entering the judgment in the amount of = $238,178.46=20 against Ken for contracting for usurious interest in violation of = section=20 305.001 because the evidence is legally and factually insufficient = to=20 support the judgment as the two notes are not usurious on their = face and=20 contain usury savings clauses. The Parr defendants assert that, in = light=20 of the fact that the usury claims arise from Ken's receipt of fees = and=20 commissions, this case should be considered "a charging or = receiving=20 case." Alternatively, the Parr defendants assert that the amount = of=20 interest contracted for was not properly "spread" and that the = interest=20 should have been spread through the date of the foreclosure sale = rather=20 than the date of the loans' original maturity. They suggest, thus, = that=20 the award should be reduced to $87,773.76.

The Parr=20 defendants dispute only the sufficiency of the evidence to support = the=20 third element, i.e., the exaction of usurious interest. The = Finance Code=20 defines "interest" as "compensation for the use, forbearance, or = detention=20 of money" and "usurious interest" as "interest that exceeds the = applicable=20 maximum amount allowed by law." Tex. Fin. Code Ann. =A7 = 301.002(a)(4), (17)=20 (Vernon 2006). The parties agree that 18% was the maximum interest = rate=20 allowed by law, and the jury was instructed that "the rate of 18% = is the=20 maximum rate allowed by law." See id. =A7 303.009 = (Vernon=20 2006).

The Finance=20 Code provides various penalties and remedies for contracting for,=20 charging, or receiving usurious interest. See id. =A7=A7 = 305.001-.105=20 (Vernon 2006). The version of section 305.001 in effect at the = time of=20 trial stated,

(a) A=20 creditor who contracts for, charges, or receives interest that is = greater=20 than the amount authorized by this subtitle is liable to the = obligor for=20 an amount that is equal to the greater of:


(1) three=20 times the amount computed by subtracting the amount of interest = allowed by=20 law from the total amount of interest contracted for, charged, or=20 received; or



(2) $2,000=20 or 20 percent of the amount of the principal, whichever is=20 less.

Act of=20 April 23, 1999, 76th Leg., R.S., ch. 62, =A7 7.18, sec. 305.001, = 1999 Tex.=20 Gen. Laws 127, 233 (amended 2005) (current version at Tex. Fin. = Code Ann.=20 =A7 305.001 (Vernon Supp. 2006)) [hereinafter referred to as = former section=20 305.001].=20 (2)=20

Here, the jury = found that=20 Ken requested and received the proceeds from the checks "as a = condition to=20 making the loans," and Ken has = not=20 challenged the sufficiency of evidence to support this finding. In = regard=20 to the first loan, Jay Dale, a certified public accountant, = explained=20 that, using the $156,000 actually received by Fiesta as the "true=20 principal" of that loan, which Dale derived after subtracting the=20 front-end payments to Ken from the $174,000 face value of the = first note,=20 the amount of interest that would have accrued over the stated = term of the=20 first loan on the true principal, from December 30, 1999 to = December 30,=20 2004, calculated at the stated and maximum lawful interest rate of = 18%,=20 would have been $123,663.81. See Jordan v. Aston, 798 = S.W.2d 17,=20 19-20 (Tex. App.--Houston [1st Dist.] 1990, no writ) ("The true = principal,=20 the amount upon which a transaction is tested for usury, is the = actual=20 amount of which the borrower had the use, detention, or = forbearance.").=20 (3)=20 Dale=20 further explained that using the $174,000 face value of the = principal of=20 the first loan, the amount of interest that would have accrued = over the=20 stated term of the loan on the face amount, calculated at the = stated=20 interest rate of 18%, would have been $167,642.12. As further = noted in=20 exhibits presented into evidence and as explained in Dale's = testimony, the=20 difference between the interest contracted for based on the face = amount of=20 principal of the first note and the interest calculated based on = the true=20 principal of the note was $43,978.31. Dale testified that when the = true=20 principal of $156,000 is used as the actual value of the loan, the = effective interest rate spread over the full term of the loan was=20 23.85%.

In regard=20 to the second loan, Dale testified that using the $91,260 actually = received by Fiesta as the "true principal" of that loan, which = Dale=20 derived after subtracting the front-end payments to Ken from the = $101,400=20 face value of the principal of the second note, the amount of = interest=20 that would have accrued over the stated term of the loan on the = true=20 principal, from February 3, 2000 to February 3, 2007, calculated = at the=20 stated lawful maximum interest rate of 18%, would have been = $93,287.84.=20 Dale explained that using the $101,400 face amount of the = principal of the=20 second note, the amount of interest that would have accrued over = the=20 stated term of the loan on the face amount, calculated at the = interest=20 rate of 18%, would have been $128,702.71. As noted in exhibits = presented=20 into evidence and as explained in Dale's testimony, the difference = between=20 the interest contracted for based on the face value of the = principal of=20 the second note and the interest calculated based on the true = principal of=20 that note was $35,414.87. Dale testified that when the true = principal of=20 $91,260 is used as the actual value of the loan, the effective = interest=20 rate spread over the full term of the loan was 22.88%.

We hold,=20 based on the finding that Ken requested and received the proceeds = from the=20 four checks that Rocha endorsed over to him "as a condition to = making the=20 loans" and the above evidence, including Dale's testimony that the = effective interest rates on both loans exceeded 18% and Dale's=20 calculations and exhibits, that the evidence is both legally and = factually=20 sufficient to support the trial court's final judgment of = $238,178.46=20 against Ken for contracting for usurious interest in violation of = section=20 305.001(a)(1). The trial court made this award pursuant to section = 305.001=20 by multiplying, by three times, the difference between the total = amount of=20 interest actually contracted for on both loans and the amount of = interest=20 allowed by law. See former section 305.001(a)(1). = Accordingly, we=20 further hold that the trial court did not err in entering judgment = against=20 Ken in the amount of $238,178.46.

The Parr=20 defendants argue that because the notes are non-usurious on their = face,=20 the evidence supporting this penalty is legally or factually = insufficient.=20 However, the Texas Supreme Court has indicated that when an = otherwise=20 non-usurious note is accompanied by a condition to pay a fee or = commission=20 that effectively reduces the net amount of money actually loaned, = usury=20 may result. See First State Bank of Bedford v. Miller, = 563 S.W.2d=20 572, 575 (Tex. 1978); Nevels v. Harris, 129 Tex. 190, = 196, 102=20 S.W.2d 1046, 1049 (1937).

In=20 Miller, a lender agreed to loan $70,000, conditioned on = the=20 borrower's agreement to leave $14,000 of the loan proceeds in a=20 non-interest bearing account "under escrow or freeze" to cover the = first=20 two years' interest payments. 563 S.W.2d at 573. Although the = condition=20 apparently was not contained in the note itself, it was reflected = in the=20 loan work sheet and was supported by other evidence. Id. = The=20 supreme court recognized that "[i]f the true principal sum of the = loan had=20 been $70,000, the [] interest charge would not have been = usurious."=20 Id. at 575. However, the court recited the "well = established=20 rule" that "the test for usury [should] be applied to the net = amount of=20 money of which the borrower had use, detention or forbearance."=20 Id. The court further stated, "in cash loan transactions = from=20 which the lender deducts interest, fees, commissions or other = front-end=20 charges, the amount of dollars actually received or retained by = the=20 borrower is held to be the 'true' principal" and that "[i]n such = cases the=20 amount of the stated principal is reduced accordingly in testing = for=20 usury." Id. (citation omitted); see also Gibson v. = Drew=20 Mortg. Co., 696 S.W.2d 211, 212-13 (Tex. App.--Houston [14th = Dist.]=20 1985, writ ref'd n.r.e.). The supreme court calculated the = difference=20 between the maximum lawful yield on the face value of the loan and = the=20 yield on the true principal and affirmed an award of usury = penalties=20 against the lender for "contracting for" and "charging" usurious = interest.=20 Miller, 563 S.W.2d at 575. Similarly, in Nevels, = the=20 stated amount of a note was $6,400, but the lender withheld $320 = as a fee=20 for making the loan. 129 Tex. at 196, 102 S.W.2d at 1049. The = supreme=20 court considered the "actual principal" of the loan of $6,080 in=20 determining whether the interest charged was usurious. 129 Tex. at = 196-97,=20 102 S.W.2d at 1049.

As in=20 Miller and Nevels, although the notes in the = instant=20 case were non-usurious on their face, Fiesta presented evidence = that the=20 loans were conditioned on the immediate payment of a fee of = approximately=20 10% of the face amount of both loans, thus effectively reducing = the true=20 principal of the loans and increasing the effective interest rate = above=20 the maximum lawful rate of 18%, and resulting in a contract for = usurious=20 interest. In support of their argument that the notes here are not = usurious on their face, the Parr defendants rely on Windhorst = v.=20 Adcock Pipe & Supply, 547 S.W.2d 260 (Tex. 1977), and = Stacks=20 v. E. Dallas Clinic, 409 S.W.2d 842 (Tex. 1966). However,=20 Windhorst and Stacks do not support the Parr = defendants'=20 argument because neither case addresses the payment of a = commission or a=20 fee as a condition to a loan similar to the payments made in this = case.=20 Miller also flatly contradicts the Parr defendants' = argument that=20 the "contracting for" claim against Ken should be "referred to as = a=20 charging or receiving case," because, in that case, the lender was = held=20 liable for contracting for usurious interest based on the lender's = condition to freeze a portion of the face amount of the note. 563 = S.W.2d=20 at 575.

Also, in=20 regard to the Parr defendants' argument that the savings clauses = in the=20 notes preclude the award of damages against Ken for "contracting = for"=20 usurious interest,=20 (4) = we note=20 that Texas courts "have acknowledged the validity of usury savings = clauses=20 and, in appropriate circumstances, enforced such clauses to defeat = a=20 violation of the usury laws." See Armstrong v. Steppes = Apartments,=20 Ltd., 57 S.W.3d 37, 46 (Tex. App.--Fort Worth 2001, pet. = denied).=20 However, the mere = presence of=20 a usury savings clause "will not rescue a transaction that is = necessarily=20 usurious by its explicit terms." Id.; see also Kaplan = v.=20 Tiffany Dev. Corp., 69 S.W.3d 212, 220 (Tex. App.--Corpus = Christi=20 2001, no pet.). This rule prevents a creditor from freely = contracting for=20 usurious interest knowing that for the few debtors who complain, = the=20 creditor will escape penalty by mere reference to a savings clause = and=20 refund of the usurious amounts. Kaplan, 69 S.W.3d at 220. = Furthermore, the effect of a usury savings clause is largely a = question of=20 construing the terms of the clause as a whole and in light of the=20 circumstances surrounding the transaction. Armstrong, 57 = S.W.3d=20 at 46.

Based on=20 these guidelines, we conclude that the savings clauses in the = notes do not=20 preclude judgment against Ken. First, although the notes are not = usurious=20 on their face, Fiesta presented evidence that its payment of fees = to Ken=20 was contemporaneous with the parties' execution of the notes, and = the jury=20 found that Ken conditioned the loans on the payment of these fees. = Fiesta=20 also presented evidence that the checks were signed on the date of = the=20 closings, were endorsed by Rocha, and were negotiated or presented = by Ken=20 shortly thereafter at his personal bank, as demonstrated by Ken's = bank=20 account numbers appearing on the checks. Furthermore, in = considering the=20 surrounding circumstances, we note that Fiesta presented evidence=20 suggesting that Ken structured the transactions with an intent to = avoid=20 reporting the payments. See id. at 47 (stating that = lender cannot=20 avoid consequences of contracting for usurious interest rate = simply by=20 including savings clause in contract). Additionally, there is no = evidence=20 that Ken or the Partnership ever attempted to effectuate the = savings=20 clauses, and they cannot now seek the clauses' protection in this = appeal.=20 Id.

Finally,=20 Ken argues that the amount of interest contracted for was wrongly = "spread=20 over the entire term of the loan" instead of spread through the = date of=20 the foreclosure sale. Section 302.101 provides,

(a) To=20 determine whether a loan secured in any part by an interest in = real=20 property, including a lien, mortgage, or security interest, is = usurious,=20 the interest rate is computed by amortizing or spreading, using = the=20 actuarial method during the stated term of the loan, all interest = at any=20 time contracted for, charged, or received in connection with the=20 loan.



(b) If a=20 loan described by Subsection (a) is paid in full before the end of = the=20 stated term of the loan and the amount of interest received for = the period=20 that the loan exists exceeds the amount that produces the maximum = rate=20 authorized by law for that period, the lender shall:



(1) refund=20 the amount of the excess to the borrower; or


(2) credit=20 the amount of the excess against amounts owing under the=20 loan.



(c) A=20 lender who complies with Subsection (b) is not subject to any of = the=20 penalties provided by law for contracting for, charging, or = receiving=20 interest in excess of the maximum rate authorized.


Tex. Fin.=20 Code Ann. =A7 302.101 (Vernon 2006).

Section=20 302.101 plainly states that interest should be spread throughout = the=20 "stated term of the loan." Id. The claim against Ken = arises from=20 the allegation that he "contracted for" usurious interest. Thus, = Fiesta=20 presented evidence properly spreading the interest under the = stated term=20 of the loans, as those terms existed at the time Ken engaged in = the=20 penalized conduct, i.e., at the time he contracted for the loans. = We see=20 no reason, and we have discovered no authority, to suggest that, = in a=20 contracting claim, it would be proper, to perform a spreading = analysis=20 through the date of a foreclosure sale. That simply is neither = what Ken=20 "contracted for," nor what the language in section 305.001=20 penalizes.

We overrule=20 the Parr defendants' sixth and seventh points of error.=20



Charging=20 and Receiving Usurious Interest



In their = first and=20 eighth points of error, the Parr defendants contend that the = evidence is=20 legally and factually insufficient to support the jury's findings = that the=20 Partnership and Ken and Corine, as general partners, contracted = for,=20 charged, or received usurious interest.=20 (5)=20 In=20 their second and third points of error, the Parr defendants argue = that the=20 trial court erred in entering judgment of $92,245.23 against the=20 Partnership and Ken and Corine for charging usurious interest in = violation=20 of section 305.001 because the evidence is legally and factually=20 insufficient to support the judgment.=20 (6) = In their=20 fourth and fifth points of error, the Parr defendants contend that = the=20 trial court erred in entering the judgment of $101,400 against the = Partnership and Ken and Corine for charging and receiving usurious = interest in violation of section 305.002 because = the=20 evidence is legally and factually insufficient to support the = judgment.=20 (7)

Throughout=20 these points of error, the Parr defendants argue that there is no = evidence=20 or insufficient evidence that the Partnership charged or received = usurious=20 interest because Dale, the certified public accountant who = presented=20 Fiesta's sole calculations and evidence on the amount of interest = charged=20 and received by the Parr defendants, included in his calculations = the=20 interest charged and received by Ken before the loans were = assigned to the=20 Partnership and failed to distinguish between the interest charged = and=20 received by Ken and the Partnership. The Parr defendants assert = that there=20 is no evidence that the Partnership "received any benefit" from = the=20 payments made to Ken before the assignment. They also assert that = Dale=20 should also have made a charging calculation by spreading interest = "through the foreclosure of May 1, 2001," rather than through the = date of=20 acceleration.

As noted=20 above, the version of section 305.001 in effect at the time of = trial=20 stated, in relevant part, that "[a] creditor who contracts for, = charges,=20 or receives interest that is greater than the amount authorized by = this=20 subtitle is liable to the obligor for an amount that is equal to = the=20 greater of: (1) three times the amount computed by subtracting the = amount=20 of interest allowed by law from the total amount of interest = contracted=20 for, charged, or received; or (2) $2,000 or 20 percent of the = amount of=20 the principal, whichever is less." See former section = 305.001.=20 Section 305.002 provides,

(a) In=20 addition to the amount determined under Section 305.001, a = creditor who=20 charges and receives interest that is greater than twice the = amount=20 authorized by this subtitle is liable to the obligor for: =


(1) the=20 principal amount on which the interest is charged and received; = and=20



(2) the=20 interest and all other amounts charged and received. =


Tex. Fin.=20 Code Ann. =A7 305.002 (Vernon Supp. 2006).

In regard=20 to the first loan, Dale testified, supported by exhibits = introduced into=20 evidence, that the total amount of interest that had been charged = from=20 December 30, 1999 to December 11, 2000, the date of acceleration, = based on=20 the full face amount of the principal of the loan, was $47,475.67. = Dale=20 explained that the amount of interest that could have been charged = at 18%=20 based on the true principal of $156,000 was $27,880.29. The = difference=20 between the amount of interest charged during the term of the loan = and the=20 maximum amount that would have been authorized by law was = $19,595.38. Dale=20 stated that the amount of interest charged on the loan, when = applied to=20 the true principal and when spread over the term of the loan, = created an=20 effective interest rate of 35.4%.

In regard=20 to the second loan, Dale testified, supported by exhibits = introduced into=20 evidence, that the total amount of interest that had been charged = from=20 February 3, 2000 to December 11, 2000, the date of acceleration, = based on=20 the full face amount of the principal of the loan, was $25,661.61. = Dale=20 explained that the amount of interest that could have been charged = at 18%=20 based on the true principal of $91,260 was $14,513.58. The = difference=20 between the amount of interest charged during this period and the = maximum=20 amount authorized by law was $11,153.03. Dale stated that the = amount of=20 interest actually charged on the loan, when applied to the true = principal=20 and when spread over the term of the loan, created an effective = interest=20 rate of 36.59%.

Based on=20 the unchallenged finding that the loans were accelerated on = December 11,=20 2000, and the other evidence presented by Fiesta, including Dale's = testimony that the effective interest rates on the true principal = of both=20 loans exceeded 18%, as well as Dale's calculations detailed above, = the=20 trial court signed a final judgment awarding Fiesta, under section = 305.001(a)(1), $92,245.23 for the Partnership's charging of = usurious=20 interest. The trial court arrived at this award by applying the = penalty=20 provisions in section 305.001 and multiplying, by three times, = $30,748.41,=20 which, as Dale testified, is the difference between the total = amount of=20 interest actually charged on the loans and the amount of interest = allowed=20 by law. See former section 305.001. Furthermore, based on = Dale's=20 testimony that the effective interest rate for the second loan was = 36.59%,=20 more than twice the amount allowed by law, the trial court also = awarded=20 Fiesta, under section 305.002, $101,400, for the Partnership's = charging=20 and receiving usurious interest. The trial court arrived at this = figure by=20 awarding Fiesta the full face value of the principal of the second = loan.=20 See Tex. Fin. Code Ann. =A7 305.002.

Assignment of the=20 Loans

In Texas,=20 an assignee of a note may be liable for statutory penalties for = usury if=20 it is shown that the assignee has knowledge or notice that the = interest=20 received and collected was usurious. Fires v. Kinney-Shotts = Inv.=20 Co., 59 S.W.2d 827, 827 (Tex. Comm'n App. 1933, holding = approved);=20 N. Am. Acceptance Corp. v. Warren, 451 S.W.2d 921, 925 = (Tex. Civ.=20 App.--Dallas 1970, writ ref'd n.r.e.); Mossler Acceptance Co. = v.=20 Fields, 241 S.W.2d 255, 256 (Tex. Civ. App.--Fort Worth 1951, = no=20 writ). Thus, to the extent that the Partnership argues that it = cannot be=20 held liable for charging or receiving usurious interest because it = was=20 merely an assignee of the notes, the argument fails. Here, Fiesta=20 presented evidence and the jury found that Ken required the = front-end=20 payments as a condition to making both loans. Based on the = undisputed=20 evidence that Ken and Corine were the general partners of the = Partnership,=20 we conclude that Fiesta presented sufficient evidence that the = Partnership=20 was on notice and had knowledge that Ken required the front-end = payments=20 as a condition of the loans, the true principal of the loans was = less than=20 the amount stated on the face of the notes, the stated interest = rate of=20 18% was not accurate, and the actual interest rate was = substantially=20 higher than the stated, maximum lawful rate. Holding otherwise = would=20 create an opportunity, even when it is clear, as it is here, that = the=20 assignee had knowledge and notice of the usurious nature of the = loans at=20 the time of assignment, to evade statutory usury penalties by = attempting=20 to assign away liability for those penalties.=20 (8) Accordingly, we hold that the evidence is legally = and=20 factually sufficient to support an implied finding that the = Partnership=20 had notice and knowledge that it was charging and receiving = usurious=20 interest by charging and receiving interest on the full face = amount of the=20 notes rather than the true principal of the loans.

We overrule=20 the remaining portion of the Parr defendants' first and eighth = points of=20 error.

Amount of Interest Charged = and=20 Received

In=20 considering the evidence regarding the amount of the interest = charged and=20 received, we note that "contracts are tested for usury by = spreading the=20 interest over the entire term of the contract." = Armstrong, 57=20 S.W.3d at 47 (citing Tanner Dev. Co. v. Ferguson, 561 = S.W.2d 777,=20 786 (Tex. 1977)); see also Tex. Fin. Code Ann. = =A7 302.101(a)=20 (Vernon 2006) (stating that "interest rate is computed by = amortizing or=20 spreading, using the actuarial method during the stated term of = the loan,=20 all interest at any time contracted for, charged, or received in=20 connection with the loan"). This is because usury penalties cannot = be=20 imposed simply because a loan's interest rate exceeds the = statutory limit=20 in a particular year. Pentico, 964 S.W.2d at 714 (citing=20 Tanner Dev. Co., 561 S.W.2d at 787); see also = Groseclose v.=20 Rum, 860 S.W.2d 554, 557 (Tex. App.--Dallas 1993, no writ).=20

Texas=20 courts have defined "spreading" as "a method of allocating over = the life=20 of a loan (or a portion of the loan, in the event the loan = maturity is=20 accelerated or the loan is prepaid) charges that the parties = themselves=20 have called interest or that a court would deem interest = regardless of the=20 label given the charge by the parties." Armstrong, 57 = S.W.3d at=20 47-48 (citations omitted); see also Coppedge v. Colonial Sav. = &=20 Loan Ass'n, 721 S.W.2d 933, 937 (Tex. App.--Dallas 1986, writ = ref'd=20 n.r.e.) ("When prepayment is made, the interest received is spread = over=20 the term during which the borrower actually had use of the funds; = the=20 lender must refund or credit any excess interest to the borrower = to avoid=20 the statutory penalties."); Mims v. Fidelity Funding, = Inc., 307=20 B.R. 849, 859 (N.D. Tex. 2002) (stating that spreading analysis = should be=20 performed by comparing maximum amount of interest for which = creditor is=20 entitled to lawfully contract, charge, or receive through the = acceleration=20 date with total amount of interest actually charged).

Using this=20 analysis, Dale testified that the effective interest rate for the = first=20 loan was 35.4% and that the effective interest rate on the second = loan was=20 36.59%. The Partnership responds that the evidence supporting = Dale's=20 calculations is legally insufficient because he used an improper = loan term=20 and failed to account for the interest charged and received by Ken = prior=20 to the assignment.

We hold=20 that the evidence supporting the amounts of the charging and = receiving=20 penalties is legally insufficient. Here, both notes were assigned = to the=20 Partnership on April 18, 2000, after Fiesta had made multiple = payments to=20 Ken on both notes. These pre-assignment payments, which were both = charged=20 and received by Ken, contained, pursuant to the terms of the = loans, both a=20 principal and an interest component. However, Fiesta failed to = present any=20 evidence of the specific amounts of interest charged and received = by Ken=20 and the Partnership respectively both before and after the = assignment.=20 Fiesta also failed to present evidence on the amounts of interest = both=20 creditors legally could have charged and received respectively. = Section=20 305.001 imposes a penalty upon each creditor who charges usurious = interest=20 on a loan. See former section 305.001(a). Thus, the = amount of the=20 penalty to be imposed against each creditor who charges usurious = interest=20 on a loan, under the plain terms of the statute, is dependent upon = the=20 amount of interest each creditor actually charges and receives. = See=20 id. The amount of interest actually charged and received by = each=20 creditor is therefore critical to the calculation of the = appropriate=20 amount of the penalties to be imposed on the violating creditor. = See=20 id.

As the=20 judgment currently stands, the penalty imposed against the = Partnership=20 (and its general partners) for charging usurious interest in = violation of=20 section 305.001(a) is calculated based on the full amount of = interest=20 charged over the life of the loans by multiple creditors; it does = not in=20 any way account for the fact that Ken also charged interest on the = loans.=20 Without evidence attributing the amount of interest charged by = Ken, there=20 is no evidence under which the trial court could have calculated = the=20 appropriate penalty to impose against the Partnership for charging = usurious interest in violation of section 305.001. See Hurley = v. Nat'l=20 Bank of Commerce, 529 S.W.2d 788, 789-91 (Tex. Civ. = App.--Dallas=20 1975, writ ref'd n.r.e.) (noting that maker of allegedly usurious = note had=20 assigned note, after date of assignment all payments were made to=20 assignee, and debtor's claim for usury against assignor of note = would be=20 limited to interest paid to assignor before date of assignment).=20

Similarly,=20 the evidence is also legally insufficient to support the trial = court's=20 penalty for the Partnership's charging and receiving usurious = interest=20 more than twice the amount allowed by law under section 305.002. = As noted=20 above, Dale included in his calculations the amounts of interest = charged=20 and received by Ken before the assignment as well as the amounts = of=20 interest charged and received by the Partnership after the = assignment. In=20 regard to this penalty, Dale failed to distinguish the amount of = principal=20 on which both Ken and the Partnership charged and received the = usurious=20 interest in violation of section 305.002. As with section 305.001, = we=20 conclude that section 305.002 imposes a penalty against each = creditor who=20 charges or receives interest more than twice the amount allowed by = law.=20 See Tex. Fin. Code Ann. =A7 305.002. Although, under = Dale's=20 analysis, Fiesta would have been entitled to recover from the = offending=20 creditors an amount equal to the underlying principal of the = second loan=20 on which the usurious interest was charged and received = ($91,260),=20 (9) the = amount of=20 principal on which Ken and the Partnership respectively charged = and=20 received the interest is critical to the calculation of the amount = of the=20 appropriate penalty to be imposed against each creditor under = section=20 305.002. Id. =A7 305.002(a)(1). Without this evidence, = there is no=20 basis under which the trial court could have calculated the = appropriate=20 penalty to impose against the Partnership under section 305.002.=20 (10) =

Fiesta=20 argues that the above analysis is flawed because "[Ken] did not = receive=20 any usurious interest prior to the assignment." Fiesta asserts = that "for=20 the purpose of determining usury [1] the front end payments must = be=20 applied to the principal and [2] the subsequent payments made to = [Ken]=20 must be applied first to accrued interest at 18% and then to = principal."=20 (11) Fiesta's argument ignores the reality of the = situation. In=20 accordance with the = terms of=20 the notes, Fiesta's front-end payments reduced the true principal = of the=20 loans. Thereafter, Fiesta made its monthly payments pursuant to = the terms=20 of the note to the note holder, first to Ken and then, after = assignment,=20 the Partnership, and each of these payments included components of = principal and interest. This reduction in principal caused by the=20 front-end payments increased the stated interest rate of 18% to an = effective interest rate well above that authorized by law. Thus, = both=20 Ken's and the Partnership's subsequent charging and receiving of = interest=20 violated the usury laws. Fiesta has failed to clearly explain how = only the=20 Partnership would be liable under a charging or receiving theory = and how=20 Ken, as a creditor who individually charged and received interest = under=20 the notes, would not be liable in an individual capacity for at = least a=20 portion of the charging and receiving penalties. Regardless, = evidence of=20 the amount of interest charged and received by Ken, and the = underlying=20 amount of principal on which the interest was charged and = received, is=20 necessary to calculate the appropriate penalties to impose against = the=20 Partnership.

Accordingly, we=20 further hold that the trial court erred in entering the judgment = of=20 $92,245.23 against the Partnership and Ken and Corine for charging = usurious interest in violation of section 305.001 and in entering = the=20 judgment of $101,400 against the Partnership and Ken and Corine = for=20 charging and receiving usurious interest in violation of section=20 305.002.

We sustain=20 the Parr defendants' second, third, fourth, and fifth points of=20 error.Appellate Attorneys' Fees

In their=20 ninth point of error, the Parr defendants contend that the = evidence is=20 legally and factually insufficient to support the conditional = award of=20 appellate attorneys' fees to Fiesta. Fiesta counters that section = 305.005=20 of the Finance Code "requires the court to set and award = attorneys'=20 fees."

Tom Bray,=20 Fiesta's attorney, testified as to the number of hours that he = expended on=20 the case, his qualifications, and his hourly rate. The Parr = defendants=20 ultimately stipulated that the amount of $44,000 was a fair and = reasonable=20 amount of attorneys' fees for Fiesta's prosecution of the case. = However,=20 there was no stipulation regarding Fiesta's anticipated appellate=20 attorneys' fees, and Fiesta did not offer any testimony regarding = its=20 appellate attorneys' fees. Yet, in its final judgment, in addition = to the=20 award for the stipulated attorneys' fees for trial, the trial = court also=20 awarded Fiesta's reasonable attorneys' fees in the amount of = $30,000 in=20 the event that the Parr defendants unsuccessfully appeal, in whole = or in=20 part, to the Texas Court of Appeals; $10,000 in the event that the = Parr=20 defendants unsuccessfully appeal to the Supreme Court of Texas and = their=20 petition for review is denied; and $20,000 in the event that the = Parr=20 defendants unsuccessfully appeal to the Supreme Court of Texas and = their=20 petition for review is granted.

Section=20 305.005 provides that "[a] creditor who is liable under Section = 305.001 or=20 305.003 is also liable to the obligor for reasonable attorney's = fees set=20 by the court." Tex. Fin. Code Ann. =A7 305.005 (Vernon Supp. = 2006). Although=20 no court has yet addressed the standard or method of proving = attorneys'=20 fees under section 305.005, we note that, generally, the party = seeking to=20 recover attorneys' fees carries the burden of proof. Stewart = Title=20 Guar. Co. v. Sterling, 822 S.W.2d 1, 10 (Tex. 1991). = Furthermore, it=20 is well settled that the trial court's award of attorneys' fees = may=20 include appellate attorneys' fees. Keith v. Keith, 221 = S.W.3d=20 156, 169 (Tex. App.--Houston [1st Dist.] 2006, no pet. h.). Thus, = we=20 conclude that section 305.005 permits a court to award appellate=20 attorneys' fees.

However,=20 there must be evidence of the reasonableness of fees for appellate = work to=20 support the award of appellate attorneys' fees. Siegler v.=20 Williams, 658 S.W.2d 236, 241 (Tex. App.--Houston [1st Dist.] = 1983,=20 no writ); Jones v. Am. Airlines, Inc., 131 S.W.3d 261, = 271 (Tex.=20 App.--Fort Worth 2004, no pet.); see also Woollett v. = Matyastik,=20 23 S.W.3d 48, 53 (Tex. App.--Austin 2000, pet. denied) ("A court = does not=20 have authority to adjudicate the reasonableness of attorneys' fees = on=20 judicial knowledge without the benefit of evidence."). Here, there = is no=20 evidence to support the award of Fiesta's reasonable appellate = attorneys'=20 fees. Accordingly, we hold that the evidence is legally = insufficient to=20 support the trial court's conditional award of appellate = attorneys' fees=20 to Fiesta.

Fiesta=20 argues that the trial court was permitted to take judicial notice = of the=20 usual and customary attorneys' fees and of the contents of the = case file=20 without receiving further evidence, relying on Superior = Ironworks,=20 Inc. v. Roll Form Prods., Inc., 789 S.W.2d 430, 431 (Tex.=20 App.--Houston [1st Dist.] 1990, no writ). However, the award of = attorneys'=20 fees in Superior Ironworks, Inc. was predicated on = section 38.001=20 of the Texas Civil Practice and Remedies Code. See Tex. = Civ.=20 Prac. & Rem. Code Ann. =A7 38.001 (Vernon 1997) ("A person may = recover=20 reasonable attorney's fees from an individual or corporation, in = addition=20 to the amount of a valid claim and costs, if the claim is for: (1) = rendered services; (2) performed labor; (3) furnished material; = (4)=20 freight or express overcharges; (5) lost or damaged freight or = express;=20 (6) killed or injured stock; (7) a sworn account; or (8) an oral = or=20 written contract."). As the Superior Ironworks court = noted,=20 section 38.004 specifically authorizes a trial court to take = judicial=20 notice of the usual and customary attorneys' fees and of the = contents of=20 the case file without receiving further evidence in certain = circumstances.=20 789 S.W.2d at 431. However, the award of appellate attorneys' fees = in this=20 case is predicated on section 305.005 of the Finance Code, not = section=20 38.001 of the Civil Practice and Remedies Code. This court has = previously=20 held that section 38.004 cannot be used to justify the = reasonableness of=20 attorneys' fees recovered outside of section 38.001. = See=20 Valdez v. Valdez, 930 S.W.2d 725, 732-33 (Tex. App.--Houston = [1st=20 Dist.] 1996, no writ); see also London v. London, 94 = S.W.3d 139,=20 147-49 (Tex. App.--Houston [14th Dist.] 2002, no pet.) (holding = that trial=20 courts may not use section 38.004 to take judicial notice of=20 reasonableness of attorneys' fees awarded under statute other than = section=20 38.001).

We sustain=20 the Parr defendants' ninth point of error.

Wrongful=20 Foreclosure

In its=20 first cross-issue, Fiesta argues that because its wrongful = foreclosure=20 claim was a separate cause of action for actual compensatory = damages, the=20 claim was not cumulative of its claim for usury penalties. In its = second=20 cross-issue, Fiesta argues that the trial court erred in = dismissing its=20 wrongful foreclosure claim without first giving it the opportunity = to=20 amend its pleadings. The Parr defendants counter that Fiesta = waived its=20 right to assert its wrongful foreclosure claim and, alternatively, = that=20 Fiesta's wrongful foreclosure claim "was not a separate cause of = action=20 for actual damages" and "was precluded by section 305.007 of the = Finance=20 Code."

Fiesta=20 alleged in its petition that the Parr defendants contracted for, = charged,=20 and received usurious interest and that the Parr defendants' = foreclosure=20 of its properties was wrongful. In its wrongful foreclosure claim, = Fiesta=20 sought to set aside, cancel, and declare void the deeds obtained = as a=20 result of the foreclosure and also sought a declaration that = Fiesta was=20 the owner of the properties. Fiesta also sought compensatory = damages for=20 "lost rents and profits during the periods for which [it] was = wrongfully=20 denied possession" of the properties and, in the alternative, = damages "for=20 the fair market value of [its] equity interest" in the properties. =

Before=20 trial, the Parr defendants filed a "motion to dismiss [Fiesta's] = claims=20 and damages relating to wrongful foreclosure," asserting that = section=20 305.007 of the Finance Code prohibited Fiesta from seeking "to = recover=20 common law damages for violation of the Texas usury laws." = Although the=20 record does not contain a separate order granting the Parr = defendants'=20 motion to dismiss, the trial court recited in its final judgment = that=20 "[p]rior to receiving evidence" it had considered and granted the = Parr=20 defendants' motion to dismiss Fiesta's wrongful foreclosure claim = and had=20 excluded "all evidence relating thereto."

We first=20 address the Parr defendants' argument that Fiesta waived its right = to=20 assert its wrongful foreclosure claim. The Parr defendants assert = that=20 "the trial court did not rule on the motion before or during = trial,"=20 Fiesta failed to object to the Parr defendants' motion to dismiss, = and=20 "there is no record that the court made any ruling before or = during the=20 trial."

The record=20 indicates that after being served with the Parr defendants' motion = to=20 dismiss on the first day of trial, Fiesta requested additional = time to=20 respond to the motion. The trial court agreed to Fiesta's request, = and=20 Fiesta further agreed not to mention the issue during voir dire. = The only=20 other reference to Fiesta's wrongful foreclosure claim is = contained in the=20 final judgment, and there is no testimony in the record showing = that the=20 motion to dismiss was again discussed before the presentation of = evidence.=20 However, the final judgment plainly states that the trial court = considered=20 and granted the Parr defendants' motion to dismiss prior to = receiving=20 evidence and, thereby, excluded all evidence relating to the = wrongful=20 foreclosure claim. Thus, the Parr defendants' argument that Fiesta = "voluntarily waived this claim by not presenting any argument or = evidence"=20 is directly contradicted by the final judgment's recitation = regarding that=20 claim. To the extent that the Parr defendants are suggesting that = the=20 final judgment was incorrect in this regard, the Parr defendants = have=20 failed to identify any post-judgment motion in which they informed = the=20 court of this alleged error. We hold that Fiesta did not waive its = right=20 to assert its wrongful foreclosure claim.

In regard=20 to the merits of the Parr defendants' motion to dismiss Fiesta's = wrongful=20 foreclosure claim, the motion was based solely on section 305.007 = of the=20 Finance Code, which provides,

The=20 penalties provided by this chapter are the only penalties for = violation of=20 this subtitle for contracting for, charging, or receiving interest = in an=20 amount that produces a rate in excess of the maximum rate allowed = by law.=20 Common law penalties do not apply.



Tex. Fin.=20 Code Ann. =A7 305.007 (Vernon Supp. 2006). The Parr defendants = argue that=20 because Fiesta's wrongful foreclosure claim "is clearly an attempt = to=20 recover common law damages for violation of the Texas usury laws" = and=20 "there is no other factual basis for this claim," section 305.007 = bars the=20 claim.

For a sale=20 under a deed of trust to be valid, the terms set out in the deed = of trust=20 must be strictly followed. Univ. Sav. Ass'n v. Springwoods = Shopping=20 Ctr., 644 S.W.2d 705, 706 (Tex. 1982); see also League = City State=20 Bank v. Mares, 427 S.W.2d 336, 340 (Tex. Civ. App.--Houston = [14th=20 Dist.] 1968, writ ref'd n.r.e.) (stating that foreclosure was = wrongful=20 because plaintiffs were current in payment on note at date of = attempted=20 acceleration and foreclosure). Failure to properly foreclose on = property=20 gives rise to a cause of action for either the return of the = property or=20 damages. UMLIC VP LLC v. T & M Sales and Envtl. Sys., = Inc.,=20 176 S.W.3d 595, 610 (Tex. App.--Corpus Christi 2005, pet. denied) = (citing=20 Univ. Sav. Ass'n, 644 S.W.2d at 706). The correct measure = of=20 damages is the difference between the value of the property in = question at=20 the date of foreclosure and the remaining balance due on the = indebtedness.=20 Farrell v. Hunt, 714 S.W.2d 298, 299 (Tex. 1986); = Charter=20 Nat'l Bank-Houston v. Stevens, 781 S.W.2d 368, 375 (Tex.=20 App.--Houston [14th Dist.] 1989, writ denied).

The Parr=20 defendants do not refer us to any authority for the proposition = that=20 section 305.007 bars a claim for wrongful foreclosure. A plain = reading of=20 the section reveals that only common law "penalties" are barred, = not=20 common law claims for actual damages. Tex. Fin. Code Ann. =A7 = 305.007. In=20 its wrongful foreclosure claim, Fiesta sought a declaration that = it was=20 the owner of the properties or, in the alternative, compensatory = damages=20 for lost rents and profits or damages related to its equity = interest.=20 Section 305.007 expressly bars only "common law penalties" for = usury.=20 Id. Here, Fiesta's claim for wrongful foreclosure is not = a common=20 law penalty precluded by section 305.007, but is rather an = alternative=20 cause of action with different remedies.

Furthermore, a=20 review of the types of claims that section 305.007 has been held = to=20 preclude indicate that a claim for wrongful foreclosure would not = fall=20 within the scope of the statute. For example, in Nolen v. = Nucentrix=20 Broadband Networks Inc., the United States Court of Appeals = for the=20 Fifth Circuit stated that a plaintiff's unjust enrichment claim = for=20 restitution of usurious late fees was precluded by section 305.007 = because=20 "restitution for unjust enrichment" was a "common law penalty" = expressly=20 prohibited by the statute. See 293 F.3d 926, 928 n.1 (5th = Cir.=20 2002); see also Gallardo v. TCI Cablevision of Tex.,=20 Inc., No. 13-02-460-CV, 2004 WL 1932662, at *3 (Tex. = App.--Corpus=20 Christi Aug. 31, 2004, no pet.) (mem. op.) (finding section = 305.007=20 precluded action seeking declaration that penalty clauses were=20 unenforceable and late fees should be returned).

Accordingly, we hold=20 that the trial court erred in granting the Parr defendants' motion = to=20 dismiss Fiesta's wrongful foreclosure claim on the sole ground = that=20 section 305.007 barred the claim.

We sustain=20 Fiesta's first cross-issue.=20 (12)

Post-Judgment=20 Interest

In its third = cross-issue,=20 Fiesta=20 argues that the trial court erred in entering the post-judgment = rate of=20 interest at 5% because by the time the judgment was signed "it had = increased to 6.25%." See Tex. Fin. Code Ann. =A7 304.003 = (Vernon=20 2006). Fiesta asserts that although the change in the interest = rate was=20 "called to the [c]ourt's attention and [it] agreed to change it," = the=20 court "inadvertently failed to modify the proposed judgment" to = reflect=20 the higher rate.

Fiesta=20 concedes in its briefing that "there is no record that the trial = court=20 agreed to change the interest rate," but Fiesta believes that the = Parr=20 defendants' counsel would agree that the trial court intended "to=20 substitute the new rate." However, in their briefing, the Parr = defendants=20 do not stipulate that the trial court intended to award Fiesta a = higher=20 post-judgment interest rate or that Fiesta timely and specifically = called=20 any such error to the attention of the trial court.

To present=20 a complaint for appellate review, the record must show: (a) the = complaint=20 was presented to the trial court by a timely request, objection, = or motion=20 stating the specific grounds for the desired ruling if the = specific=20 grounds are not apparent from the context; and (b) the trial court = ruled=20 on the request. Tex. R. App. P. 33.1(a). Furthermore, to preserve = a=20 complaint of error in a judgment, a party must inform the trial = court of=20 its objection by a motion to amend or correct the judgment, a = motion for=20 new trial, or some other similar method. See Dal-Chrome Co. v. = Brenntag Sw., Inc., 183 S.W.3d 133, 144-45 (Tex. App.--Dallas = 2006,=20 no pet.).

As conceded=20 by Fiesta, the record does not support its assertion that it = presented the=20 trial court with any complaint regarding the post-judgment = interest rate=20 included in its judgment. Accordingly, we hold that Fiesta has not = preserved this issue for our review. See Keith, 221 = S.W.3d at 173=20 ("A complaint regarding the award of post-judgment interest must = be=20 preserved in the trial court by a motion to amend or to correct = the=20 judgment or by a motion for new trial.").

We overrule=20 Fiesta's third cross-issue.

Conclusion

We reverse=20 the portion of the trial court's judgment awarding Fiesta = $92,245.23 from=20 the Partnership, Ken, and Corine for "charging" usurious interest = in=20 violation of section 305.001 of the Texas Finance Code and the = portion of=20 the judgment awarding Fiesta $101,400 from the Partnership, Ken, = and=20 Corine for "charging" and "receiving" usurious interest in = violation of=20 section 305.002 of the Texas Finance Code. We render judgment that = Fiesta=20 shall take nothing on its claims againstthe Parr defendants for = "charging"=20 usurious interest in violation of section 305.001 of the Texas = Finance=20 Code and "charging" and "receiving" usurious interest in violation = of=20 section 305.002 of the Texas Finance Code.

We further=20 reverse the portion of the trial court's judgment granting Fiesta=20 conditional appellate attorneys' fees. We further reverse the = portion of=20 the judgment dismissing Fiesta's wrongful foreclosure claim, and = we remand=20 the cause for proceedings consistent with this opinion on Fiesta's = wrongful foreclosure claim.

We affirm=20 the remainder of the judgment in all other respects, including the = portion=20 of the judgment awarding Fiesta $238,178.46 from Ken for = "contracting for"=20 usurious interest in violation of section 305.001 of the Texas = Finance=20 Code.





Terry=20 Jennings

Justice


Panel=20 consists of Chief Justice Radack and Justices Jennings and Bland.=20

1. See = Tex.=20 Fin. Code Ann. =A7=A7 305.001, 305.002, 305.005 (Vernon Supp. = 2006).=20

2. The 2005 = amendments=20 to section 305.001 became effective September 1, 2005. This case = was tried=20 prior to this effective date; thus, the former version applies.=20

3. The terms = of both=20 notes required crediting the front-end payments to reduce the = principal of=20 the loans. The first note provided, "The Note Holder will use all = of my=20 prepayments to reduce the amount of principal that I owe under = this Note."=20 The second note provided, "Interest will be calculated on the = unpaid=20 principal to the date of each installment period. Payments will be = credited first to the accrued interest and then to reduction of=20 principal." As no interest accrued at closing, the front-end = payments=20 should have reduced the principal.=20

4. The Parr = defendants=20 make reference to the savings-clause defense in a single sentence, = without=20 any discussion of the terms of the notes' savings clauses or their = applicability to the facts of this case. The Parr defendants also = do not=20 discuss any relevant authority regarding the legal effect of the = savings=20 clauses. See = Tex.=20 R. App. P. 38.1(h). Accordingly, in responding to the Parr = defendants'=20 argument, we address only the general effect of a savings clause.=20

5. Having = held, in our=20 consideration of the Parr defendants' sixth and seventh points of = error,=20 that the evidence is both legally and factually sufficient to = support the=20 trial court's final judgment of $238,178.46 against Ken for = contracting=20 for usurious interest in violation of section 305.001(a)(1), we = have=20 necessarily disposed of the portion of the Parr defendants' first = and=20 eighth points of error pertaining to the jury's findings against = Ken. We=20 address the remaining portion of the first and eighth points of = error=20 here.=20

6. The Parr = defendants=20 make two preliminary assertions, which we briefly address. First, = the Parr=20 defendants assert that section 305.001 does not provide a = statutory=20 penalty for charging usurious interest. However, the version of = section=20 305.001 in effect at the time of trial applied to a "a creditor = who=20 contracts for, charges, or receives interest that is greater than = the=20 amount authorized." See former section 305.001. =


Second, = the Parr=20 defendants complain that there is no evidence or insufficient = evidence to=20 support a finding that the Partnership contracted for usurious = interest.=20 However, the jury found that the Partnership contracted for, = charged,=20 or received usurious interest" and the trial court = imposed=20 liability against the Partnership only for charging and receiving = usurious=20 interest.=20

7. As we have = previously noted, the trial court's "charging" and "receiving" = penalties=20 were imposed against the Partnership and Ken and Corine jointly = and=20 severally. Although the judgment does not expressly address the = issue, it=20 appears that the penalties were imposed against Ken and Corine in = their=20 capacity as general partners pursuant to the general rule that a = partner=20 is liable jointly and severally for all debts and obligations of = the=20 partnership. See Tex. Rev. Civ. Stat. Ann. art. = 6132b-3.04=20 (Vernon Supp. 2006) ("Except as provided by Section 3.07 or = 3.08(a), all=20 partners are liable jointly and severally for all debts and = obligations of=20 the partnership unless otherwise agreed by the claimant or = provided by=20 law."). The parties also agree that these penalties were imposed = against=20 Ken and Corine in their capacity as general partners, as opposed = to the=20 "contracting for" penalty, which was imposed against Ken in his = individual=20 capacity. Neither party has challenged the imposition of these = penalties=20 under these partnership principles. Thus, although we recognize = the terms=20 of the final judgment, we will refer to the "charging" and = "receiving"=20 penalties as being imposed against the Partnership.=20

8. See = Lupo v.=20 Equity Collection Serv., 808 S.W.2d 122, 124 (Tex. = App.--Houston [1st=20 Dist.] 1991, no writ) (rejecting collection agency's argument that = since=20 it was not party to original loan transaction, it could not be = held liable=20 for usury statutory penalties because "[o]therwise, one who was = not a=20 party to the original loan transaction . . . could attempt to = collect=20 usurious interest without fear of the penalties for usury"); = Davis v.=20 Boling, 340 S.W.2d 331, 334 (Tex. Civ. App.--Amarillo 1960, = writ=20 ref'd n.r.e.) (stating that burden is on debtor to plead and prove = that=20 creditor has "notice or knowledge of the usury in the transaction" = when=20 "there is nothing to show upon the face of the note that it is a = usurious=20 contract" and there is nothing in record to show creditor "had any = notice=20 of any usury"); Hamor v. Commerce Farm Credit Co., 74 = S.W.2d=20 1035, 1038 (Tex. Civ. App.--Amarillo 1934, writ dism'd) (holding = that to=20 recover statutory penalty for usury against assignee, plaintiff = must prove=20 assignee's knowledge or notice of usurious interest).=20

9. Additionally, we=20 note that the penalty imposed by the trial court under section = 305.002 is=20 problematic because it awards Fiesta the full face amount of the = principal=20 of the second note rather than the true principal of the loan, on = which=20 the usury calculations are based.=20

10. The error = in the=20 judgment with regard to the charging and receiving penalties is=20 underscored by the fact that, because the Partnership was not the = note=20 holder before assignment, there is no evidence that the = Partnership=20 charged interest before the assignment and there is no evidence = that the=20 Partnership "received" the payments and the accompanying interest=20 component made before the assignment. See Stacks v. = E. Dallas=20 Clinic, 409 S.W.2d 842, 844 (Tex. 1966). (defining = "receiving" to=20 mean "benefitting" from the interest paid).=20

11. See = 13 Tex.=20 Jur. 3d Consumer and Borrower Protection =A7 80 ("The law = does not=20 automatically convert payments of usurious interest into payments = of=20 principal but, rather, merely gives the borrower the right to have = them so=20 applied.") (citing Adleson v. B.F. Dittmar Co., 124 Tex. = 564, 80=20 S.W.2d 939 (1935)). Although we have not found any recent = authority=20 directly rejecting the Parr defendants' suggestion that payments = made to=20 Ken should have been applied first to accrued interest at 18% and = then to=20 principal, we note that Texas courts have held that the statute of = limitations on a debtor's usury claim begins to run at the time an = allegedly usurious payment is made. Hurley v. Nat'l Bank of=20 Commerce, 529 S.W.2d 788, 790 (Tex. Civ. App.--Dallas 1975, = writ=20 ref'd n.r.e.) Hurley is relevant to the Parr defendants' = argument=20 because the court rejected the debtor's argument that "no cause of = action=20 for usury arises so long as the aggregate amount of the payments = does not=20 exceed the principal sum originally advanced because the lender = may elect=20 to treat all payments up to that time as return of principal and = may=20 forego the interest or reduce it to a lawful amount." Id. = The=20 court further stated, "Such a method of purging usury from = interest=20 payments already made" would not be permitted under the relevant = federal=20 statute or Texas law. Id. Similarly, we can find no = authority for=20 the Parr defendants' suggestion that we should recharacterize all = of the=20 payments made to Ken to be lawful payments of principal and = interest so as=20 to insulate Ken from charging and receiving liability.=20

12. Having = held that the=20 trial court erred in granting the Parr defendants' motion to = dismiss=20 Fiesta's wrongful foreclosure claim on the ground that section = 305.007=20 barred the claim, we need not address Fiesta's second cross-issue = that the=20 trial court erred in dismissing its wrongful foreclosure claim = without=20 first giving it the opportunity to amend its pleadings. =

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