in Re: The Estate of Carolyn C. Hardesty , 2014 Tex. App. LEXIS 12432 ( 2014 )

In The
Court of Appeals
Sixth Appellate District of Texas at Texarkana
No. 06-13-00048-CV
IN RE: THE ESTATE OF CAROLYN C. HARDESTY, DECEASED
On Appeal from the Probate Court No. 2
Tarrant County, Texas
Trial Court No. 2010-PR01500-2-A
Before Morriss, C.J., Carter and Moseley, JJ.
Opinion by Justice Moseley
OPINION
This is the appeal by Kenneth Hardesty (Hardesty) of his lawsuit against PrimeLending, a
PlainsCapital Company (PrimeLending), and CitiMortgage, Inc. (CitiMortgage), for declaratory
relief and fraud in connection with the foreclosure of a $500,000.00 home equity loan secured by
real property owned by his mother, Carolyn C. Hardesty, deceased. We affirm the trial court’s
judgment because, even though Hardesty had standing to bring the declaratory judgment action,
(1) the probate court had jurisdiction to enter the foreclosure order and adjudicate the
constitutional claims that were raised, (2) Hardesty’s claim that the lien is invalid is barred by
limitations, (3) the statute of frauds bars Hardesty’s fraud claim against CitiMortgage, and (4) the
trial court acted within its discretion to award attorney fees to CitiMortgage.
I. Factual and Procedural Background
In July 2004, Carolyn took out a $500,000.00 loan in favor of PrimeLending secured by a
home equity lien, classified as an extension of credit as defined by Article XVI, Section
50(a)(6)(A) of the Texas Constitution. The loan was secured by a deed of trust on Carolyn’s
home, located at 914 Parkview Lane in Southlake, Tarrant County, Texas (the Property). 1 At the
time of closing, Carolyn (a single woman who occupied the Property as her homestead) executed
a sworn fair market value agreement, indicating the property securing the loan was valued at
$625,000.00. Although Hardesty assisted Carolyn in acquiring the home equity loan, he was not
1
Originally appealed to the Second Court of Appeals, this case was transferred to this Court by the Texas Supreme
Court pursuant to Section 73.001 of the Texas Government Code. See TEX. GOV’T CODE ANN. § 73.001 (West
2013). We are unaware of any conflict between precedent of the Second Court of Appeals and that of this Court on
any relevant issue. See TEX. R. APP. P. 41.3.
2
a party to the underlying loan transaction with PrimeLending. 2 CitiMortgage took over servicing
of the loan effective October 2005. 3
In November 2007, Carolyn passed away, devising the Property to Hardesty in her will.
Following Carolyn’s death, CitiMortgage and Hardesty entered into an alleged oral agreement
whereby CitiMortgage would pay the ad valorem taxes assessed against the Property if Hardesty
would pay the monthly mortgage payments. This agreement would continue until Hardesty
“could get title to the Property.” Ten days after Hardesty obtained title, he was to repay
CitiMortgage for the tax payments it had paid on the Property. Thereafter, Hardesty paid the
monthly mortgage payments on the Property for more than two years after Carolyn’s death.
CitiMortgage paid taxes on the Property for the years 2007 through 2011.
In July 2010, CitiMortgage initiated a foreclosure proceeding by filing an application for
foreclosure of real property pursuant to Section 306(e)(3) of the Texas Probate Code. 4 The
Estate allowed the claim in full as a valid preferred debt and lien against the Property, to be paid
according to the terms and conditions of the loan agreement. After a hearing, the trial court
issued an order in December 2010 authorizing foreclosure of the lien. CitiMortgage posted a
2
Hardesty is not a co-borrower or a guarantor of the note. Likewise, he is not a grantor of the Deed of Trust and did
not pledge collateral to secure the note.
3
The original note endorsed in blank by PrimeLending was delivered to CitiMortgage, and the lien evidenced by the
deed of trust was assigned to CitiMortgage in April 2010.
4
Beginning in 2009 and finally concluding effective January 1, 2014, the Texas Legislature, as part of its topic-by-
topic statutory revision program, repealed the Texas Probate Code and re-codified its provisions in the Texas Estates
Code. The new codification is “without substantive change,” and its purpose is to make the law “more accessible
and understandable.” See TEX. ESTATES CODE ANN. § 21.001 (West 2014). Because the governing law at the time
of the occurrences mentioned here and at the time of trial was prior to the repeal and recodification of the Texas
Probate Code, we cite the provisions of the Texas Probate Code and include, at the conclusion of this opinion, a
Table of Citations which provides the session law citations for the repealed Probate Code sections as well as a cross-
reference to the re-codified Estates Code citations.
3
notice of trustee’s sale for February 1, 2011. 5 In January 2011, Hardesty notified PrimeLending
and CitiMortgage in writing that he believed the home equity loan and deed of trust were
violative of the Texas Constitution and invited them to cure the defect within the time allowed by
law. No action was taken to cure the alleged defect.
On the date of the scheduled foreclosure sale, Hardesty obtained a temporary restraining
order (TRO) in a District Court of Tarrant County to prevent CitiMortgage from foreclosing on
the Property. The TRO was issued in conjunction with a petition filed by Hardesty for a
declaratory judgment that the home equity loan violated Article XVI, Section 50(a)(6)(B) of the
Texas Constitution because the loan amount exceeded eighty percent of the value of the home.
In making this allegation, Hardesty relied on the Tarrant County Appraisal District’s records,
which indicated that the Property carried an appraised market value on its rolls of $474,500.00
from 2003 through 2006. Hardesty claimed that the $500.000.00 loan thus exceeded the
constitutionally-prescribed eighty percent loan-to-value ratio maximum. Hardesty further
alleged that notice of this defect was provided to PrimeLending and CitiMortgage in accord with
Article XVI, Section 50(a)(6)(Q)(x) of the Texas Constitution. Hardesty’s petition requested
judgment declaring the lien to be void and (in the event the defendants failed to correct this
defect within sixty days of such notice) sought forfeiture of all principal and interest under the
note.
5
Carolyn executed an escrow waiver agreement, providing that as long as there was no delinquency or default, the
requirement for an escrow account for taxes and insurance was waived. The escrow waiver further provided that a
failure to timely pay taxes constituted an “‘event of default.’”
4
PrimeLending filed a general denial answer, further affirmatively pleading that Hardesty
lacked standing to bring the declaratory judgment action and that his claims were barred the
applicable statute of limitations. 6 CitiMortgage alleged that Hardesty’s claims that were based
on the allegation that the loan and its securing lien were made in violation of the Texas
Constitution were barred by limitations. It further alleged that Hardesty was barred from
asserting the alleged constitutional violation, stating that it was entitled to conclusively rely on
the written sworn acknowledgement of the Property’s fair market value as signed by Carolyn at
the time of the institution of the home equity loan in accord with Article XVI, Section 50(h) of
the Texas Constitution. Finally, CitiMortgage contended that Hardesty’s fraud claim based on
CitiMortgage’s alleged breach of its oral agreement to pay taxes on the Property and to forbear
from foreclosing was barred by the statute of frauds, res judicata, and/or collateral estoppel. In
an amended petition, Hardesty alleged that both PrimeLending and CitiMortgage were guilty of
fraudulently inducing Carolyn to sign the note by falsely representing the Property’s fair market
value to be greater than it actually was.
In February 2011, CitiMortgage filed a motion to transfer, asking the probate court to
transfer Hardesty’s declaratory judgment action from the district court to the probate court where
Carolyn’s estate was pending. This motion invoked Section 4F of the Probate Code, which
granted exclusive jurisdiction to the statutory probate court of a cause of action related to the
probate proceeding, as its authority. See TEX. PROB. CODE ANN. § 4F.
6
PrimeLending also affirmatively pled that Hardesty’s claims were barred by the statute of frauds, but did not pursue
this defense in summary judgment proceedings.
5
In response, Hardesty filed an anti-suit injunction in the district court, asking the district
court to enjoin CitiMortgage from seeking a transfer of the district court case to Tarrant County
Probate Court No. 2. Hardesty claimed the probate court had no jurisdiction for two reasons:
(1) the district court case involved the constitutionality of CitiMortgage’s lien and issues
regarding the constitutionality of a lien cannot be determined by a statutory probate court and
(2) a foreclosure application for a home equity loan must (according to the 2010 version of Rule
736 of the Texas Rules of Civil Procedure which was then in force and effect) be filed in the
district court. See TEX. R. CIV. P. 736, 61 Tex. B.J. 226 (1998, amended 2000).
The district court denied Hardesty’s anti-suit injunction. The probate court thereafter
granted CitiMortgage’s motion to transfer the district court case to the Probate Court No. 2 of
Tarrant County.
The Probate Code specifically provided that a statutory probate court possessed the
power to transfer to itself a cause of action “related to” a probate proceeding pending in the
probate court. TEX. PROB. CODE ANN. § 5B(a). In addition, a probate court was permitted under
the Probate Code to “exercise pendent and ancillary jurisdiction as necessary to promote judicial
efficiency and economy.” TEX. PROB. CODE ANN. § 4A(b). Accordingly, the probate court
possessed the power to transfer the pending district court case to itself.
Once it was settled between the two courts that the matter would be tried in the probate
court, CitiMortgage and PrimeLending began their offensive. PrimeLending led the attack with
its motion for partial summary judgment, which primarily focused on its allegation that Hardesty
lacked standing to bring suit on behalf of Carolyn’s estate. While PrimeLending did not contest
6
Hardesty’s status as an heir to Carolyn’s estate and further acknowledged Hardesty’s ownership
of the Property, it nevertheless contended that Hardesty lacked standing to sue on behalf of the
estate, maintaining that the personal representative of the estate had the exclusive right to bring
such suits. PrimeLending further attacked Hardesty’s standing to contest the validity of the loan
on the basis that Hardesty was a stranger to the loan transaction. PrimeLending argued that in
the absence of a survival claim, Hardesty had no relationship with the proceedings and had no
justiciable interest in its outcome.
A secondary argument for summary judgment included the statute of limitations, which
PrimeLending claimed had run on each of Hardesty’s causes of action. It claimed that the statute
of limitations for a declaratory judgment action—in regard to the constitutionality of the lien—is
four years. See TEX. CIV. PRAC. & REM. CODE ANN. § 16.051 (West 2008). Moreover, the
statute of limitations applicable to an action for fraud is four years. See TEX. CIV. PRAC. & REM.
CODE ANN. § 16.004 (West 2002). PrimeLending argued that these limitations periods expired
well before Hardesty filed his action, as the loan closing date was July 23, 2004. PrimeLending
also argued Hardesty knew of the alleged misrepresentations regarding the loan-to-value ratio at
the time of closing. Hardesty’s petition was not filed until February 1, 2011.
Hardesty responded, claiming that as the rightful owner of the Property and holder of the
deed, he was entitled to all of the rights and obligations associated with Carolyn’s relationship to
the Property, and thus had a justiciable interest in the Property. 7 With respect to his opponents’
claim that his challenge was barred by the statute of frauds, Hardesty claimed that because his
7
The executor of Carolyn’s estate deeded the Property to Hardesty on February 14, 2012.
7
pleading seeks to quiet title and clearly alleges the lien is void, neither four-year statute of
limitations bars his claim. Without providing a specific basis for its ruling, the trial court granted
PrimeLending’s motion for partial summary judgment.
Like PrimeLending, CitiMortgage based its motion for summary judgment—filed on
February 3, 2012—on the four-year-limitations bar to Hardesty’s claim. Unlike PrimeLending,
CitiMortgage claimed entitlement to summary judgment on Hardesty’s constitutional claim
because the sworn fair market value acknowledgment was conclusive evidence of the value of
the Property at the time of the loan; accordingly, there was no violation of Article XVI, Section
50(a)(6)(B). CitiMortgage claimed entitlement to summary judgment on Hardesty’s claim of an
alleged oral agreement, taking the position that Hardesty’s claim was barred by the statute of
frauds, res judicata, and/or collateral estoppel.
Hardesty responded to CitiMortgage’s motion for summary judgment, claiming that
neither of the four-year statutes of limitations was applicable because his claim involved an
action for recovery of real property. Further, Hardesty alleged limitations could not bar his claim
because the lien was void. Without providing a specific basis for its ruling, the trial court
granted CitiMortgage’s motion for summary judgment.
In March 2012, CitiMortgage filed its second motion for summary judgment. This
motion sought judgment on Hardesty’s newly pled claims of fraud in the inducement, unjust
enrichment, and promissory estoppel. CitiMortgage argued that because it had dealings with
neither Carolyn nor Hardesty with respect to the loan until October 2005, it could not have made
any misrepresentation which induced Carolyn into signing the lien documents. It further claimed
8
that the unjust enrichment and promissory estoppel claims were barred by res judicata and
collateral estoppel, as well as by the statute of frauds.
The trial court granted CitiMortgage’s second motion for summary judgment in part and
denied it in part. The court ordered that Hardesty take nothing by way of his fraud in the
inducement claim, but it denied CitiMortgage’s request for summary judgment as to Hardesty’s
claims for unjust enrichment and promissory estoppel. The court also granted CitiMortgage’s
conditional motion for severance, severing Hardesty’s unjust enrichment and promissory
estoppel claims against CitiMortgage. 8
The trial court entered its final judgment June 9, 2013, incorporating its previous
summary judgment rulings within that judgment. In addition, the final judgment awarded
attorney fees to CitiMortgage in the sum of $42,379.65, which award Hardesty contests on
appeal. 9
II. Standard of Review
A traditional motion for summary judgment is granted only when the movant establishes
that there are no genuine issues of material fact and that it is entitled to judgment as a matter of
law. Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding, 289 S.W.3d 844, 848 (Tex. 2009).
We review de novo the grant or denial of a motion for summary judgment “to determine whether
a party’s right to prevail is established as a matter of law.” Lamar Corp. v. City of Longview,
8
The trial court evidently pronounced its ruling on this summary judgment motion from the bench on April 25, 2012,
and included its ruling in the final judgment.
9
Hardesty attacks the trial court’s transfer order as well as its summary judgment rulings, all of which are
incorporated into the final judgment. See Webb v. Jorns, 488 S.W.2d 407, 408–09 (Tex. 1972) (interlocutory orders
are merged into final judgment and thus become final for purposes of appeal regardless of whether interlocutory
order is specifically named within final judgment).
9
270 S.W.3d 609, 613 (Tex. App.—Texarkana 2008, no pet.); see Nash v. Beckett, 365 S.W.3d
131, 136 (Tex. App.—Texarkana 2012, pet. denied) (citing Fielding, 289 S.W.3d at 848).
In our review, we take as true all evidence favorable to the nonmovant and indulge every
reasonable inference and resolve any doubts in the nonmovant’s favor. Limestone Prods.
Distribution, Inc. v. McNamara, 71 S.W.3d 308, 311 (Tex. 2002) (per curiam). Where, as here,
the summary judgment order does not specify the ground or grounds upon which the trial court
relied, “summary judgment will be affirmed on appeal if any of the theories advanced are
meritorious.” Rhine v. Priority One Ins. Co., 411 S.W.3d 651, 658 (Tex. App.—Texarkana
2013, no pet.); see Ford Motor Co. v. Ridgway, 135 S.W.3d 598, 601 (Tex. 2004).
III. Analysis
A. Hardesty Had Standing to Pursue Declaratory Judgment Action
Standing is a constitutional prerequisite to maintaining suit. See Tex. Ass’n of Bus. v.
Tex. Air Control Bd., 852 S.W.2d 440, 444 (Tex. 1993). The lack of standing deprives a court of
subject-matter jurisdiction to hear a case. Austin Nursing Ctr., Inc. v. Lovato, 171 S.W.3d 845,
849 (Tex. 2005). A party generally has standing to bring suit where a controversy exists between
the parties that “‘will be actually determined by the judicial declaration sought.’” Tex. Ass’n of
Bus., 852 S.W.2d at 446 (quoting Bd. of Water Eng’rs v. City of San Antonio, 283 S.W.2d 722,
724 (Tex. 1955)).
PrimeLending argues that no privity of contract existed between it and Hardesty because
Hardesty was a signatory of neither the note, nor the deed of trust, nor any of the other loan
documents related to Carolyn’s home equity loan with PrimeLending. It claims that Hardesty’s
10
only legal connection to this matter derives from his status as an heir to Carolyn’s estate and
cites caselaw that stands for the proposition that an heir does not have standing to sue on behalf
of the estate, as such right belongs exclusively to the estate’s personal representative. See Pratho
v. Zapata, 157 S.W.3d 832, 839 (Tex. App.—Fort Worth 2005, no pet.). And, “[a]s a general
rule, only the mortgagor or a party who is in privity with the mortgagor has standing to contest
the validity of a foreclosure sale pursuant to the mortgagor’s deed of trust.” Goswami v. Metro
Savs. & Loan Ass’n, 751 S.W.2d 487, 489 (Tex. 1988).
An exception to this general rule exists when a third party has a legal or equitable interest
in the property that will be affected by the sale. Id. In that instance, the third party has standing
to challenge the sale to the extent that his rights will be affected by the sale. Id. “Modern cases
have expanded the class of parties with standing to dispute the validity of the foreclosure sale by
adopting a more liberal attitude toward this privity requirement. . . . Under the current approach,
the [plaintiff] need only have established a property interest in the deed of trust realty to impute a
flaw” in the sale. Long v. NCNB–Tex. Nat’l Bank, 882 S.W.2d 861, 867 (Tex. App.—Corpus
Christi 1994, no writ).
Here, Hardesty acquired the estate’s interest in the Property by warranty deed from Rick
Hale in his capacity as the executor of the Estate of Carolyn C. Hardesty, Deceased, on
February 14, 2012. A copy of this warranty deed was attached to Hardesty’s response to
PrimeLending’s motion for partial summary judgment. Additionally, Hardesty satisfied the
monthly installments on the note for over two years, in a total approximate amount of
$100,000.00. Although Hardesty does not challenge the validity of a foreclosure sale, he does
11
challenge the validity of the order authorizing that foreclosure. Hardesty’s interest in the
Property is sufficient to challenge the validity of the order. 10
B. The Probate Court Had Jurisdiction to Enter the Foreclosure Order and to
Adjudicate the Constitutional Claims
The basis of Hardesty’s claim that the trial court lacked subject-matter jurisdiction is
twofold. First, Hardesty argues the probate court lacked proper jurisdiction to issue the
foreclosure order under Rule 736. Second, Hardesty argues that the probate court lacked
jurisdiction to “adjudicate the underlying constitutional issues.” We review de novo a challenge
to a trial court’s subject-matter jurisdiction. Tex. Natural Res. Conservation Comm’n v. IT–
Davy, 74 S.W.3d 849, 855 (Tex. 2002).
1. Jurisdiction to Enter the Foreclosure Order
Article XVI, Section 50 of the Texas Constitution protects a homestead from forced sale
to satisfy any debts except for certain enumerated types of debt. These enumerated types of debt
historically included only debts incurred for the purchase of that property, for improvements to
it, or for taxes. In 2001, this historical constraint was relaxed to permit more loans secured by
homesteads, including some loans made when an extension of credit “is secured by a lien that
may be foreclosed upon only by a court order.” TEX. CONST. art. XVI, § 50(a)(6)(D); see In re
Dominguez, 416 S.W.3d 700, 705 (Tex. App.—El Paso 2013, orig. proceeding). Although this
case involves a court order authorizing foreclosure, Hardesty contends that order is not valid
because it was purportedly issued pursuant to Rule 736 of the Texas Rules of Civil Procedure.
10
Hardesty also relies on the estate’s “Assignment of Causes of Action” to him. We do not consider this assignment,
as it was executed on February 29, 2012, after the summary judgment hearing on February 23, 2012.
12
TEX. R. CIV. P. 736. He further contends that in 2010, only a district court was authorized to
issue such an order.
Hardesty correctly notes that the version of Rule 736 in effect at the time the application
was filed required that “a verified application” should be filed “in the district court in any county
where all or any part of the real property encumbered by the lien sought to be foreclosed . . . is
located.” TEX. R. CIV. P. 736. 11 A Rule 736 foreclosure proceeding is an expedited type; no
discovery is permitted and if no response is filed within the allotted time and if the application
complies with Rule 736(1), the court must grant the application without further notice or hearing.
TEX. R. CIV. P. 736(4)–(6).
Appellees respond that the application seeking foreclosure was not filed pursuant to Rule
736 but was filed, rather, pursuant to Section 306(e)(3) of the Texas Probate Code. TEX. PROB.
CODE ANN. § 306(e)(3). They further contend that an expedited foreclosure pursuant to Rule
736 was not the sole means of foreclosure required in this circumstance, maintaining that such a
proceeding was but one of the available options for obtaining the required constitutional “court
order,” and it was not the option the holders of the lien elected to pursue. 12 In light of these
11
See TEX. R. CIV. P. 736, 61 Tex. B.J. 226 (1998, amended 2000). Rule 736 has since been rewritten and now
provides that application for an expedited order allowing foreclosure under Rule 735 “must be filed in a county
where all or part of the real property encumbered by the loan agreement, contract, or lien sought to be foreclosed is
located or in a probate court with jurisdiction over proceedings involving the property.” TEX. R. CIV. P. 736.1.
12
The version of Rule 735 in effect at the time the application was filed provided,
A party seeking to foreclose a lien created under TEX. CONST. art. XVI, § 50(a)(6), for a home
equity loan, . . . may file: (1) a suit seeking judicial foreclosure; (2) a suit or counterclaim seeking
a final judgment which includes an order allowing foreclosure under the security instrument and
TEX. PROP. CODE ANN. § 51.002; or (3) an application under Rule 736 for an order allowing
foreclosure.
13
contentions, we examine the proceedings in the probate court to determine whether the court
conducted an expedited foreclosure proceeding pursuant to Rule 736 or whether (as maintained
by the lienholder) the foreclosure proceedings were conducted in accord with Section 306 of the
Probate Code. See TEX. PROB. CODE ANN. § 306.
After Carolyn’s November 2007 death, Hardesty caused her will to be admitted to
probate. Following the July 9, 2010, appointment of a temporary administrator, CitiMortgage
filed its authenticated secured claim with that temporary administrator July 14, 2010. The
temporary administrator issued a memorandum of allowance, allowing “the claim in full as a
valid preferred debt and lien against the Property securing the indebtedness identified in
Mortgagee’s claim, to be paid according to the terms and conditions of the Loan Agreement” on
July 14, 2010. The language of the claim allowance tracks the language of Section 306(a)(2) of
the Probate Code. See TEX. PROB. CODE ANN. § 306(a)(2). 13
The following day, CitiMortgage filed its “Application for Foreclosure of Real Property
Pursuant to § 306(e)(3).” The application includes a synopsis, which indicates that “Claimholder
requests order authorizing foreclosure of real property and improvements of the Estate pursuant
to TEX. PROB. CODE § 306(e)(3).” Section 306(e)(3) is quoted in the application and is
TEX. R. CIV. P. 735, 61 Tex. B.J. 226 (1998, amended 2000).
13
Section 306(a)(2) of the Probate Code provides that
[w]hen a secured claim for money against an estate is presented, the claimant shall specify . . .
[w]hether it is desired to have the claim allowed, approved, and fixed as a preferred debt and lien
against the specific property securing the indebtedness and paid according to the terms of the
contract which secured the lien, in which event it shall be so allowed and approved if it is a valid
lien . . . .
TEX. PROB. CODE ANN. § 306(a)(2).
14
specifically relied on in the body of the application as the basis for the requested foreclosure. 14
In paragraph four of the application, CitiMortgage “seeks an order authorizing foreclosure of the
Property in conformity with Subsections (f) through (k) of § 306,” and requests issuance of show
cause citations on the personal representative and persons it says are heirs of the estate in accord
with Section 306(g). See TEX. PROB. CODE ANN. § 306(g).
The application also seeks an order “authorizing foreclosure in conformity with the
security instrument, Tex. Rules of Civil Procedure 735 and 736, and TEX. PROP. CODE § 51.002
as such would pass both constitutional and statutory muster as to the method and means to fairly
conduct a public sale.”
CitiMortgage attached its affidavit for foreclosure of real property pursuant to Section
306(f) of the Probate Code as an exhibit to the application seeking foreclosure in accord with the
requirements of the Code. The affidavit included each of the six elements required by the
section of the Probate Code under which it sought to be granted authority. See TEX. PROB. CODE
14
Section 306(e)(3) of the Probate Code provides, in relevant part:
If property securing a claim allowed, approved, and fixed under Paragraph (2) of Subsection (a)
hereof is not sold or distributed within six months from the date letters are granted, the
representative of the estate shall promptly pay all maturities which have accrued on the debt
according to the terms thereof, and shall perform all the terms of any contract securing same. If
the representative defaults in such payment or performance, on application of the claimholder, the
court shall:
....
(3) authorize foreclosure by the claimholder as provided by Subsections (f) through
(k) of this section.
TEX. PROB. CODE ANN. § 306(e)(3).
15
ANN. § 306(f). 15 The order authorizing foreclosure was issued December 14, 2010, six months
after the decedent’s will was admitted to probate, the timeframe set forth in Section 306(e)(3).
See TEX. PROB. CODE ANN. § 306(e)(3).
In addition to the fact that (1) the application explicitly states that it was filed pursuant to
Section 306(e)(3), (2) the substance of the application cites to the Probate Code, and (3) the
foreclosure proceedings were conducted in accord with the Probate Code, the application itself
fails to conform to certain Rule 736 requirements. Specifically, the application fails to comply
with the following Rule 736 requirements: (1) it is not verified as required by Rule 736(1); (2) it
is not styled “In re: Order for Foreclosure Concerning (Name of person to receive notice of
foreclosure) and (Property Mailing Address)” as required by Rule 736(1)(A); (3) it does not
identify the security instrument encumbering the property by reference to volume and page,
clerk’s file number, or other identifying recording information found in the official real property
records, as required by Rule 736(1)(D); and (4) it does not allege that the debt is secured by a
15
Section 306(f) of the Probate Code provides,
Foreclosure of Preferred Liens. An application by a claimholder under Subsection (e)
of this section to foreclose the claimholder’s lien or security interest on property securing a claim
that has been allowed, approved, and fixed under Paragraph (2) of Subsection (a) of this section
shall be supported by affidavit of the claimholder that:
(1) describes the property or part of the property to be sold by foreclosure;
(2) describes the amounts of the claimholder’s outstanding debt;
(3) describes the maturities that have accrued on the debt according to the terms of
the debt;
(4) describes any other debts secured by a mortgage, lien, or security interest against
the property that are known by the claimholder;
(5) contains a statement that the claimholder has no knowledge of the existence of
any debts secured by the property other than those described by the application; and
(6) requests permission for the claimholder to foreclose the claimholder’s mortgage,
lien, or security interest.
TEX. PROB. CODE ANN. § 306(f).
16
lien created under the Texas Constitution for a home equity loan, as required by Rule 736(2). In
light of these facts, we find that the application’s single reference to Rules 735 and 736 is
superfluous and not controlling of the authority by which foreclosure was ordered.
The application was filed in accord with Section 306 of the Probate Code, and the
proceedings resulting in the order authorizing foreclosure were conducted in accord with Section
306 of the Probate Code. Although the order makes a statement that an order of sale is to be
issued in accord with Rules 735 and 736, we do not believe form should rule over substance.
The application itself and the procedures followed indicate that the application was not made
pursuant to Rule 736 and, in fact, failed to comply with the requirements of that Rule.
Conversely, both the application and proceedings followed indicate that the foreclosure was
accomplished in accord with Section 306 of the Probate Code. See TEX. PROB. CODE ANN.
§ 306. The probate court thus had jurisdiction to issue the order authorizing foreclosure.
2. Jurisdiction to Adjudicate the Constitutional Claim
For his second basis of contention that the probate court lacked jurisdiction to enter the
foreclosure order, Hardesty claims the court was not jurisdictionally permitted to address
constitutional issues regarding the validity of the lien. More specifically, Hardesty argues that
because the lien failed to comply with Article XVI, Section 50(a)(6)(D) of the Texas
Constitution, the probate court lacked jurisdiction. Section 50(a)(6)(D) restricts the amount of
home equity loans to eighty percent of the property value. TEX. CONST. art. XVI, § 50(a)(6)(D).
Hardesty argues that “[b]ecause this extension of credit is invalid, Hardesty is not
constitutionally liable for it, thus the Probate Court had no jurisdiction to order the foreclosure of
17
the Property to satisfy the debt.” The issue is whether the probate court had subject-matter
jurisdiction to address the constitutional validity of the lien. We conclude that it did.
In support of his contention that the probate court lacked jurisdiction to address the
constitutionality of the lien, Hardesty relies on Cline v. Niblo, 8 S.W.2d 633, 636 (Tex. 1928). In
Cline, the court ordered the sale of the decedent’s homestead to pay general creditors of the
estate. Id. at 635. The Texas Supreme Court held that the probate court order was void for want
of jurisdiction over the subject matter, as homestead property cannot be sold to pay the ordinary
debts of the estate. Id. at 638–39. The court did not conclude, however, that the probate court
lacked jurisdiction to determine the validity or the constitutionality of the lien against the
homestead. Contrarily, the court noted that there can be no doubt that the probate court had
jurisdiction to determine what property left by the deceased person was subject to the homestead
exemption from forced sale for ordinary debts and whether there were family members
remaining who had the right to claim that exemption. Id. at 636. The probate court could not,
however, order the sale of homestead property that is constitutionally protected from sale. Id.
Cline does not support the proposition that the mere presence of a constitutional question
deprives a probate court of jurisdiction.
Here, the probate court had jurisdiction to enforce a valid existing lien against real
property that is estate property. TEX. PROB. CODE ANN. § 4B(a)(5), (c)(1). The issue of whether
the lien complies with Article XVI, Section 50(a)(6)(D) of the Constitution is an entirely
different issue—one which implicates the validity of the foreclosure order. The probate court
had jurisdiction to make this determination.
18
C. Hardesty’s Claim that the Lien Is Invalid Is Barred by Limitations
The home equity loan was closed July 23, 2004. Hardesty filed his original verified
petition and application for a temporary restraining order in district court June 10, 2011, wherein
he alleged that “[t]he home equity loan [] provided to Decedent does not comply with section
50(a)(6), Article XVI of the Texas Constitution because the loan violates section 50(a)(6)(B),
Article XVI of the Texas Constitution,” and sought a declaration from the district court that the
loan and security instrument do not comply with Section 50(a)(6)(B).
PrimeLending and CitiMortgage contend that the residual four-year limitations period,
which they claim commenced on the date of closing, bars Hardesty’s declaratory judgment
claim. See TEX. CIV. PRAC. & REM. CODE ANN. § 16.051. Conversely, Hardesty contends that a
lien made in violation of the Texas Constitution is void, not voidable, and thus is not subject to
any limitations period. Alternatively, Hardesty contends that even if his claim is subject to
limitations, the limitations period did not commence until Hardesty provided the holders of the
note and lien with the sixty-day notice to cure prescribed by Article XVI, Section 50(a)(6)(Q)(x)
of the Texas Constitution.
The essence of Hardesty’s argument is that Section 50(c) renders “void but curable” any
home-equity lien that does not strictly comply with a provision of Section 50(a)(6). See TEX.
CONST. art. XVI, § 50(a)(6), (c). Consequently, if the lien is void ab initio, a statute of
limitations does not apply. Under this reasoning, the void lien constitutes a cloud on the title and
can be removed in an equitable action without a limitations period. See Ditta v. Conte, 298
19
S.W.3d 187, 192 (Tex. 2009) (“[A]s long as an injury clouding the title remains, so too does an
equitable action to remove the cloud; therefore, a suit to remove the cloud is not time-barred.”).
Hardesty relies on Smith v. JPMorgan Chase Bank, National Association, 825 F. Supp. 2d
859 (S.D. Tex. 2011) (holding noncompliant home equity liens void ab initio), overruled by
Priester v. JP Morgan Chase Bank, N.A., 708 F.3d 667, 674 (5th Cir. 2013), cert. denied, 134
S. Ct. 196 (2013), as recognized in McDonough v. JP Morgan Chase Bank, N.A., No. 3:12-CV-
189, 2013 U.S. Dist. LEXIS 67545, at *4–6 (S.D. Tex. May 13, 2013), and Santos v.
CitiMortgage, Inc., No. 3:11–CV–2592–M–BK, 2012 WL 1058159, at *3 (N.D. Tex. Feb.7,
2012) (same), overruled by Priester, 708 F.3d at 674.
In Smith, the court concluded that the residual four-year statute of limitations did not
apply to the plaintiff’s claim that the defendant’s lien was void under Section 50(a), since
“[e]quitable claims to recover property based upon liens that are constitutionally void are not
barred by limitations.” Smith, 825 F. Supp. 2d at 868. In so holding, the Smith court
distinguished Rivera v. Countrywide Home Loans, Inc., 262 S.W.3d 834 (Tex. App.—Dallas
2008, no pet.). In Rivera, the plaintiffs alleged their home equity loan exceeded the eighty
percent loan-to-value ratio. In that case, unlike Smith, the plaintiffs agreed that the residual four-
year statute of limitations applied. Id. at 839. Due to this agreement, the Smith court determined
that “[w]hen the parties do not agree that the four-year residual statute of limitations
20
applies[,] . . . Rivera offers no guidance for the determination of that issue . . . .” Smith, 825
F. Supp. 2d at 866–67. 16
In Santos, the magistrate judge recommended that a motion to dismiss claims for home
equity loan violations based on limitations should be denied. Santos, 2012 WL 1065464, at *1.
The federal court adopted the recommendation in part and rejected it in part. Santos followed
the Smith case and held that a challenge to the lien claim was not subject to limitations.
However, the court also concluded that the claim for forfeiture of all principal and interest due
four years before the suit was brought was barred by the residual four-year statute of limitations.
Id.
The lienholders rely on the Fifth Circuit Court of Appeals’ decision in Priester v. JP
Morgan Chase Bank, N.A., 708 F.3d 667 (5th Cir. 2013), cert. denied, 134 S. Ct. 196 (2013), and
the Dallas Court of Appeals’ decision in Williams v. Wachovia Mortgage Corp., 407 S.W.3d 391
(Tex. App.—Dallas 2013, pet. denied), in support of their claim that Hardesty’s constitutional
claim is barred by the four-year statute of limitations. They contend that a lien that violates
Section 50(a)(6) is voidable (not void) because Article XVI, Section 50(a)(6)(Q)(x) of the Texas
Constitution allows a lender to cure a lien that would otherwise be invalid.
16
The court noted,
To hold otherwise—that claims of constitutional violations can be barred by limitations—upsets
the checks and balances provided by the constitutional language. The result seen in Rivera and the
cases following it is that: (1) constitutional infirmities that could be cured in home equity loans
are never required to be cured; or (2) borrowers have no remedy to correlate with their rights,
which rights have been instituted for the purposes of protecting borrowers from destitution and
homelessness and encouraging independence. Inwood N. Homeowners’ Ass’n v. Harris, 736
S.W.2d 632, 634–35 (Tex. 1987) (citing Franklin v. Coffee, 18 Tex. 413, 415 (1857)).
Smith, 825 F. Supp. 2d at 868.
21
In Priester, the plaintiffs sought to invalidate a home equity loan five years after the
closing date on grounds that the loan violated two provisions of Section 50(a)(6). Priester, 708
F.3d at 672–73 (acknowledging claim that loan was signed at plaintiffs’ home and plaintiffs did
not receive notice of their rights twelve days before closing in violation of Texas Constitution).
The plaintiffs notified the lender’s predecessor-in-interest of this problem and requested cure
under Section 50(a)(6)(Q)(x). Id. at 673. When no cure was forthcoming, the plaintiffs filed a
declaratory judgment action seeking to declare the loan and the lien void. In deciding whether a
statute of limitations applied (meaning the lien was merely voidable), the court stated,
The decision in Doody v. Ameriquest Mortgage Co., 49 S.W.3d 342 (Tex. 2001),
offers indirect support for the applicability of limitations. The court responded to
a question certified by this court on the issue of cure, explaining that a lien cured
under Section 50(a)(6)(Q) became valid even if it was “invalid” before the cure.
Id. at 347. Discussing forfeiture, the court stated that “if a lien that secures such a
loan is voided,” the lender loses all rights to recovery. Id. at 346. That language
suggests that the Texas Supreme Court considers liens created in violation of
Section 50(a)(6) to be voidable rather than void—a “void” lien could not be
“voided” by future action.
Id. at 674. Further, “[b]ecause a cure provision exists in Section 50(a)(6)(Q), liens that are
contrary to the requirements of § 50(a) are voidable rather than void from the start.” Id. at 674
n.4.
If a lien is merely voidable, as determined in Priester, the defect can be cured and is not a
cloud on title. See Doody, 49 S.W.3d at 346 (stating that lien that may be invalidated at the
outset may not support remedy at later date). Therefore, the Priester court concluded a statute of
limitations period should be applied to all claims under Section 50(a)(6) because it is contrary to
the constitutional scheme that a person can indefinitely seek a remedy for a curable title defect.
22
See Priester, 708 F.3d at 674 n.4. Once the limitations period has passed, a voidable lien
becomes valid. See id. at 675. The Fifth Circuit went on to hold that such a claim accrues at the
lien’s closing, rather than on the date the plaintiff discovers the injury. “The injury occurred
when the Priesters created the lien, and there was nothing that made the injury undiscoverable.”
Id. at 676. Accordingly, limitations began at the time of closing. “A lack of knowledge that that
was a violation of the law is insufficient to toll limitations.” Id.
In reaching this decision, the Fifth Circuit expressly declined to follow the reasoning of
Smith and Santos, both of which are relied on by Hardesty. Both of these decisions were
effectively overruled by the Priester decision, which reached the opposite conclusion, and which
is controlling precedent in the Fifth Circuit.
The Texas Supreme Court has not written on this issue. However, at least two appellate
courts have followed the reasoning outlined in Priester. The first to do so was the Dallas court
in the Williams decision. In that case, Williams’ husband took out a loan on the community’s
home without the joinder of his wife, representing himself to the lender to be a single man.
Williams, 407 S.W.3d at 392. Six years after she discovered the home-equity loan and lien,
Williams filed suit for declaratory judgment, seeking to have the lien declared void. Id. at 392–
93, 398. The trial court granted the defendants’ motion for summary judgment, which was based
in part on the applicability of the four-year residual statute of limitations found in Section 16.051
of the Texas Civil Practice and Remedies Code. Id. at 393. Williams argued on appeal that the
home equity lien on her homestead was void because she did not sign the agreement granting the
lien or consent to it. Id. at 395; see TEX. CONST. art. XVI, § 50(a)(6)(A). Finding the Priester
23
court’s analysis persuasive, the Williams court held that the noncompliant home-equity lien was
merely voidable. Id. at 397. As a result, the claim was subject to the residual four-year
limitations period and was barred. Id. at 398.
More recently, the Fourteenth court followed the Priester court’s analysis in Wood v.
HSBC Bank USA, N.A., 439 S.W.3d 585, 591 (Tex. App.—Houston [14th Dist.] 2014, pet. filed).
In that case, Wood filed claims for monetary and declaratory relief based on alleged violations of
the home-equity lending protections in Article XVI, Section 50(a)(6) of the Texas Constitution.
Id. at 588. In holding that a home-equity lien that does not comply with Section 50(a)(6) is
voidable, the court relied on Priester, stating that the analysis is
persuasive not only because of its sound reasoning, but also because its
conclusion comports with Texas Supreme Court precedent on the key distinction
between a void act and a voidable act, which is a party’s ability—either through
its own action or through the judicial process—to disaffirm, ratify, or confirm a
voidable act. See Brazzel v. Murray, 481 S.W.2d 801, 803 (Tex. 1972) (“A void
act is one entirely null within itself, not binding on either party, and which is not
susceptible of ratification or confirmation. . . . A voidable act . . . is binding until
disaffirmed, and . . . may be made finally valid by failure within proper time to
have it annulled, or by subsequent ratification or confirmation.”); Slaughter v.
Qualls, 139 Tex. 340, 162 S.W.2d 671, 674 (Tex. 1942); Murchison v. White, 54
Tex. 78, 81 (1880); Cummings v. Powell, 8 Tex. 80, 85 (1852); see also Oles v.
Curl, 65 S.W.3d 129, 131 n.1 (Tex. App.—Amarillo 2001, no pet.) (“Simply put,
if a supposedly void act can be validated then the act cannot actually be void.”);
In re Moreno, 4 S.W.3d 278, 280–81 (Tex. App.—Houston [14th Dist.] 1999, no
pet.); Bayoud v. Bayoud, 797 S.W.2d 304, 309 (Tex. App.—Dallas 1990, writ
denied).
Id. at 591. The court held that due to the constitutional cure provision, “homestead liens that do
not comply with the constitutional requirements are voidable.” Id. at 592 (citing Priester, 708
F.3d at 674; Williams, 407 S.W.3d at 396–97).
24
The claim for declaratory relief here is based on an alleged violation of the home-equity
lending protections in Article XVI, Section 50(a)(6) of the Texas Constitution, and is subject to
cure. We adopt the reasoning of Priester and that of our sister courts to find that because the lien
in this case is merely voidable, the four-year residual statute of limitations applies to Hardesty’s
claim. 17
Since the lienholders are interposing limitations as a defense, they must shoulder the
burden to conclusively prove when Hardesty’s cause of action accrued. See KPMG Peat
Marwick v. Harrison Cnty. Hous. Fin. Corp., 988 S.W.2d 746, 748 (Tex. 1999) (defendant who
moves for summary judgment on affirmative defense of limitations must conclusively prove
when cause of action accrued); Rivera, 262 S.W.3d at 840. In Rivera and in Williams, the Dallas
court applied the legal injury rule to determine the accrual date: “[t]he general rule governing
the accrual of a claim for purposes of limitations is ‘the legal injury rule,’ which states that a
claim accrues ‘when a wrongful act causes some legal injury, even if the fact of injury is not
discovered until later, and even if all resulting damages have not yet occurred.’” Williams, 407
17
We appreciate the traditional view that the Texas Constitution would treat unfruitful attempts to encumber
homestead property as void. As stated by the Texas Supreme Court long ago,
The Constitution forbidding the fixing on the homestead of liens other than such as are thereby
expressly permitted, no estoppel can arise in favor of a lender, who has attempted to secure a lien
on homestead in actual use and possession of the family, based on declarations of the husband and
wife, made orally or in writing, contrary to the fact. To hold otherwise would practically abrogate
the constitution. If property be homestead in fact and law, lenders must understand that liens
cannot be fixed upon it, and that declarations of husband and wife to the contrary, however made,
must not be relied upon. They must further understand that no designation of homestead, contrary
to the fact, will enable parties to evade the law, and incumber homesteads with liens forbidden by
the constitution.
Tex. Land & Loan Co. v. Blalock, 13 S.W. 12, 13 (Tex. 1890). However, we recognize that the same Constitution
which was many times previously applied to render attempts to circumvent the homestead protection void ab initio
is the very Constitution that was amended to permit this kind of loan.
25
S.W.3d at 398 (quoting Rivera, 262 S.W.3d at 840)). Likewise, Wood applied the legal injury
rule to determine when the cause of action accrued, rejecting the position that the cause of action
accrued on the bank’s failure to cure, an argument Hardesty makes here. Wood, 439 S.W.3d at
594.
Applying the legal injury rule, Hardesty’s claim accrued July 23, 2004, the closing date
of the allegedly deficient loan. We note that Hardesty, present with Carolyn at the closing, had
actual notice of it. The limitations period thus expired July 23, 2008. Suit was filed June 10,
2011, almost seven years after the closing date. Thus, Hardesty’s claim that the lien is not valid
is barred by the four-year residual statute of limitations. See TEX. CIV. PRAC. & REM. CODE
ANN. § 16.051; Williams, 407 S.W.3d at 398. The trial court thus did not err in granting
appellees’ summary judgment based on the limitations bar. 18
D. The Statute of Frauds Bars Hardesty’s Fraud Claim Against CitiMortgage
Hardesty alleged that CitiMortgage represented to Hardesty that it would pay taxes on the
Property—so long as Hardesty continued to make mortgage payments—until such time as
Hardesty “could get title to the Property.” Hardesty claims this promise was “a false promise of
future performance” because CitiMortgage obtained an order authorizing foreclosure based on
18
Because we find that Hardesty’s claim that the loan and resulting lien violate the home-equity lending protections
in Article XVI, Section 50(a)(6) of the Texas Constitution is barred by limitations, we need not address the issue
whether the loan and resulting lien were, in fact, invalid.
Hardesty further alleged that “Defendants’ statements [regarding loan value] were made to induce
[Hardesty] and [Decedent] to sign a home equity lien,” that “[b]ased on these statements, [Hardesty] instructed
[Decedent] to sign the lien documents,” and that “[b]ased on Defendants’ statements, [Decedent] signed the lien
documents.” Hardesty contends that “Defendants” thereby fraudulently induced Hardesty, a stranger to the loan
transaction, and Decedent, the borrower, into the loan transaction. Hardesty does not address the statute of
limitations as it applies to his fraudulent inducement claim. Hardesty’s brief indicates his statute of limitations
arguments are limited to the claims under the declaratory judgment. We therefore do not address the issue of
whether Hardesty’s fraudulent inducement claims are barred by limitations.
26
past due tax payments, and accordingly, CitiMortgage is allegedly guilty of fraud. While
CitiMortgage raised various affirmative defenses in its original answer, those defenses did not
include the statute of frauds and contractual waiver.
On appeal, Hardesty contends the trial court erred in granting summary judgment in favor
of CitiMortgage on his fraud claim because the affirmative defenses of the statute of frauds and
contractual waiver were not pled in CitiMortgage’s answer. 19 CitiMortgage contends that it
properly pled its statutes of frauds defense March 7, 2012—the date of the summary judgment
hearing—and these pleadings were considered by the trial court as reflected in its first summary
judgment order dated April 2, 2012. While CitiMortgage never affirmatively pled contractual
waiver, per se, it claims this defense is subsumed within its statute of frauds defense.
Here, the amended pleading was filed the very day of the hearing. Thus, it was not
timely filed, unless filed with leave of court. See Goswami v. Metro. Savs. & Loan Ass’n, 751
S.W.2d 487, 490 (Tex. 1988) (applying Rule 63 of the Texas Rules of Civil Procedure).
Although there is no indication in the record that leave of court to file the amended pleading was
expressly granted by the trial court, leave of court is presumed when (1) a summary judgment
states that all pleadings were considered, (2) the record does not indicate that that an amended
pleading was not considered, and (3) the opposing party does not show surprise. Cont’l Airlines,
Inc. v. Kiefer, 920 S.W.2d 274, 276 (Tex. 1996). The judgment recited that the court, “after
considering . . . all pleadings on file,” concluded that CitiMortgage was entitled to summary
19
Hardesty concedes that CitiMortgage’s original answer to Hardesty’s second amended petition raised the
affirmative defense of the statute of frauds, but that answer was not filed until March 7, 2012, more than a month
after CitiMortgage filed its first motion for summary judgment on February 3, 2012.
27
judgment. Nothing in the record indicates that the amended pleading was not considered.
Further, Hardesty did not indicate that the late filing caused him surprise. On the contrary,
Hardesty’s summary judgment response addressed the statute of frauds defense. 20 We presume
that CitiMortgage filed its amended pleading with leave of court. See id. The trial court, thus,
appropriately considered CitiMortgage’s statute of frauds defense.
CitiMortgage contends (and we agree with that contention) that its “contractual waiver”
defense is subsumed within its statute of frauds defense. This conclusion is based on
CitiMortgage’s amended pleading, which states that “CitiMortgage affirmatively asserts that
Plaintiff’s claims are barred by the Statute of Frauds, including, but not limited to, Texas
Business and Commerce Code § 26.01 and § 26.02.” The language in the loan document on
which CitiMortgage relies states,
THIS WRITTEN LOAN AGREEMENT TO WHICH THIS NOTICE RELATES
REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND
MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
The quoted language is almost a verbatim recital of the language required for a notice to comply
with Section 26.02(b). See TEX. BUS. & COM. CODE ANN. § 26.02(b), (e) (West 2009).
Under the Texas statute of frauds, a loan agreement in which the amount involved
exceeds $50,000.00 in value is not enforceable unless the agreement is in writing and signed by
20
We acknowledge that Hardesty objected to the sections in CitiMortgage’s motion for summary judgment entitled
“Claim Based on Alleged Oral Agreement Barred By Express Terms of Loan Documents” and “Claim Barred By
Statute of Frauds” on the basis that these claims were not supported by CitiMortgage’s pleadings. The trial court’s
order stated, “Hardesty’s objections are overruled.”
28
the party to be bound or by that party’s authorized representative. TEX. BUS. & COM. CODE ANN.
§ 26.02(b); see also BACM 2001–1 San Felipe Rd. Ltd. P’ship v. Trafalgar Holdings I, Ltd., 218
S.W.3d 137, 144 (Tex. App.—Houston [14 Dist.] 2007, pet. denied) (“To satisfy the Statute of
Frauds, all loan agreements involving amounts exceeding $50,000 must be in writing.”). Section
26.02 defines “loan agreement” broadly. Subject to exceptions not applicable here, a “loan
agreement”
means one or more promises, promissory notes, agreements, undertakings,
security agreements, deeds of trust or other documents, or commitments, or any
combination of those actions or documents, pursuant to which a financial
institution loans or delays repayment of or agrees to loan or delay repayment of
money, goods, or another thing of value or to otherwise extend credit or make a
financial accommodation.
TEX. BUS. & COM. CODE ANN. § 26.02(a)(2) (West 2009). This definition specifically includes
any promise by a financial institution to “make a financial accommodation” as a “loan
agreement.” Id. CitiMortgage’s agreement to pay the taxes for 2007 and 2008 with no interest
charged back to Hardesty can fairly be described as a financial accommodation, and thus, as a
loan agreement under the statute of frauds. 21 But, as Hardesty points out, the taxes paid by
CitiMortgage (even beyond 2008) were only $35,923.50, and thus, do not reach the $50,000.00
statutory floor. So, claims Hardesty, this provision of the statute of frauds cannot bar his fraud
claim based on the oral agreement.
CitiMortgage argues that Sections 26.02(d) and (e) prohibit the enforceability of the
agreement. Section 26.02(d) provides that a loan agreement that is subject to “Subsection (b) of
this section may not be varied by any oral agreements or discussions that occur before or
21
CitiMortgage does not argue that this agreement was incapable of performance within one year.
29
contemporaneously with the execution of the agreement.” TEX. BUS. & COM. CODE ANN.
§ 26.02(d) (West 2009) (footnote omitted). Section 26.02(e) requires, “In a loan agreement
subject to Subsection (b) of this section, the financial institution shall give notice to the debtor or
obligor of the provisions of Subsections (b) and (c) of this section.” 22 TEX. BUS. & COM. CODE
ANN. § 26.02(e). In essence, the lending institution must notify the debtor or obligor, in a
separate written document, about Section 26.02(d)’s prohibition against oral modifications. See
id. The oral agreement here is unenforceable, claims CitiMortgage, because it represents a
modification of the original loan agreement, which clearly falls within the statute of frauds.
CitiMortgage contends the agreement thus fails to comply with Subsection 26.02(d) and the
notice requirement set forth in the loan document signed by Carolyn.
Hardesty argues that the language of the quoted notice does not apply to him because he
was not a signatory to the loan agreement. That agreement was executed by and between
Carolyn and PrimeLending, the predecessor-in-interest to CitiMortgage. Hardesty’s argument is
based on the logic that because he had no prior obligation to make payments on the loan to
CitiMortgage, he, as a stranger to the loan agreement, was not in a position to modify it. Instead,
Hardesty claims that he made a new agreement with CitiMortgage for their mutual benefit.
Hardesty cites no direct authority for this position. Instead, he relies on Neal v. SMC Corp., 99
S.W.3d 813, 817 (Tex. App. Dallas—2003, no pet.) (revocation requires privity of contract).
22
Subsection (b) states, “A loan agreement in which the amount involved in the loan agreement exceeds $50,000 in
value is not enforceable unless the agreement is in writing and signed by the party to be bound or by that party’s
authorized representative.” TEX. BUS. & COM. CODE ANN. § 26.02(b). Subsection (c) states, “The rights and
obligations of the parties to an agreement subject to Subsection (b) of this section shall be determined solely from
the written loan agreement, and any prior oral agreements between the parties are superseded by and merged into the
loan agreement. TEX. BUS. & COM. CODE ANN. § 26.02(c) (West 2009).
30
Because revocation is only available to parties to the contract, Hardesty contends that the alleged
modification of the loan contract in this case could have only been accomplished by the parties to
the contract. Thus, Hardesty reasons, his agreement with CitiMortgage cannot be a modification
of the original loan document. Instead, it was a new agreement which was not barred by the
statute of frauds. Further, the language of the notice explicitly states that it applies to the loan
agreement “BETWEEN THE PARTIES.” 23
CitiMortgage cites numerous cases which stand for the proposition that a bank’s alleged
promise to delay foreclosure is barred by the “no subsequent oral modification” provision. 24
These cases do not, however, address the issue of an alleged oral modification of a loan
agreement by a non-signatory thereto.
CitiMortgage also relies on one case similar to this one, involving a non-signatory to the
loan agreement. In Kiper v. BAC Home Loan Servicing, LP, 884 F. Supp. 2d 561, 575 (S.D. Tex.
2012), Kiper’s wife (the actual borrower) defaulted on her obligation to repay the mortgage loan
on the couple’s home. Kiper was not a signatory to the note or deed of trust. In his action to
enjoin foreclosure, inter alia, Kiper alleged he entered into an oral agreement with the lender to
defer foreclosure and enter a loan modification. Id. at 571. Without discussing the issue of
Kiper’s non-signatory status to the note and deed of trust, the court held that the statute of frauds
23
Hardesty does not contend that any type of equitable exception should avoid the statute of frauds.
24
See Ellen v. F.H. Partners, No. 03-09-00310-CV, 2010 WL 4909973, at *5 (Tex. App.—Austin Dec. 1, 2010, no
pet.) (mem. op.) (Section 26.02 barred enforcement of oral promise to delay foreclosure); see also Krudop v. Bridge
City State Bank, No. 09-05-111CV, 2006 WL 3627078, at *4 (Tex. App.—Beaumont Dec. 14, 2006, pet. denied)
(mem. op.) (no oral modification provision prohibited enforceability of oral modification to delay foreclosure); Bank
of Tex., N.A. v. Gaubert, 286 S.W.3d 546, 556 (Tex. App.—Dallas 2009, pet. dism’d w.o.j.) (oral modification of
agreement to delay repayment of loan unenforceable).
31
barred Kiper’s oral agreement claims, stating, “[T]he statute of frauds bars and makes
unenforceable oral modifications to a loan agreement under § 26.02 . . . .” Id. “Thus even if the
bank orally did promise and approve a loan modification to Kiper, the statute of frauds would
preclude recovery on his claim.” Id.
In light of Kiper, CitiMortgage reads Section 26.02 broadly to apply to any mortgage
modifications exceeding $50,000.00, regardless of whether the alleged modification was made
by a stranger to the loan document. Indeed, the language of Section 26.02(d) can be read this
broadly: “An oral agreement subject to Subsection (b) of this section may not be varied by any
oral agreements or discussions that occur before or contemporaneously with the execution of the
agreement.” TEX. BUS. & COM. CODE ANN. § 26.02(d) (emphasis added) (footnote omitted).
This section does not limit the modification prohibition to parties. It applies to any oral
agreement. The oral agreement is described, though, as one that occurs before or
contemporaneously with the execution of the agreement. Here, the oral modification occurred
subsequent to the execution of the agreement. Subsection (e), however, applies to prior,
contemporaneous, or subsequent oral agreements. Id. at § 26.02(e). The notice set forth in the
loan documents explicitly applies to subsequent oral agreements.
The alleged oral agreement amounts to an oral modification of a loan agreement that the
Legislature intended to prohibit when it enacted Section 26.02. We hold that the loan
32
modification here was barred by the statute of frauds. Accordingly, the trial court did not err in
granting summary judgment on Hardesty’s fraud claim. 25
E. The Trial Court Acted Within its Discretion in Awarding Attorney Fees to
CitiMortgage
In his final point of error, Hardesty contends that the trial court abused its discretion in
awarding attorney fees to CitiMortgage because (1) recoverable and non-recoverable fees were
not segregated, (2) the conditional appellate fee award is not supported by evidence of
reasonableness, and (3) the fee award was not equitable and just.
A court may award attorney fees only if those fees are provided for by statute or by
contract. Gulf States Utils. Co. v. Low, 79 S.W.3d 561, 567 (Tex. 2002). Such fees may be
awarded in a declaratory judgment action. TEX. CIV. PRAC. & REM. CODE ANN. § 37.009 (West
2008) (court may award costs and reasonable and necessary fees as equitable and just). “An
award of attorney’s fees is generally inappropriate for defending claims for . . . fraud.” Lindley
v. McKnight, 349 S.W.3d 113, 135 n.26 (Tex. App.—Fort Worth 2011, no pet.) (citing MBM
Fin. Corp. v. Woodlands Operating Co., 292 S.W.3d 660, 667 (Tex. 2009)). 26
As a part of its summary judgment motion, CitiMortgage sought the recovery of attorney
fees in connection with Hardesty’s declaratory judgment action. In support of this request,
CitiMortgage attached the affidavit of Joseph P. Regan to its motion. Regan testified that his
25
CitiMortgage further contends that the summary judgment was appropriately granted because Hardesty’s fraud
claim was barred by res judicata and/or collateral estoppel. Because we decide the fraud claim is barred by the
statute of frauds, we need not address the issue of whether that claim is likewise barred by res judicata and/or
collateral estoppel.
26
A trial court’s award of attorney fees under the Declaratory Judgments Act is reviewed for an abuse of discretion.
Bocquet v. Herring, 972 S.W.2d 19, 21 (Tex. 1998). A trial court abuses its discretion if its decision is arbitrary,
unreasonable, and without reference to guiding principles. Id.
33
primary practice involves business, real estate, and commercial litigation in Tarrant County,
Texas, and that he has personal knowledge of reasonable rates for attorneys in Tarrant County
for litigation and trial work. Regan, a shareholder in Winstead PC (Winstead) testified that
Winstead has, in its representation of CitiMortgage, reviewed documents, investigated and
researched the parties’ claims, responded to claims for injunctive relief, prepared for and
attended hearings, deposed Hardesty, and prepared and filed its motion for summary judgment.
The sum of attorney fees incurred at the time the summary judgment motion was filed was
$37,264.00. Regan testified that based on his experience and based on the nature of the claims
asserted, the hourly rates charged by Winstead were reasonable in Tarrant County for the
services performed. Further, Regan testified that the sum of $37,264.00 was reasonable and
necessary for the work performed on behalf of CitiMortgage from February 1, 2011, to
October 31, 2011.
Hardesty objected to Regan’s affidavit because Regan failed to segregate recoverable
fees from non-recoverable fees. The trial court thereafter conducted an evidentiary hearing on
CitiMortgage’s application for attorney fees. At the hearing, Regan outlined his personal
knowledge regarding the events of the case and the declaratory relief and fraud claims raised by
Hardesty. 27 Regan further testified that (1) ninety percent of the work performed on behalf of
CitiMortgage would have been necessary to adjudicate the declaratory judgment claim if there
had been no fraud claim asserted, and (2) the total amount of fees, segregated at ninety percent
27
CitiMortgage claims Hardesty failed to timely object to its fee claim. We disagree. Hardesty responded to
CitiMortgage’s motion for summary judgment on March 2, 2012, and further objected to Regan’s affidavit on
March 21, 2012. The trial court did not consider the fee claim at the summary judgment hearing, stating in its order
that a hearing on fees would be “set for hearing in due course.” The fee hearing was conducted on June 25, 2012.
34
for the declaratory judgment claim, is $40,525.50. When those fees are added to the
uncontroverted expenses of $1,854.53, the total segregated fees and expenses are $42,379.65.
The trial court found that CitiMortgage was entitled to recover the sum of $42,379.65 for “the
reasonable and necessary attorneys’ fees and expenses [it] incurred . . . through the trial of this
case on Hardesty’s declaratory relief claims.”
CitiMortgage contends that Regan’s testimony appropriately segregated fees incurred in
defense of the declaratory judgment action (ninety percent) versus those incurred in the defense
of the fraud claim (the remaining ten percent). CitiMortgage thus claims the segregation
argument is without merit. We agree. While a claimant must segregate recoverable from
unrecoverable fees, the Texas Supreme Court has explained,
This standard does not require more precise proof for attorney’s fees than for any
other claims or expenses. Here, [Plaintiff’s] attorneys did not have to keep
separate time records when they drafted the fraud, contract, or DTPA paragraphs
of her petition; an opinion would have sufficed stating that, for example, 95
percent of their drafting time would have been necessary even if there had been
no fraud claim.
Tony Gullo Motors I, L.P. v. Chapa, 212 S.W.3d 299, 314 (Tex. 2006); see Ropa Exploration
Corp. v. Barash Energy, Ltd., No. 02-11-00258-CV, 2013 WL 2631164, at *12 (Tex. App.—
Fort Worth June 13, 2013, pet. denied) (mem. op.). It was therefore permissible for Regan to
offer his opinion that ninety percent of the services rendered for CitiMortgage related to the
declaratory judgment claim. Hardesty offered no controverting evidence that CitiMortgage’s
fees were capable of further segregation, and the trial court awarded only the segregated fees.
35
Hardesty next contends that the trial court’s award of the conditional appellate fee award
was not supported by evidence of reasonableness. 28 Where attorney fees are recoverable, the
award may include appellate attorney fees. Jones v. Am. Airlines, Inc., 131 S.W.3d 261, 271
(Tex. App.—Fort Worth 2004, no pet.). “To support the award of appellate attorneys’ fees, there
must be evidence of the reasonableness of the fees pertaining to the appellate work, and the trial
court must condition the award of attorneys’ fees to an appellee upon the appellant’s
unsuccessful appeal.” Id.
Counsel for Hardesty stated (although she did not take the stand and formally testify) that
in her appellate experience, 29 conditional appellate attorney fees of $35,000.00 is very high and
such a fee is not reasonable. She further stated (that her testimony would be) that the entire
appellate fee through a petition in the Texas Supreme Court should be only $25,000.00. The trial
court opined that “$35,000 is a [sic] unusual amount of money to request to appeal a case from
this Probate Court to our court of appeals.” Regan attempted to justify the fee by explaining that
the record in this case is voluminous. He further testified that based on his experience, it is not
uncommon to see appellate fees to a court of appeals approach $50,000.00 and that in this case,
$35,000.00 is a reasonable amount. Counsel further testified that additional fees in the Supreme
Court were likewise reasonable.
28
Hardesty also contends counsel did not have sufficient appellate experience to provide conditional fee testimony.
Counsel’s appellate experience includes seven years as an ex officio member of Winstead’s Appellate Practice
Group. Counsel testified that he frequently assisted in researching and drafting appellate briefs and has been listed
as counsel on such briefs in approximately six to ten cases.
29
Counsel re-counted extensive experience.
36
The trial court considered this evidence and awarded less than CitiMortgage’s request.
The conditional fee award was lowered to $25,000.00 in the Court of Appeals, and was likewise
lowered to $20,000.00 in the event a petition for review is filed with the Texas Supreme Court.30
Finally, in the event the trial court’s judgment is affirmed in the Texas Supreme Court,
CitiMortgage was awarded the additional sum of $10,000.00. 31 In making this award, the trial
court took judicial notice of its file and relied, at least in part, on its own knowledge and
experience in awarding conditional attorney fees.
The mere fact that a trial court may decide a matter within its discretionary authority in a
different manner than an appellate court in a similar circumstance does not demonstrate an abuse
of discretion. Downer v. Aquamarine Operators, Inc., 701 S.W.2d 238, 242 (Tex.1985). We,
thus, cannot conclude that the trial court abused its discretion in the grant of the conditional
attorney fee award.
Finally, Hardesty attacks the entire fee award as being inequitable and unjust in light of
the fact that he has paid CitiMortgage “nearly $90,000” in reliance on a promise that
CitiMortgage would not foreclose on the Property. Hardesty claims that the fee award rewards
CitiMortgage for breaching its agreement not to foreclose, after having reaped the benefit of
Hardesty’s detrimental reliance on that agreement.
Trial courts have wide discretion in determining what is equitable and just in awarding
attorney fees, and appellate courts will not overturn such a decision unless it is clear from the
30
CitiMortgage requested $25,000.00 for this conditional fee.
31
CitiMortgage requested $12,000.00 for this conditional fee.
37
facts the trial court abused its discretion. McCarthy Bros. Co. v. Cont’l Lloyds Ins. Co., 7
S.W.3d 725, 731 (Tex. App.—Austin 1999, no pet.). The trial court’s conclusion regarding an
equitable and just fee award is based on all of the circumstances of the case. Carpenter v.
Carpenter, No. 02-10-00243-CV, 2011 WL 5118802, at *5–6 (Tex. App.—Fort Worth Oct. 27,
2011, pet. denied) (mem. op.) (rejecting claim that equitable and just fee award involved fact
question, stating instead that issue was question of law, committed to trial court’s sound
discretion).
Hardesty relies on Doll v. Hurst, No. 03-02-00576-CV, 2003 WL 21939711, at *10 (Tex.
App.—Austin Aug. 14, 2003, pet. denied) (mem. op.), in support of his position that the trial
court abused its discretion in awarding fees to CitiMortgage. In Doll, the court held that a fee
award would be inequitable and unjust in light of the fact that the successful counter-defendant
had already gained a benefit through the use of the plaintiff’s property by way of an easement.
Id. Such a decision was not an abuse of discretion. Id.
Here, the trial court determined that a fee award to CitiMortgage was equitable and just—
even though Hardesty made substantial note payments on the foreclosed property. In light of all
of the circumstances of the case, we do not find an abuse of discretion. Certainly, the fact that
CitiMortgage prevailed in its declaratory judgment action is a factor for the trial court to
consider, although that factor alone is not determinative. See Carpenter, 2011 WL 21939711, at
*8. Here, the trial court was also aware that recovery of sums Hardesty paid to CitiMortgage
was not foreclosed in light of the fact that Hardesty’s unjust enrichment and promissory estoppel
38
claims survived summary judgment. 32 Yet another consideration was the fact that a substantial
sum—in excess of $500,000.00—was owed on the property at the time of foreclosure, and the
foreclosure order was growing stale. Finally, Hardesty had been living on the property without
making payments for some period of time. The trial court may well have considered additional
factors, not mentioned here, in concluding the fee award was equitable and just.
Finding no abuse of discretion, we overrule each of Hardesty’s complaints regarding the
attorney fee award.
VI. Conclusion
We affirm the trial court’s judgment.
Bailey C. Moseley
Justice
Date Submitted: September 10, 2014
Date Decided: November 18, 2014
32
These claims were severed by the trial court.
39
TABLE 1
Table of Citations
In re: The Estate of Carolyn C. Hardesty, Deceased, 06-13-00048-CV
FORMER CURRENT
PROBATE CODE SESSION LAW CITATION ESTATES CODE
CITATION CITATION
Act of May 20, 2009, 81st Leg., R.S., ch.1351,
TEX. PROB. CODE § 12(b), sec. 4A, 2009 Tex. Gen. Laws 4273, 4276, TEX. ESTATES CODE
ANN. § 4A(b) repealed by Act of May 20, 2009, 81st Leg., R.S., ANN. § 32.001
ch. 1351, § 13(b), 2009 Tex. Gen. Laws 4273, 4282.
Act of May 20, 2009, 81st Leg., R.S., ch.1351,
TEX. PROB. CODE
§ 12(b), sec. 4B, 2009 Tex. Gen. Laws 4273, 4276, TEX. ESTATES CODE
ANN. §§ 4B(a)(5),
repealed by Act of May 20, 2009, 81st Leg., R.S., ANN. § 31.002
4B(c)(1)
ch. 1351, § 13(b), 2009 Tex. Gen. Laws 4273, 4282.
Act of May 20, 2009, 81st Leg., R.S., ch.1351,
TEX. PROB. CODE § 12(b), sec. 4F, 2009 Tex. Gen. Laws 4273, 4278, TEX. ESTATES CODE
ANN. § 4F repealed by Act of May 20, 2009, 81st Leg., R.S., ANN. § 32.005
ch. 1351, § 13(b), 2009 Tex. Gen. Laws 4273, 4282.
Act of May 23, 1983, 68th Leg., R.S., ch. 958, § 1,
sec. 5B, 1983 Tex. Gen. Laws 5228, 5228, amended
by Act of May 20, 1999, 76th Leg., R.S., ch. 1431,
§ 1, sec. 5B, 1999 Tex. Gen. Laws 4876, 4876,
amended by Act of June 2, 2003, 78th Leg., R.S., ch.
204, § 3.06, sec. 5B, 2003 Tex. Gen. Laws 847, 854,
TEX. PROB. CODE TEX. ESTATES CODE
amended by Act of May 20, 2009, 81st Leg., R.S.,
ANN. § 5B(a) ANN. § 34.001
ch.1351, § 12(c), 2009 Tex. Gen. Laws 4273, 4278,
amended by Act of May 29, 2011, 82d Leg., R.S.,
ch. 1338, § 1.03, sec. 5B, 2011 Tex. Gen. Laws
3882, 3883, transferred by Act of May 9, 2013, 83d
Leg., R.S., ch. 161, § 6.009, 2013 Tex. Sess. Law
Serv. 623, 634.
40
TABLE 1
Table of Citations
In re: The Estate of Carolyn C. Hardesty, Deceased, 06-13-00048-CV
FORMER CURRENT
PROBATE CODE SESSION LAW CITATION ESTATES CODE
CITATION CITATION
Act of March 17, 1955, 54th Leg., R.S., ch. 55, § 1,
sec. 306, 1955 Tex. Gen. Laws 88, 172, amended by
Act of May 30, 1993, 73d Leg., R.S., ch. 957, § 50,
1993 Tex. Gen. Laws 4081, 4174, amended by Act
TEX. PROB. CODE of May 27, 1995, 74th Leg., R.S., ch. 1054, § 9, sec.
ANN. §§ 306(a)(2), 306, 1995 Tex. Gen. Laws 5207, 5209, amended by TEX. ESTATES CODE
306(e)(3), 306(f), Act of May 22, 1997, 75th Leg., R.S., ch. 1302, ANN. §§ 355.151–.160
306(g) § 13, 1997 Tex. Gen. Laws 4954, 4958, amended by
Act of May 23, 2005, 79th Leg., R.S., ch. 551, § 6,
2005 Tex. Gen. Laws 1476, 1478, repealed by Act
of May 26, 2009, 81st Leg., R.S., ch. 680, § 10(a),
2009 Tex. Gen. Laws 1512, 1731.
41