in Re: The Estate of Carolyn C. Hardesty

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