United States Court of Appeals,

                          Fifth Circuit.

                           No. 93-2865.

     STERLING PROPERTY MANAGEMENT, INC., et al., Plaintiffs-
Appellants,

                                 v.

 TEXAS COMMERCE BANK, NATIONAL ASSOCIATION, Defendant-Appellee.

                          Sept. 27, 1994.

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

Before JONES, BARKSDALE and BENAVIDES, Circuit Judges.

     BENAVIDES, Circuit Judge:

     This case arises out of loan renewals granted by the Appellee,

Texas Commerce Bank, National Association (TCB), to the Appellants,

Sterling Texas Contractor, Inc. (Sterling) and Metro Draperies,

Inc. (Metro).   Sterling and Metro each executed a promissory note

to TCB and guaranteed each other's note.    Appellants seek reversal

of the summary judgment denying relief on their claim of usury

against TCB and granting TCB's counterclaims for non-payment of the

two notes.   Applying Texas law, the district court found that the

plaintiffs had failed to raise a genuine issue of material fact as

to their respective usury claims.     The Appellants also challenge

the award of attorneys' fees, claiming that the fees awarded were

unreasonable and excessive.   We affirm the summary judgment with

respect to the usury claims and the non-payment of the notes.

Finding a genuine issue of material fact as to the reasonableness

of the attorneys' fees, we reverse and remand.


                                 1
                      I. FACTS AND PROCEDURAL HISTORY

     On December 12, 1989, Sterling executed a note for $50,000,

with Metro giving an absolute guaranty of payment on the note.                    On

the same date, Metro executed a note for $54,295.60, with Sterling

providing the absolute guaranty of payment.                Paul Nichols signed

the documents in his capacity as president of Sterling.                     Paula

Nichols signed the documents in her capacity as president of Metro.

Prior   to   December    12,   1989,    the    only     guarantor    of   the    two

promissory notes of Metro and Sterling was Paul Nichols.

     On February 3, 1992, Sterling Property Management, Inc.,

Sterling,    Metro,     Paul   Nichols,       Paula    Nichols,     and   Sterling

Advertising filed a complaint against TCB in the 234th Judicial

District Court of Harris County, Texas.               Among the claims made was

that the notes executed by Sterling and Metro were usurious.                     TCB

filed a notice of removal based on federal question jurisdiction,

and the entire action was removed to the United States District

Court for the Southern District of Texas, Houston Division.                      TCB

filed   an   answer     containing     compulsory       counterclaims      seeking

recovery on the two notes and reasonable attorneys' fees.                        The

plaintiffs filed a motion to remand, alleging improper notice of

removal.      The   district    court       determined     that   there    was   no

independent basis for federal jurisdiction over the plaintiffs'

state law claims, and partially granted the motion, remanding most

of the claims to state court. The court retained jurisdiction over

the usury claim pursuant to the provisions of the National Bank




                                        2
Act, 12 U.S.C. sections 85 and 86,1 and TCB's counterclaim to

recover on the notes.

     TCB filed a motion for summary judgment, arguing that there

was no genuine issue of material fact as to the usury claim and

thus, it was entitled to judgment as a matter of law on its

counterclaim for payment of the notes.       The Plaintiffs argued that

the motion should be denied, urging a factual dispute.                    The

district court granted TCB's motion for summary judgment and

ordered the plaintiffs to pay $127,582.87 in damages and accrued

interest, $47,000 in attorneys' fees, and costs of court. Sterling

and Metro now appeal, arguing that the two notes were usurious and

disputing the reasonableness of the attorneys' fees.

                        II. STANDARD OF REVIEW

         When a summary judgment is appealed, this Court evaluates a

district court's decision to grant summary judgment by reviewing

the record under the same standards that the district court applied

to determine whether summary judgment was appropriate.            Herrera v.

Millsap, 

, 1159 (5th Cir.1989).               Therefore, the

summary    judgment   will   be   affirmed   only   when   this   Court   is

"convinced, after an independent review of the record, that "there

is no genuine issue as to any material fact' and that the movant is

entitled to judgment as a matter of law.' "         

Tarlton, Gilbert, Douglas & Kressler v. United States Fire Ins.

Co., 

, 1364 (5th Cir.1987) and Fed.R.Civ.P. 56(c)).

     1
      These federal statutes contain the applicable usury
provision and allow a bank organized under state law to charge
the rate of interest allowed under state law.

                                     3
Fact questions must be considered with deference to the nonmovant.

Herrera v. 

.                 Accordingly, when a fact

question is dispositive of a summary judgment motion, we "review

the facts drawing all inferences most favorable to the party

opposing the motion."          

internal quotation marks

omitted).       Questions of law, however, are reviewed de novo.              

OF USURY

         As previously set forth, the district court granted TCB's

motion for summary judgment finding that the usury claim failed as

a matter of law and that TCB was entitled to judgment as a matter

of law on its counterclaim for payment of the notes.                The parties

agree    that    Texas   law    governs       the   determination   whether   the

transactions are usurious.           Under Texas law, interest "is the

compensation allowed by law for the use or forbearance or detention

of money," and usury "is interest in excess of the amount allowed

by law."        Tex.Rev.Civ.Stat.Ann. art. 5069-1.01(a), (d) (Vernon

1983);     see In re Casbeer, 

, 1444 (5th Cir.1986).

Additionally, because the usury statute is penal in nature, it must

be strictly construed.         Texas Commerce Bank-Arlington v. Goldring,

, 104 (Tex.1984).

        The Appellants admit that the two promissory notes have not

been paid in full.       However, relying on Alamo Lumber Co. v. Gold,

(Tex.1983), they claim that the notes are usurious.

In Alamo Lumber, the Texas Supreme Court held "that a lender who

requires as a condition to making a loan, that a borrower assume a

third party's debt, as distinguished from a requirement that the


                                          4
borrower pay another one of his own debts, must include the amount

of the third party's debt in the interest computation."                    Alamo

. Accordingly, the following requirements

must be met for Alamo Lumber to apply:             (1) a lender requires as a

condition to making a loan to the borrower;              (2) that the borrower

assume a third party's debt.

     The Appellants argue that their situation essentially is

identical to the one in Alamo Lumber.             The court below assumed for

purposes of the motion for summary judgment that TCB had required

the guaranties as a condition of the loan renewals for Sterling and

Metro.   The district court further assumed, and TCB has not

contested, that if Alamo Lumber is applicable to this scenario, the

notes would be usurious.

     Relying on Moore v. Liddell, Sapp, et al., 

(Tex.App.—Austin 1993, writ denied), TCB argues that Alamo Lumber

does not apply to the facts of this case.                 In Moore, the Texas

court of appeals held "that Alamo Lumber does not apply to the ...

situation of a guaranty of another's debt as a condition for a

loan."   

(emphasis added).               The Court of

Appeals expressly refused to apply Alamo Lumber to a guarantor

situation because a guarantor's liability is contingent on the

borrower's default.          

       The Court explained that

"[i]nclusion     of    a    contingent       liability   as   interest   on   the

guarantor's separate obligation would go against the parties'

expectations     and       greatly   increase       uncertainty    in    lending

transactions."     

.


                                         5
      The Appellants point to the language in Moore referring to the

guarantor's liability as "a contingent secondary obligation."                         

the Appellants refer to their own guaranty agreements

which provide that the guaranty is "unconditional and absolute."

They claim such language renders them primarily liable.                     Thus, the

Appellants argue that TCB's reliance on Moore is misplaced because

that case dealt with a "contingent" liability.                    Therein lies the

heart      of   this   dispute—whether         guaranties    of    payment,        which

unconditionally and absolutely guarantee payment, are contingent

liabilities under Moore.

          In other words, Appellants' position is that, as guarantors

of   payment,     there     were    no   contingencies      on    their    liability.

Appellants argue that because they became primarily liable for the

debt, Alamo applies to them just as if they had assumed the debt.

Appellants stress that they are "guarantors of payment" as opposed

to   "guarantors       of   collection."         It   is    undisputed      that      the

Appellants'      guaranties        are   guaranties   of    payment       and   not   of

collection.       "A guaranty of payment, which is also known as an

absolute guaranty, requires the guarantor to pay immediately upon

the principal obligor's default."              In re Pulliam, 

, 243

(Bkrtcy.N.D.Tex.1988).2              Accordingly,     it    is    only     after      the


      2
      On the other hand, "[a] guaranty of collection, which is
also known as a conditional guaranty, enables the creditor to
seek payment from the guarantor only after the occurrence of some
condition "such as the condition that the creditor has
unsuccessfully and with reasonable diligence sought to collect
the debt from the principal debtor.' " In re 

(quoting United States v. Vahlco Corp., 

, 466
(5th Cir.1986).

                                           6
borrower's default that a guarantor of payment becomes primarily

liable.         The liability of a guarantor of payment therefore is

contingent on the borrower's default.           In re 

.3

            It is true that "a guarantor of payment is akin to a co-maker

in that both are primary obligors."           Reece v. First State Bank of

Denton, 

, 297 (Tex.1978).                Nevertheless, "[a]n

analysis of the liability of the guarantor vis-a-vis the liability

of the maker clearly indicates that a guarantor does not step into

the     maker's     shoes   and   thereby   acquire   all    his    rights   and

privileges."        United States v. Little Joe Trawlers, Inc., 

, 1252 (5th Cir.1985) (emphasis in original). Indeed, only the

makers of the note may assert a usury claim.           

Sash & Door Co. v. Heaner, 

(Tex.1979)).                  Such a

claim is not available to an unconditional guarantor unless the

claim against the maker is void for illegality.              Id.4

            The Appellants correctly state that, under Texas law, to

determine whether a transaction is usurious, it is the substance of

the transactions rather than the form which is definitive.                   See

Fears v. Mechanical & Indus. Technicians, Inc., 

, 530

(Tex.App.—Tyler 1983, writ ref'd n.r.e.).             We do not rely on the

labels, but rather the substance of the transactions.               The instant

        3
      See also Republican National Bank v. Northwest National
Bank, 

, 114 (Tex.1978) ("A true guaranty creates a
secondary obligation whereby the guarantor promises to answer for
the debt of another and may be called upon to perform once the
primary obligor has failed to perform.").
        4
         There is no claim that the notes themselves are usurious.

                                        7
guaranty agreements specifically provide notice to the guarantor as

follows:      "You are being asked to guarantee the debt of Borrower

now existing or hereafter arising....        If the Borrower doesn't pay

any of such debts, you will have to....           You may have to pay up to

the full amount of all Borrower's debts if the Borrower does not

pay." (emphasis added). This language is entirely consistent with

the definition of a guarantor of payment.5

      Although the Appellants became primarily and absolutely liable

on   each other's     debts,   that   liability    was   contingent   on   the

borrower's default.       Therefore, because the Appellants did not

assume each other's loans within the meaning of Alamo Lumber, but

instead were simply guarantors of payment, they are precluded from

asserting a claim of usury.       The district court correctly granted

summary judgment in favor of TCB as to the usury claim and the

counterclaim of non-payment.

                           IV. ATTORNEYS' FEES

          Finally, the Appellants urge that the district court erred in

awarding TCB the entire amount of attorneys' fees requested. TCB's

counsel, in a brief and conclusory affidavit attached to the

amended motion for summary judgment, requested attorneys' fees in

the amount of $42,000 with additional fees of $5,000 in the event

of an appeal, asserting such fees were usual and customary.

      In response, counsel for the Appellants filed his brief

      5
      Cf. Universal Metals & Machinery, Inc., v. Bohart, 

, 878 (Tex.1976) (quoting Simon v. Landau, 

, 

(N.Y.Sp.Term 1960) regarding determination
that the term "primary obligors" in guaranty agreement did not
render defendants co-makers in light of all documents).

                                      8
affidavit in which he asserted that he was aware of the reasonable

and customary fees charged in such cases and that $42,000 was

unreasonable and excessive.    Further, counsel also asserted that

TCB had improperly requested attorneys' fees related to the claims

that had been remanded to state court and were not related to the

notes at issue.    Because fact issues clearly exist as to the

reasonableness and amount of the fees, we vacate the award of

attorneys' fees for further proceedings.

                              CONCLUSION

     For the reasons set forth above, the judgment is AFFIRMED.

The award of attorneys' fees is VACATED and REMANDED for further

proceedings.




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