                   United States Court of Appeals,

                               Fifth Circuit.

                                No. 93-1838.

  In the Matter of William COXSON and Dorothy Coxson, Debtors.

 William COXSON and Dorothy Coxson, Appellants, Cross-Appellees,

                                       v.

     COMMONWEALTH MORTGAGE COMPANY OF AMERICA, L.P. and First
Nationwide Bank, Appellees, Cross-Appellants.

                               Jan. 26, 1995.

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

Before POLITZ, Chief Judge, GOLDBERG and DUHÉ, Circuit Judges.

      GOLDBERG, Circuit Judge:

      William and Dorothy Coxson, the appellants, purchased a house

and lot in Dallas, Texas in March, 1974.                    To finance their home,

the Coxson's executed a promissory note and a deed of trust

granting a purchase money lien on the house and lot to secure the

note. After experiencing financial difficulties, the Coxsons filed

for bankruptcy protection under Chapter 13 in February, 1987.                      The

Coxsons   defaulted      on   their   payments         on    the   note    after   the

bankruptcy petition was filed, and on May 11, 1988, the loan

servicing agent and the holder of the note, First Nationwide Bank

and   Commonwealth       Mortgage     Company      of       America   (hereinafter

collectively referred to as "Commonwealth")1 moved for relief from

the   automatic   stay    provisions        of   the    Bankruptcy        Code.    The

      1
      The Coxsons executed the note with the Exchange Mortgage
Company. However, Commonwealth Mortgage Company obtained the
note sometime prior to this suit.

                                        1
bankruptcy court, in July, 1988, issued an order restructuring the

Coxsons' payments and establishing procedural requirements for

foreclosure.    The order was styled "Agreed Order Conditionally

Modifying Stay" ("Agreed Order").      Two months later, Commonwealth

served notice on the Coxsons, stating that they were in default

according to the terms of the Agreed Order. Commonwealth attempted

to foreclose on the Coxsons' home in April of 1989, but it failed

to follow the requirements for foreclosure set forth in the Agreed

Order.   The Coxsons filed a state court action and obtained a

restraining order temporarily enjoining the foreclosure.         However,

the state court action was soon dismissed.          The Coxsons did not

keep current on the note, and Commonwealth attempted to foreclose

on the property again.

     In response to the Commonwealth's latest foreclosure effort,

the Coxsons filed this adversary proceeding against Commonwealth in

the bankruptcy court.     The Coxsons claimed that the note violated

Texas usury law, that the loan documents violated the Federal Truth

in Lending Act, 15 U.S.C. § 1601, et seq., ("TILA"), and that

Commonwealth   violated    the   automatic   stay    provision   of    the

bankruptcy code, 11 U.S.C. § 362(h). The bankruptcy court enjoined

Commonwealth from foreclosing on the property and conducted a bench

trial.   The bankruptcy court held that the applicable statutes of

limitations    barred   the   usury    and   TILA   claims,   and     that

Commonwealth's attempted foreclosure in April of 1989 violated the

automatic stay.   The bankruptcy court awarded the Coxsons $2,850,

without prejudgment interest, for legal fees and costs incident to


                                   2
the   temporary     restraining        order     against      Commonwealth.           The

bankruptcy court found that Commonwealth was 75% successful and the

Coxsons 25% successful in the proceedings, and awarded each party

a prorated amount of their legal fees pursuant to contractual

provisions in the note and the Declaratory Judgment Act.                              The

Coxsons appealed        to    the    district    court.       The    district       court

determined that the statutes of limitations did not bar the usury

or TILA claims.        The district court held, however, that the note

was not usurious under Texas law.                The district court found that

the TILA claim had merit and awarded the Coxsons a $2,000 offset

against the debt held by Commonwealth.                Both parties appealed to

this court.

      The    Coxsons    make       essentially    three    arguments        on   appeal.

First, they argue that the note was usurious under Texas law.

Second, they claim that the bankruptcy court erred in failing to

award   prejudgment       interest.           Finally,    they      argue    that    the

bankruptcy court erred in judging the magnitude of their success

below    and     did      not      properly      apportion       attorneys'        fees.

Commonwealth's sole argument on appeal is that the district court

erred   in     allowing      the    Coxsons     to   assert      their      TILA    claim

defensively as recoupment against the note, thereby avoiding the

one-year statute of limitations for TILA actions.

                                          I.

        In Texas, the regulation of interest rates has produced

statutes and legal opinions over the past century.                           The Texas

Constitution, as amended in 1891, expressly delegated authority to


                                          3
the legislature to regulate interest rates and money lending.

Article XVI, § 11.2   In 1961, the Constitution set the maximum rate

of interest at ten percent per year.               Id.     The provisions of

legislature's   usury   statute       are    not    as     clear-cut      as   the

Constitution.   For example, the statutory definitions of key terms

like "interest" and "usury" are somewhat circular.3                     Thus, the

courts have played a crucial role in interpreting the usury law.

     The usury issue in the case at hand is whether a contract is

usurious if it has no express provision for the refund or credit of

unearned   interest   which   would       otherwise      render   the    contract

usurious upon the occurrence of some contingency.                 In this case,

the contingency involves the application of an acceleration clause,

which, at the option of the holder of the note, would render the

entire debt, including principal and unearned interest, due upon

the default of the borrower.      If the debt were accelerated very

early in the loan period in this case, the interest and fees which

are considered interest in Texas4 would have exceeded the legal


     2
      This Article marked a departure from the previous policy in
Texas. During Reconstruction, the state legislature abolished
limits on interest rates. In 1869, Article XII, § 44 of the
Texas Constitution eliminated the usury laws. However, credit
abuses arose in the absence of usury laws, and the Texas
Constitution was amended. See Allee v. Benser, 779 S.W.2d 61, 62
(Tex.1988).
     3
      The usury statute defines "interest" as "the compensation
allowed by law for the use or forbearance or detention of money."
Tex.Civ.Stat.Ann. art. 5069-1.01(a). Usury is defined as
"interest in excess of the amount allowed by law."
Tex.Civ.Stat.Ann. art. 5069-101(d).
     4
      See Tanner Development Co. v. Ferguson, 561 S.W.2d 777, 787
(Tex.1977).

                                      4
interest rate and would render the contract usurious if the excess

interest   were   not   refunded   to       the   debtor   or   applied   to   the

principal amount of the loan.5              Texas jurisprudence provides a

framework for determining whether such a contract violates the

usury laws.

     The progenitor of the Texas Supreme Court's modern usury

jurisprudence is the seminal case of Shropshire v. Commerce Farm

Credit Co., 120 Tex. 400, 30 S.W.2d 282 (1930), cert. denied, 284

U.S. 675, 52 S.Ct. 130, 76 L.Ed. 571 (1931).                    The contract in

Shropshire provided for interest charges which would exceed the

legal rate if the debtor had defaulted and if the debt had been

accelerated according to an acceleration clause in the note.                   Id.

30 S.W.2d at 282-83.        In determining whether this contingency

poisoned the contract as usurious, the court stated:

     [A] contract is usurious when there is any contingency by
     which the lender may get more than the lawful rate of
     interest, whether it is so apparent that it becomes the duty
     of the court to so declare, or whether it is a case in which
     it is necessary that the jury should find the facts. Usury,
     it is considered, does not depend on the question whether the
     lender actually gets more than the legal rate of interest or
     not; but on whether there was a purpose in his mind to make
     more than legal interest for the use of money, and whether, by
     the terms of the transaction, and the means used to effect the
     loan, he may by its enforcement be enabled to get more than
     the legal rate.

Shropshire, 30 S.W.2d at 285-86 (quotation omitted).                  The Texas

Supreme Court revisited the principles enunciated in Shropshire in


     5
      It is worth noting that the time period in which this
contingency could have possibly rendered the contract usurious
passed well before the Coxsons defaulted on the note. Therefore,
the discussion of the occurrence of this contingency is entirely
hypothetical.

                                        5
Smart v. Tower Land and Investment Co., 597 S.W.2d 333, 340-41

(Tex.1980).     In Smart, the court stated that the actual language of

the contract should be reviewed when examining a contract for

usury. If the affirmative terms of the entire contract could yield

a usurious result, then the contract is "facially" usurious.                     Id.

at 341.   However, the court also noted that

      [U]nless the contract by its express and positive terms
      evidences an intention which requires a construction that
      unearned interest was to be collected in all events, the court
      will give it the construction that the unearned interest
      should not be collected.

Smart, 597 S.W.2d at 341 (quoting Walker v. Temple Trust Co., 124

Tex. 575, 80 S.W.2d 935, 937 (Tex.Comm.App.1935)). The Smart court

held that the contract in issue was usurious, because the contract

expressly provided for the collection and retention of unearned,

usurious interest.       Smart, 597 S.W.2d at 341.            However, the court

stated that the contract at issue was "not merely silent" as to

whether prepaid interest would be credited or refunded.                  Id.     The

court emphasized that "[t]his is not a situation in which the

contract is silent on whether the lender will collect unearned

interest upon default and acceleration of maturity." Id. However,

today we are faced squarely with this situation—the contract here

is silent on the issue of whether such interest would be refunded

or   credited   to    the   principal       of   the   debt   in   the   event   of

acceleration.        Thus, this contract is distinguishable from the

Smart contract, and we are guided by the general rule that the

court should give the contract a construction that the parties

intended that the unearned interest would not be retained at


                                        6
foreclosure.      In Walker, which was reaffirmed in Smart, the court

followed the "the equitable rule which requires a surrender of

unearned interest in order to obtain a foreclosure" to find that

the contract was not usurious based on a potentially usurious

contingency.       Walker, 80 S.W.2d at 937.           In applying the Texas

rules to a hypothetical situation where the contract at issue in

this case is accelerated early in the loan period, we find that

Commonwealth would have to surrender unearned interest to the

Coxsons in order to foreclose on the note.             Therefore, even if the

contingency transpired, Commonwealth would not "get more than the

lawful rate of interest" as proscribed by Shropsire.                  30 S.W.2d at

285.    Thus, the contract is not usurious.

                                        II.

        The Coxsons claim that they are entitled to prejudgment

interest on their recovery.             The Coxsons argue that without an

award of prejudgment interest, they will not be compensated for the

loss of the use of their money from May of 1989 to the date of the

judgment.     Aside from complaining about the "inequity" of the

bankruptcy       court's   and    district     court's    decision       to   deny

prejudgment interest, the Coxsons fail to mention any factor

justifying such an award.

       The Fifth Circuit has stated that "[t]he award of prejudgment

interest    is    generally      discretionary    with   the    trial     court."

Whitfield    v.    Lindemann,     853   F.2d   1298,   1306    (5th    Cir.1988);

Katsaros v. Cody, 744 F.2d 270, 281 (2nd Cir.1984) (stating that

standard of review for award of prejudgment interest is abuse of


                                         7
discretion).        The Supreme Court stated that prejudgment interest,

     is not recovered according to a rigid theory of compensation
     for money withheld, but is given in response to considerations
     of fairness.     It is denied when its exaction would be
     inequitable.

Blau v. Lehman, 368 U.S. 403, 414, 82 S.Ct. 451, 457, 7 L.Ed.2d 403

(quoting Board of Commissioners of Jackson County v. United States,

308 U.S. 343, 352, 60 S.Ct. 285, 289, 84 L.Ed. 313 (1939)).               The

Coxsons     argue    that   the   bankruptcy   court's   decision   to   deny

prejudgment interest should be reversed because the court failed to

express its reasons.        The Coxsons rely on Whitfield. The Whitfield

court, however, did not hold that such a statement of reasons is

required when a court denies prejudgment interest.6             As was the

case in Blau, "both courts below denied interest here and we cannot

say that the denial was either so unfair or so inequitable as to

require us to upset it."          Blau, 368 U.S. at 414, 82 S.Ct. at 457.

                                      III.

         The Coxsons argue that the district court erred in failing to

modify the amount of attorney's fees granted by the bankruptcy

court.     A grant of attorney's fees is reviewed for an abuse of

     6
      The language in Whitfield that arguably supports the
Coxsons' argument is found in dicta which is tied to the facts of
that particular case.

             If the instant case is appealed again to this Court
             following the remand we now order, we will be greatly
             assisted in reviewing the district court's
             discretionary allowance of section 6621 prejudgment
             interest if it is accompanied by a brief statement of
             reasons.

     Whitfield, 853 F.2d at 1307. This statement does not
     constitute a mandatory rule applicable to every case where
     prejudgment interest is requested.

                                        8
discretion.    Texstar North America, Inc. v. Ladd Petroleum Corp.,

809 S.W.2d 672, 679 (Tex.Civ.App.—Corpus Christi 1991);          Hartford

Casualty Ins. Co. v. Budget Rent-A-Car Systems, Inc., 796 S.W.2d

763 (Tex.Civ.App.—Dallas 1990).        The district court grounded its

decision in the facts it found and the parties' statutory and

contractual rights, and there is no evidence in the record to

support the conclusion that the court abused its discretion in this

case.

                                  IV.

        Commonwealth   argues   that    the   Coxsons'   TILA   claim   is

time-barred.   The limitations provision in TILA states,

     Any action under this section may be brought ... within one
     year from the date of the occurrence of the violation. This
     subsection does not bar a person form asserting a violation of
     this subchapter in an action to collect the debt which was
     brought more than one year from the date of the occurrence of
     the violation as a matter of defense by recoupment or set-off
     in such action, except as otherwise provided by State law.

15 U.S.C. § 1640(e).    Commonwealth argues that the TILA claim in

this case is not a defensive recoupment action, and that therefore

it is barred by the limitations period.       Recoupment is defined as,

     [t]he right of a defendant, in the same action, to cut down
     the plaintiff's demand either because the plaintiff has not
     complied with some cross obligation of the contract on which
     he sues or because he has violated some duty which the law
     imposes on him in the making or performance of that contract.

Ballantine's Law Dictionary 1070 (3d ed.1969) (quoted in In re

Smith, 737 F.2d 1549, 1552 n. 7 (11th Cir.1984)).           The Supreme

Court, in Bull v. United States, held that

     recoupment is in the nature of a defense arising out of some
     feature of the transaction upon which the plaintiff's action
     is grounded. Such a defense is never barred by the statute of
     limitations so long as the main action itself is timely.

                                   9
Bull, 295 U.S. 247, 262, 55 S.Ct. 695, 700, 79 L.Ed. 1421 (1935)

(footnote omitted).   Judge Wisdom, sitting by designation with the

Eleventh Circuit, interpreted the language in Bull as establishing

a three-part test to determine whether a recoupment claim is raised

as a defense.

     Thus, to maintain [a] claim ... for monetary damages under
     Bull, [the claimant] must show that (1) the TILA violation and
     the creditor's debt arose from the same transaction, (2) [the
     claimant] is asserting her claim as a defense, and (3) the
     "main action" is timely.     All three requirements must be
     satisfied.

In re Smith, 737 F.2d at 1553.      The court in Smith observed that

there is diverging authority on the classification of TILA claims

as recoupment or setoff actions.    In re Smith, 737 F.2d at 1552-53;

see also In re Jones, 122 B.R. 246, 249 (W.D.Pa.1990).

     Commonwealth argues that the Coxsons' TILA claim fails the

second step of the test in Bull because the claim was not raised

defensively.    Commonwealth   argues   that   the    Coxsons   "hauled"

Commonwealth into court and initiated this lawsuit, and therefore

the TILA claim is used offensively, rather than defensively.         The

district court disagreed, holding that the Coxsons filed this suit

in response to Commonwealth's filing of a proof of claim in the

bankruptcy court and its foreclosure actions.        The district court

reasoned that filing a proof of claim is "an action to collect the

debt," and therefore the TILA claim was timely under 15 U.S.C. §

1640(e).   We agree with the district court's analysis.         In this

case, Commonwealth's and the Coxsons' claims arise from the same

underlying transaction, the contract for financing the Coxsons'

home. See Plant v. Blazer Financial Services, Inc., 598 F.2d 1357,

                                   10
1361 (5th Cir.1979);    Maddox v. Kentucky Finance Co., 736 F.2d 380,

383 (6th Cir.1984).          The mere fact that the Coxsons were the

plaintiffs in the case below does not preclude the finding that

their TILA claim was raised defensively.           See, e.g., In re Jones,

122 B.R. 246 (plaintiff permitted to raise TILA recoupment claim

defensively).    Furthermore, Texas state courts have held that a

TILA claim may be asserted defensively as a recoupment action

against a lender attempting to enforce contractual obligations.

Garza     v.   Allied    Finance       Co.,     566   S.W.2d     57,   62-63

(Tex.Civ.App.—Corpus     Christi      1978);      Cooper    v.   RepublicBank

Garland, 696 S.W.2d 629, 634 (Tex.Civ.App.—Dallas 1985) (holding

that    recoupment   claim    was   raised    defensively   in   response   to

creditor's foreclosure efforts).           We find that the TILA claim was

not barred by the statute of limitations, and therefore remand the

issue for consideration of the merits of the claim.

                                      V.

       For the above reasons, the district court's judgment is

AFFIRMED.




                                      11
