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IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT

No. 97-20690

ECE TECHNOLOGIES INCORPORATED
Plaintiff - Appellee
versus
CHERRINGTON CORPORATION; ET AL
Defendants
CHERRINGTON CORPORATION
Defendant - Appellant
*****************************************************************
CHERRINGTON CORPORATION
Plaintiff - Appellant
versus
ECE TECHNOLOGIES INCORPORATED, doing business as
Eastman Cherrington Environmental
Defendant - Appellee

Appeal from the United States District Court
for the Southern District of Texas

February 22, 1999
Before HIGGINBOTHAM, BENAVIDES, and DENNIS, Circuit Judges.
PATRICK E. HIGGINBOTHAM, Circuit Judge
Today, we consider whether a set of commercial agreements
between the parties was in substance a loan, or whether the
agreements created a contractor-subcontractor relationship that
included a loan. Whether the agreements violated Texas usury laws

turns on this characterization. We hold that the district court
erred in rejecting as a matter of law the assertion that this was
a loan in violation of the usury laws.
I
In May 1995, Cherrington Corp. agreed that for $1.5 million it
would sell certain equipment to Kyokuto Boeki Kaisha, Ltd., and
build a horizontal drilling rig for it. Cherrington lacked capital
to finance the manufacture and could not obtain financing through
a lending institution. Recognizing Cherrington's unique ability to
manufacture the highly specialized drilling equipment, KBK offered
to prepay $900,000 of the purchase price to provide the necessary
funds if Cherrington could obtain a letter of credit, but
Cherrington was unable to obtain one.
David Barber, Cherrington's Chief Operating Officer, contacted
Eastman Cherrington Environmental, Inc., and the two companies
reached several agreements. ECE's counsel, Mark Riley, prepared
the documents and informed Barber that the form of the transaction
documents was nonnegotiable. The "Loan Agreement," "Security
Agreement," and "Promissory Note" together provided for the
$900,000 financing that Cherrington would receive, on which
Cherrington would pay 12% annual interest. KBK's $900,000
prepayment and final $600,000 payment, it was agreed, would go
directly to ECE, which would then reimburse Cherrington an agreed
upon share.
2

The Loan Agreement and the Note both contain usury savings
clauses reducing any charge exceeding the legislative maximum to
the lawful rate. The savings clause in section 11.6 of the Loan
Agreement applied beyond that particular agreement to include "any
Loan Document or agreement entered into in connection with such
note."
In the "Assignment of Purchase Order" agreement, Cherrington
agreed to transfer and assign all of its rights in the KBK purchase
order to ECE. Finally, in the "Manufacturing Agreement", which
included a Texas choice-of-law and forum clause, ECE hired
Cherrington to perform engineering services and to manufacture the
drilling rig in accordance with the purchase order, and to deliver
the specified equipment after selling it to ECE. The agreement
recited that KBK had consented to the assignment, but no
representative of KBK signed the agreement.
The terms of the Manufacturing Agreement left Cherrington
"responsible for furnishing the design, manufacture and delivery of
the Drilling Rig," including the provision of "all supervision,
inspection, labor, materials, tools, manufacture equipment and
subcontracted items necessary," and did not appear to leave any
responsibility with ECE. It did leave ECE the power to approve or
reject any subcontractor employed by Cherrington.
Section 6.1 of the agreement provided a formula determining
the amount Cherrington would receive for the manufacture, not to
exceed the "Guaranteed Maximum Price" of $600,000, which would
3

include compensation for all costs incurred in design and
manufacture. In addition, ECE was to receive a $20,000 "oversight
fee," a $9,000 per month letter-of-credit fee, and half of the
profits from the transaction (in no case less than $225,000).
Finally, Cherrington warranted the rig and indemnified ECE "from
and against any claim, loss, damage, expense or liability
(including attorneys' fees and costs) that may result . . . ."
The agreements were all executed by July 6, 1995. On July 14,
after ECE's bank issued a $900,000 letter of credit in favor of
KBK, KBK paid the first installment of $900,000 to ECE to secure
performance. The same day, ECE made its first advance to
Cherrington of funds under the promissory note. Ultimately, ECE
advanced a total of $825,026 to Cherrington.
During construction, disputes developed between Cherrington
and ECE. There was a dispute over construction delays, and another
over ECE's demand that Cherrington turn over to ECE the proceeds of
a separate $900,000 receivable. Cherrington filed suit in
California state court against ECE on October 10, 1995, and ECE
filed a lawsuit against Cherrington and others on October 23, 1995.
Cherrington's suit was removed, transferred, and consolidated with
ECE's suit, in the Southern District of Texas. Various contract
and tort claims were asserted. On December 5, 1995, Cherrington
filed a counterclaim asserting usury, later amended to include
breach-of-contract claims. Meanwhile, Cherrington completed the
drilling rig, delivering it to KBK on October 30, 1995. All
4

parties executed a "Certificate of Substantial Completion" and
"Statement of Acceptance and Approval."
On December 6, 1996, the district court granted ECE's motion
for summary judgment on Cherrington's usury claim. It also granted
Cherrington's motion for partial summary judgment on ECE's tortious
interference claims, which are not at issue here. The remaining
claims were tried in January, 1997 to a jury, which found breaches
of contract on both sides and awarded damages. Cherrington elected
to seek recovery of attorneys' fees for breach of contract under
Tex. Civ. Prac. & Rem. Code � 38.001. The jury, however, found
that a reasonable attorney's fee for prosecuting Cherrington's
successful breach-of-contract claim was $0. Cherrington challenged
this jury finding, but the district court denied that motion, as
well as all post-judgment relief sought by ECE.
Cherrington appealed both the summary judgment rejecting its
usury claim and the decision refusing to set aside the jury finding
of $0 in reasonable attorneys' fees. ECE also gave notice appeal,
but withdrew it.
II
Settled by debtors, Texas has long been hostile to charges of
interest the state thought were excessive. This policy cuts little
slack for artful avoidance. It is not surprising then that Texas
usury law focuses on the substance of a transaction, not on its
form. "[I]n determining whether a loan transaction is usurious, it
is substance rather than form that is investigated." Fears v.
5

Mechanical & Indus. Technicians, Inc., 654 S.W.2d 524, 530 (Tex.
App.--Tyler 1983, writ ref'd n.r.e.); see also Najarro v. Sasi
Int'l, Ltd., 904 F.2d 1002, 1006 (5th Cir. 1990) (discussing Texas
usury law); Gonzales County Sav. & Loan Ass'n v. Freeman, 534
S.W.2d 903, 906 (Tex. 1976) ("Charges which are in fact interest
remain so, regardless of the label used."); Skeen v. Slavik, 555
S.W.2d 516, 521 (Tex. Civ. App.--Dallas 1977, writ ref'd n.r.e.)
("[W]here . . . a charge is admittedly compensation for the use,
forbearance, or detention of money, it is, by definition, interest
regardless of the label placed upon it or the artfulness with which
it is concealed."); id. ("[W]e must look beyond the superficial
appearances of the transactions to their substance in determining
the existence or nonexistence of usury."); Johns v. Jaeb, 518
S.W.2d 857, 859 (Tex. Civ. App.--Dallas 1974, no writ) ("When money
is advanced to enable one to engage in a business venture with the
understanding that the advance and an added amount are to be
returned, there is a loan, and the added amount is interest, which
may not exceed the statutory maximum, regardless of the form of the
transaction."); Maxwell v. Estate of Bankston, 433 S.W.2d 229, 231
(Tex. Civ. App.--Texarkana 1968, no writ) ("In determining the
question of usury all devices are disregarded . . . [even] though
usury may be covered under the guise of some additional and
different consideration.").1
1ECE focuses on Moser v. John F. Buckner & Sons, 292 S.W.2d
668 (Tex. Civ. App.--Waco 1956, writ ref'd n.r.e). This case
6

We cannot say as a matter of law that in substance this was
not a loan transaction. It appears on the summary judgment record
that ECE's only role of any moment was to make advances to
Cherrington to enable it to manufacture and deliver the drilling
rig, and Cherrington performed the same duties that it would have
performed had it merely obtained financing. The strongest
counterargument is that ECE assumed liability for nonperformance of
the obligations of manufacturing and delivering the drilling rig
for KBK. The Assignment of Purchase Order stated that Cherrington
assigned to ECE "all of Cherrington's right, title, and interest in
and to the Purchase Order . . . and all of its obligations
thereunder." The indemnity provisions, however, nearly undo this,
since ECE could recover from Cherrington if KBK or a third party
sued it.
The indemnity provisions do not completely cancel the effect
of the assignment, though, because ECE's assumption of liability
would presumably allow KBK to recover from ECE if Cherrington were
judgment-proof. Thus, unlike a typical provider of financing, ECE
might have faced liability beyond the amount of money it lent. This
involved a contractor who advanced money to the subcontractor. The
court concluded that "the evidence is sufficient to sustain the
jury's findings that payments made under these contracts were not
made and received with the idea of interest but solely for a
profit." Id. at 673. The present case, however, has a different
procedural posture, since we are reviewing a summary judgment
finding that there was no usury, not a jury finding to that effect.
This is a meaningful distinction. The Moser court carefully
emphasized that its holding was merely that the question was for
the jury. See, e.g., id. at 672, 673-74.
7

does not as a matter of law preclude a trier of fact from a
characterization of the transaction as a loan. KBK's status as a
third-party beneficiary should not control the classification of
the transaction between ECE and Cherrington. It appears on the
summary judgment record that KBK neither bargained for this
assignment nor was a party to the instrument itself; KBK appears
virtually to have been a donee beneficiary. KBK sought out
Cherrington because of its experience in the manufacture of the
special slant drilling equipment it wanted. A trier of fact could
reasonably conclude that ECE brought nothing to the table but
money. The exacting terms of the deal with the passive role of the
customer support the inference that ECE was paid for lending money.
ECE attempted to stay clear of the grasp of Texas usury law,
but the usury savings clauses in the agreements were not effective,
if usurious interest was in fact received. See Windhorst v. Adcock
Pipe & Supply, 547 S.W.2d 260, 261 (Tex. 1977) ("By describing the
conditions precedent to recovery of penalties in the disjunctive,
the Legislature made it clear that only one such condition need
occur to trigger penalties; either a contract for, a charge of or
a receipt of usurious interest."); see also Cochran v. American
Sav. & Loan Ass'n, 586 S.W.2d 849, 850 (Tex. 1979) (suggesting that
receipt of funds is sufficient for a finding of usury); Victoria
Bank & Trust Co. v. Brady, 779 S.W.2d 893, 901-02 (Tex. App.--
Corpus Christi 1989), rev'd on other grounds, 811 S.W.2d 931 (Tex.
1989).
8

Because this appeal involves only the district court's
granting of ECE's motion for summary judgment, and not the denial
of a cross-motion for summary judgment by Cherrington, we cannot
announce how the district court should dispose of such a motion.
Nonetheless, we offer some general principles to guide the district
court's assessment of whether any genuine issues of material fact
remain. Under Texas law, where a contract is not facially
usurious, the question of whether there was an intent to commit
usury is for the jury. See Moser, 292 S.W.2d at 671-72 (citing
various cases). However, the only intent that the victim need
establish is the intent to enter into a contract that is usurious.
See, e.g., Alamo Lumber Co. v. Gold, 661 S.W.2d 926, 928 (Tex.
1983) ("[I]t is not the lender's subjective intent to charge usury
that makes a loan usurious, but rather his intent to make the
bargain that was made.").
The question thus reduces to whether the lender has provided
some other consideration for any allegedly usurious charge. Cf.
Texas Commerce Bank v. Goldring, 665 S.W.2d 103, 104 (Tex. 1984)
("[A] fee which entitled the borrower to a distinctly separate and
additional consideration apart from the lending of money is not
interest and cannot be the basis of usury."). We hold that the
summary judgment record does not establish what Cherrington
received for its payments to ECE, other than the use of its money.
The district court, on appropriate motion, would need to determine
whether the answer to this question requires resolution of a
9

genuine issue of material fact. If it does, then the case is for
the jury.
III
The award of zero attorney's fees could be consistent with the
evidence only if the state law authorized the trier of fact in its
discretion not to award any fees. Texas law does not. To the
contrary, Texas courts have found findings of "zero" or "none" on
fees questions to be against the weight of the evidence and thus
have required new trials limited to the fees issue. In Elizabeth-
Perkins, Inc. v. Morgan Express Inc., 554 S.W.2d 216, 219 (Tex.
Civ. App.--Dallas 1977, no writ), the court held, "Although the
jury was not bound to accept this testimony [concerning fees]
absolutely, it was not at liberty to reject it totally in finding
`none' in answer to the question concerning reasonable attorney's
fees." The Texas courts have followed this holding consistently.
See Great State Petroleum, Inc. v. Arrow Rig Serv., Inc., 706
S.W.2d 803, 812-13 (Tex. App.--Fort Worth 1986, no writ); First
Tex. Sav. Ass'n v. Dicker Ctr., Inc., 631 S.W.2d 179, 188 (Tex.
App.--Tyler 1982, no writ). Here, Cherrington's expert on
attorneys' fees testified that $125,000 would have been a
reasonable fee for prosecuting Cherrington's breach-of-contract
claim, and ECE's expert said he "would not disagree" with $75,000.
The award of zero attorney's fees was thus against the weight of
the evidence, regardless of whether the evidence is weighed using
a federal or a state scale.
10

IV
For the reasons above, we reverse the district court's award
of summary judgment on the usury claim and remand for further
proceedings, including entry of summary judgment for Cherrington if
appropriate. In addition, we set aside the jury finding of zero
attorneys' fees and remand for trial on that issue.
REVERSED IN PART AND REMANDED.
11