Garden Ridge, L.P. v. Advance International, Inc., and Herbert A. Feinberg

Affirmed and Opinion and Concurring Opinion filed April 9, 2013.
In the
Fourteenth Court of Appeals
NO. 14-11-00624-CV
GARDEN RIDGE, L.P., Appellant
V.
ADVANCE INTERNATIONAL, INC., AND HERBERT A. FEINBERG,
Appellees
On Appeal from the 164th District Court
Harris County, Texas
Trial Court Cause No. 2009-80706
OPINION
Appellant Garden Ridge, L.P. (Garden Ridge) sued Advance International,
Inc., and Herbert A. Feinberg (collectively, Advance) for breach of contract and a
declaratory judgment that Garden Ridge had complied with its contracts with
Advance. Advance counterclaimed for breach of contract. The jury found in favor
of Advance. Although Garden Ridge accepted two shipments of inflatable
snowmen from Advance, Garden Ridge refused to pay anything for either
shipment, claiming that one shipment was nonconforming. Garden Ridge based its
refusal to pay on chargeback provisions outlined in the parties’ contracts. Advance
argued that the chargeback provisions are unenforceable penalties.
On appeal, Garden Ridge argues that the trial court committed reversible
error when it (1) refused to submit a question on prior material breach, (2)
improperly instructed the jury on damages, and (3) commented on the weight of
the evidence in its instructions on breach of contract. We conclude that the
chargeback provisions as applied in this case are unenforceable as a matter of law
as penalties, and we overrule Garden Ridge’s jury charge issues. We therefore
affirm the trial court’s judgment.
I. FACTUAL AND PROCEDURAL BACKGROUND
Garden Ridge is a Houston-based chain of housewares and home décor
stores. Advance International, a company owned by Feinberg, is one of Garden
Ridge’s vendors. In 2009, Advance sent Garden Ridge quote sheets for lighted
inflatable holiday snowmen, which included a color photo of each item and
described its cost, weight, dimensions, and packaging. The two snowmen on the
quote sheets each wore a scarf, held a broom that stated “Merry Christmas” on it,
and waved; one stood eight feet tall, and the other stood nine feet tall. We refer to
this snowman as “waving snowman.” Advance then sent two sample snowmen1 to
Garden Ridge; one of the samples did not match its quote sheet. The sample eight-
foot snowman wore a Santa-type hat and held a “Merry Christmas” banner. We
refer to this snowman as “banner snowman.”
Garden Ridge sent Advance two purchase orders, one for approximately 950
1
See App. A.
2
nine-foot waving snowmen (PO ‘721), and the other for approximately 3,500
eight-foot waving snowmen (PO ‘743), based on the quote sheets. Garden Ridge
planned to sell each nine-foot waving snowman for $59.99, and each eight-foot
waving snowman for $39.00. Garden Ridge planned to mark down the eight-foot
waving snowmen to $20.00 each during its one-day Thanksgiving Shop-a-Thon
sale, and it prepared and had printed an advertising circular promoting this special
price and picturing the eight-foot waving snowman.
Five days before Thanksgiving, Garden Ridge realized that the eight-foot
snowmen that Advance sent were not waving snowmen, but instead were banner
snowmen. The nine-foot snowmen that Advance sent were waving snowmen.
Garden Ridge decided to honor the $20.00 Shop-a-Thon price on the nine-foot
waving snowmen. There were no customer complaints, and both the eight-foot
banner snowmen and the nine-foot waving snowmen sold well.
The parties’ contracts consist of the purchase orders, the vendor cover letter,
and the vendor compliance manual. Based on liquidated-damages provisions
outlined in the vendor compliance manual, Garden Ridge assessed chargebacks
against Advance for its alleged noncompliance violations. For Advance’s
“purchase order” violation—by sending the eight-foot banner snowman instead of
the waving snowman, Garden Ridge charged back to Advance the entire
merchandise cost plus the cost of freight on PO ‘743 as a “unauthorized
substitution” chargeback, which totaled $49,176.00. In addition to paying nothing
for the eight-foot banner snowmen, Garden Ridge paid nothing for the nine-foot
waving snowman despite the fact that those snowmen complied with PO ‘721.
Garden Ridge charged back to Advance the entire merchandise cost plus the cost
of freight on the nine-foot waving snowmen as a “merchant initiated” chargeback,
which totaled $29,178.00. Additionally, from September through November 2009,
3
Garden Ridge assessed another $13,241.84 in noncompliance chargebacks to
Advance on other merchandise for “ticketing/packing” violations involving not
marking cartons sequentially or otherwise mislabeling them, and for “purchase
order” violations involving short or incomplete orders.
Advance demanded payment for its snowmen and other items and staged
protests at Garden Ridge’s headquarters. Thereafter, Garden Ridge sued Advance
for breach of contract and a declaratory judgment that Garden Ridge had complied
with the contracts. Advance counterclaimed for breach of contract and asserted
that Garden Ridge’s claims were barred because the chargeback provisions are
unenforceable as penalties. Garden Ridge defended against Advance’s
counterclaim by asserting that Advance breached the contracts first.
At trial, Garden Ridge’s divisional merchandise manager/vice president
Linda Troy admitted that Garden Ridge made approximately $113,000 in profit on
the snowmen it received from Advance, and further testified that Garden Ridge
made all the money it would have made if the snowmen were delivered exactly as
ordered. One of Garden Ridge’s buyers, Sheria Cole, admitted she did not know of
any dollar amount that Garden Ridge was harmed by the snowmen shipment and
that Garden Ridge had less-than-zero receipt cost for the snowmen. Cole also
testified that she was unaware of anyone at Garden Ridge having done any actual-
harm calculations from the unauthorized substitution of the eight-foot banner
snowmen or any calculations to determine whether Garden Ridge’s chargebacks
were reasonably proportional to any actual harm it suffered. Garden Ridge
acknowledges that it did not argue any amount of actual damages other than zero
and that the record reflects no actual damages resulting from Advance’s
noncompliance violations.
The trial court granted Advance’s motion for directed verdict on Garden
4
Ridge’s breach-of-contract claim because of lack of evidence on damages resulting
from Advance’s noncompliance violations, but did not grant Advance’s motion for
directed verdict on Garden Ridge’s declaratory-judgment claim or Advance’s
motion for directed verdict seeking to have Garden Ridge’s chargeback provisions
declared legally unenforceable as penalties.
The trial court submitted to the jury questions on Garden Ridge’s
declaratory-judgment claim and on Advance’s breach-of-contract claim, but
refused to submit a question on Garden Ridge’s prior-material-breach defense. On
Garden Ridge’s declaratory-judgment claim, the jury found that Garden Ridge did
not comply with the terms of the three listed agreements (to purchase the eight-foot
snowmen, to purchase the nine-foot snowmen, and to purchase other items listed in
the “summary of chargebacks” exhibit). On Advance’s breach-of-contract claim,
the jury found that Garden Ridge failed to comply with these agreements by failing
to pay for the eight-foot snowmen, the nine-foot snowmen, and other items listed
in the chargeback exhibit. The jury, in separate findings, awarded Advance
damages in the amount of $49,176.00 for the eight-foot snowmen, $29,781.00 for
the nine-foot snowmen, and $500.00 for other items listed in the chargeback
exhibit. The trial court rendered final judgment on the jury’s verdict and on a
stipulation for legal fees.
Garden Ridge appeals the trial court’s final judgment, arguing in three issues
that the trial court committed reversible error in its jury charge. First, Garden
Ridge contends that the trial court erred in refusing to submit a jury question on
Garden Ridge’s affirmative defense of prior material breach. Second, Garden
Ridge argues that the trial court erred by improperly instructing the jury in the
damages question on the reasonableness of Garden Ridge’s chargebacks. Third,
Garden Ridge complains that the trial court’s inclusion of instructions on
5
acceptance and contract price in the breach-of-contract question were improper
comments on the weight of the evidence.
II. ANALYSIS
A. Refusal to submit prior-material-breach question
Garden Ridge concedes that it is not entitled to a jury question on prior
material breach if this court determines that the chargeback provisions are
unenforceable as penalties. Thus, we first proceed to address the legal question of
whether the chargeback provisions are enforceable.
1. Do the chargeback provisions at issue assess liquidated
damages or penalties?
The parties agree that this case is governed by the Uniform Commercial
Code, as adopted by Texas, which applies to transactions involving goods. TEX.
BUS. & COM. CODE ANN. § 2.102 (West 2009).2 The parties agree that section
2.718(a) of the UCC, on liquidation of damages, governs the enforceability of the
chargeback provisions in this case. Section 2.718(a) provides:
(a) Damages for breach by either party may be liquidated in the
agreement but only at an amount which is reasonable in the light of
the anticipated or actual harm caused by the breach, the difficulties
of proof of loss, and the inconvenience or non-feasibility of
otherwise obtaining an adequate remedy. A term fixing
unreasonably large liquidated damages is void as a penalty.
Id. § 2.718(a). The parties also agree that if the chargeback provisions governing
2
Under the UCC, a buyer can reject, accept, or partially accept nonconforming goods.
TEX. BUS. & COM. CODE ANN. § 2.601 (West 2009). The buyer must pay at the contract rate for
goods it accepts. Id. § 2.607(a). A buyer who notifies the seller of his intention to do so may
deduct damages resulting from any breach of the contract from any part of the price still due
under that contract. Id. § 2.717. Garden Ridge does not dispute that it accepted the snowmen,
and there is no evidence that its actions fall within section 2.717.
6
Advance’s noncompliance violations at issue are unenforceable as penalties,
Garden Ridge no longer has any basis to argue that Advance committed any prior
material breach.3 But what the parties do not agree on is the proper analysis by
which courts determine the legal question of whether a liquidated-damages
provision is unenforceable as a penalty.
a. Determining whether a liquidated-damages provision
constitutes a penalty
Whether a contractual provision is an enforceable liquidated-damages
provision or an unenforceable penalty is a question of law for courts to decide.
Phillips v. Phillips, 820 S.W.2d 785, 788 (Tex. 1991) (citation omitted). The party
asserting that a liquidated-damages clause is a penalty provision bears the burden
of pleading and proof. See id. at 789 (citing TEX. R. CIV. P. 94).
“Liquidated damages” ordinarily refers to an acceptable measure of damages
that parties stipulate in advance will be assessed in the event of a contract breach.
Flores v. Millennium Interests, Ltd., 185 S.W.3d 427, 431 (Tex. 2005) (citing
Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 664 (Tex. 2005)). “The
common law and the Uniform Commercial Code have long recognized a
distinction between liquidated damages and penalties.” Id. (citing TEX. BUS. &
COM. CODE § 2.718(a), and Stewart v. Basey, 150 Tex. 666, 245 S.W.2d 484, 485–
86 (1952)). Section 2.718(a) codified the common-law distinction between
liquidated damages and penalties as part of Texas’ adoption of the UCC’s article
on sales. Id. at 432.
In Phillips v. Phillips, the Texas Supreme Court restated the common-law
3
Advance further contends that prior material breach never can be asserted in any UCC
case that concerns nonconforming goods. See Glenn Thurman, Inc. v. Moore Constr., Inc., 942
S.W.2d 768, 771–72 (Tex. App.—Tyler 1997, no writ). However, we need not decide this issue
to finally dispose of this appeal. See TEX. R. APP. P. 47.1.
7
test for determining whether to enforce a liquidated-damages provision. 820
S.W.2d at 788. “In order to enforce a liquidated damages clause, the court must
find: (1) that the harm caused by the breach is incapable or difficult of estimation,
and (2) that the amount of liquidated damages called for is a reasonable forecast of
just compensation.” Id. (citing Rio Grande Valley Sugar Growers, Inc. v.
Campesi, 592 S.W.2d 340, 342 n.2 (Tex. 1979), and comparing to TEX. BUS. &
COM. CODE § 2.718(a)). The Phillips court explained that one way a party can
“show that a liquidated damages provision is unreasonable” is by showing that “the
actual damages incurred were much less than the amount contracted for,” which
requires the party “to prove what those actual damages were.” Id. Thus, in such a
case, “factual issues must be resolved before the legal question can be decided.”
Id. Phillips, however, involved no fact issues because the contractual provision at
issue “by which one party agrees to pay the other some multiple of actual damages
for breach of the agreement does not meet either part of the legal test for an
enforceable liquidated damages provision.” Id. at 789. The Phillips court
therefore declared the provision at issue—which called for “liquidated damages ten
times the amount [the limited partner] loses as a result of” a breach of trust—
unenforceable as a penalty on its face. Id. at 787, 789.
The common-law test as described in Phillips closely tracks the language of
section 2.718(a) of the UCC. The code allows damages to be liquidated “only at
an amount which is reasonable in the light of the anticipated or actual harm caused
by the breach, the difficulties of proof of loss, and the inconvenience or non-
feasibility of otherwise obtaining an adequate remedy.” TEX. BUS. & COM. CODE
ANN. § 2.718(a). It further states: “A term fixing unreasonably large liquidated
damages is void as a penalty.” Id. The first clause of section 2.718(a)—
“reasonable in the light of the anticipated or actual harm caused by the breach”—
8
correlates to “reasonable forecast of just compensation,” from the common-law
test. See id.; Phillips, 820 S.W.2d at 788. The second and third clauses of section
2.718(a)—“the difficulties of proof of loss, and the inconvenience or non-
feasibility of otherwise obtaining an adequate remedy”—correlate to “that the
harm caused by the breach is incapable or difficult of estimation,” from the
common-law test. See TEX. BUS. & COM. CODE ANN. § 2.718(a); Phillips, 820
S.W.2d at 788. Further, the sentence that “[a] term fixing unreasonably large
liquidated damages is void as a penalty” under section 2.718(a) correlates to “a
liquidated damages provision is unreasonable because the actual damages incurred
were much less than the amount contracted for.” See TEX. BUS. & COM. CODE
ANN. § 2.718(a); Phillips, 820 S.W.2d at 788. We therefore conclude that the
common-law test as described in Phillips and the UCC test as outlined in 2.718(a)
reflect the same essential factors and the same type of reasonableness test. Thus,
common-law case law continues to inform our analysis here.
b. Do actual damages matter?
Garden Ridge argues that the test is conducted entirely on an ex ante basis.
That is, if, at the time the contract is formed, actual damages are difficult to
estimate and the amount specified in the contract is a reasonable forecast of just
compensation, a liquidated-damages term is enforceable. Garden Ridge contends
that the test contains no ex post actual-harm assessment to determine
reasonableness. Thus, according to Garden Ridge, Advance could only show that
the chargeback provisions were unenforceable as penalties if, ex ante, actual
damages are easy to estimate or the liquidated damages are based on an
unreasonable forecast. Garden Ridge asserts that Advance did not meet its burden
because Garden Ridge’s CFO, Bill Uhrig, testified that the chargeback schedule
was created because actual damages from noncompliance violations are difficult to
9
calculate, and that the schedule was based on computations and estimations by
Garden Ridge’s executive and purchasing staff.
Garden Ridge primarily relies on two cases from the Dallas Court of
Appeals. See GPA Holding, Inc. v. Baylor Health Care Sys., 344 S.W.3d 467
(Tex. App.—Dallas 2011, no pet.); Baker v. Int’l Record Syndicate, Inc., 812
S.W.2d 53 (Tex. App.—Dallas 1991, no writ). Neither of these cases, however,
supports Garden Ridge’s position that the test is to be conducted solely on an ex
ante basis.
In GPA Holding, the appellate court found that GPA, a third-party
administrator for self-funded health plans, did not meet its burden to establish that
a “clause requiring payment of normal billed charges [instead of the original
provider discounted rates] after 45 days” in GPA’s hospital services agreement
with Baylor was an unenforceable penalty. 344 S.W.3d at 476. GPA did not prove
that “the harm from late payment is [not] difficult to estimate, or that the normal
billed charges were an unreasonable forecast of the loss actually sustained.” Id.
(emphasis added). Nothing in the GPA Holding court’s analysis precludes a
consideration of reasonableness based on actual damages; and in fact, the court
assessed Baylor’s actual damages, i.e., whether the normal billed charges were a
“reasonable amount for the health care services and supplies provided in the
charges at issue in this case.” Id.
In Baker, while the appellate court noted that evidence related to the
difficulty of estimation and the reasonableness of the damages forecast should be
viewed as of the time the contract was executed, or the “anticipated harm” test, the
court also expressly stated: “Additionally, liquidated damages must not be
disproportionate to actual damages. If the liquidated damages are shown to be
disproportionate to the actual damages, then the liquidated damages can be
10
declared a penalty . . . .” 812 S.W.2d at 55. The Baker court called this the “actual
harm” test: “The party asserting this defense is required to prove the amount of the
other party’s actual damages, if any, to show that the actual loss was not an
approximation of the stipulated sum.” Id. This “actual harm” test is entirely
consistent with what the Texas Supreme Court stated in Phillips, that a party can
show unreasonableness based on “the actual damages incurred [being] much less
than the amount contracted for.” 820 S.W.2d at 788.
This court also has recognized that actual harm factors into the test to
determine whether a liquidated-damages provision is an enforceable penalty. In
Chan v. Montebello Development Co., we described the Phillips test as follows:
“The test for determining whether a provision is valid and enforceable as
liquidated damages is (1) if the damages for the prospective breach of the contract
are difficult to measure; and (2) the stipulated damages are a reasonable estimate of
actual damages.” Chan v. Montebello Dev. Co., No. 14-06-00936-CV, 2008 WL
2986379, at *3 (Tex. App.—Houston [14th Dist.] July 31, 2008, pet. denied)
(citing Phillips, 820 S.W.2d at 788). Further, we stated:
In order to meet this burden, the party asserting the defense is required
to prove the amount of the other parties’ actual damages, if any, to
show that the liquidated damages are not an approximation of the
stipulated sum. If the liquidated damages are shown to be
disproportionate to the actual damages, then the liquidated damages
must be declared a penalty . . . .
Id. at *3–4 (citations omitted).
Most importantly, the UCC reasonableness test explicitly refers to actual
harm, providing that one way a liquidated-damages provision can be invalidated is
where the stipulated amount proves unreasonable in light of “the anticipated or
actual harm caused by the breach.” TEX. BUS. & COM. CODE ANN. § 2.718(a)
11
(emphasis added). In addition, the UCC expressly provides that “[a] term fixing
unreasonably large liquidated damages is void as a penalty.” Id.; see id. cmt. 1. In
order to determine whether a term fixes unreasonably large liquidated damages, it
follows that courts would need to consider what actual harm, if any, was caused by
the breach and then compare it to the stipulated amount of liquidated damages.
Thus, both the common law and the UCC allow for courts to determine the
reasonableness of a liquidated-damages clause by considering whether the
defendant has shown that the stipulated amount was “unreasonably large”
compared to the actual damages. See TEX. BUS. & COM. CODE ANN. § 2.718(a);
Phillips, 820 S.W.2d at 788.
c. Comparing the amount of the chargebacks to Garden
Ridge’s actual damages
Advance argues that it proved that the harm anticipated from its alleged
noncompliance was not difficult to estimate, that Garden Ridge did not even
attempt to determine a chargeback amount that was reasonable in light of the
anticipated or actual harm, and that the liquidated damages Garden Ridge assessed
are disproportionate to its actual damages. We conclude Advance met its burden
to show that the chargeback amounts constituted a disproportionate estimation of
Garden Ridge’s actual damages; therefore, the chargeback provisions are void as
penalties under the UCC.
Advance elicited evidence from Garden Ridge employees Troy and Cole
sufficient to prove that Garden Ridge suffered no actual damages as a result of
Advance’s substitution of the eight-foot banner snowmen. The trial court also
determined that Garden Ridge suffered no actual damages from any of Advance’s
noncompliance violations when the court directed a verdict against Garden Ridge
on its breach-of-contract claim; Garden Ridge does not challenge that ruling. And
12
Garden Ridge itself acknowledges it argued no amount of actual damages other
than zero and the record shows that Garden Ridge suffered no actual damages
resulting from Advance’s noncompliance violations.
Thus, Advance has shown that the chargebacks assessed by Garden Ridge
for Advance’s “unauthorized substitution” and “merchant initiated” noncompliance
violations—100% of the invoiced merchandise cost plus freight for the eight-foot
banner snowmen and the nine-foot waving snowmen, for a total of $79,457.00—
were unreasonably large when compared to Garden Ridge’s actual damages of
zero. Advance also has shown that the additional chargebacks assessed by Garden
Ridge for Advance’s “short or incomplete order,” “carton markings,” and “cartons
not numbered correctly” noncompliance violations on other merchandise—totaling
approximately $13,000—were unreasonably large when compared to Garden
Ridge’s actual damages of zero. Therefore, as a matter of law, we conclude that,
under these circumstances,4 the chargeback amounts were unreasonable, and that
the chargeback provisions are unenforceable as penalties under the UCC because
they fixed unreasonably large liquidated damages. Accordingly, we overrule
Garden Ridge’s first issue.
d. Whether the amount of the chargebacks is reasonable in
light of Garden Ridge’s anticipated harm
Even if the concurring opinion is correct that Advance also had to prove the
stipulated damages were unreasonable in light of the anticipated harm in order for
us to conclude that the chargeback provisions are unreasonable under section
4
Advance further argues that the chargeback provisions are unenforceable on their face,
as in Phillips. However, while Advance was able to prove that Garden Ridge suffered no actual
damages here, perhaps there may exist circumstances whereby the nature of the unauthorized
substitution, short or incomplete order, mismarked carton, or other noncompliance issue leading
to a merchant-initiated chargeback would not result in actual damages of zero and whereby the
chargeback amounts when compared to those actual damages would not be disproportionate.
13
2.718(a), we conclude that Advance has done so in this case. As explained in
subsection II.A.1.c., Advance has shown that the stipulated amounts are
unreasonable in light of the actual harm—zero—suffered by Garden Ridge.
Further, Advance has shown that the stipulated amounts are unreasonable in light
of the harm anticipated by Garden Ridge.
Here, according to the challenged liquidated-damages provisions, Garden
Ridge anticipated at the time of contract that an unauthorized substitution of any
type would result in harm of 100% of the cost of the merchandise, plus freight. In
fact, Garden Ridge’s buyer Cole testified that Garden Ridge had the discretion to
assess the full 100% chargeback, even if the only deviation in the snowmen had
been green versus red buttons. Cole further testified that she was not aware of any
instance where Garden Ridge had decided not to issue a chargeback because there
was “no harm, no foul” or where Garden Ridge had exercised its discretion to not
charge back “fully” for an unauthorized substitution. Garden Ridge’s CFO Uhrig
agreed that a button-color substitution would constitute noncompliance, for which
Garden Ridge could charge back the full 100% of merchandise cost. In other
words, no matter what the degree of substitution, and no matter whether the
substitution is even anticipated to result in any harm, Garden Ridge’s
unauthorized-substitution rule provides that Garden Ridge keeps the merchandise
without paying the vendor anything and makes the vendor cover the freight.
Even though, according to Uhrig, Garden Ridge is “very good at estimating
our costs,” he admitted that at the time it was developing the chargeback schedule
Garden Ridge did not perform any actual studies on what costs it would incur due
to vendor noncompliance. Further, Uhrig could not explain any specifics on how
Garden Ridge “figure[d] out what the costs are and what would be appropriate
charge-backs.” Cole also testified that she was not aware of Garden Ridge having
14
performed any analysis as to whether the 100% chargeback amount reasonably
approximates the anticipated harm that Garden Ridge would suffer from an
unauthorized substitution. Despite this lack of detail regarding the 100%
chargeback amount for anticipated harm from vendor violations, Uhrig testified
that “on average” charging back 100% somehow reflected Garden Ridge’s costs
for unauthorized substitutions. Uhrig further indicated that Garden Ridge’s
chargebacks communicate to vendors, “Don’t do this”; and Garden Ridge’s CEO,
Tim Kibarian, agreed that chargebacks are the “penalty” if its vendors do not
follow its rules.
We therefore conclude that Advance has proven that Garden Ridge’s
liquidated-damages provisions do not reasonably reflect Garden Ridge’s
anticipated harm for an unauthorized substitution, where the challenged provisions
allowed Garden Ridge to charge back 100% of merchandise cost plus freight for
any unauthorized substitution, no matter how slight and no matter if Garden Ridge
even anticipated incurring any harm.
B. Instruction on damages
Garden Ridge next argues that the trial court committed reversible error by
including the following instruction as part of its question on Advance’s damages:
The unauthorized substitution provision in the Vendor Compliance
Manual is unreasonable if the actual damages that Garden Ridge
incurred were much less than the charge-back amount.
During the charge conference, Garden Ridge objected to the inclusion of this
instruction as improper because whether the chargeback provisions constitute
penalties was a question reserved for the court, not the jury. Garden Ridge further
objected that the trial court should not include this instruction because it would
permit the jury to assess damages on a basis that is not permitted in the law—that
15
is, there is no actual-damages component to whether a liquidated damages
provision is unreasonable and thus constitutes a penalty.5 The trial court overruled
Garden Ridge’s objections, which properly are preserved for our review. See
Thota v. Young, 366 S.W.3d 678, 689 (Tex. 2012).
We review a trial court’s decision whether to submit a particular instruction
in its charge for abuse of discretion. Id. at 687 (citing In re V.L.K., 24 S.W.3d 338,
341 (Tex. 2000)); City of Houston v. Proler, 373 S.W.3d 748, 760 (Tex. App.—
Houston [14th Dist.] 2012, no. pet. h.) (citing Shupe v. Lingafelter, 192 S.W.3d
577, 579 (Tex. 2006)). The trial court has considerable discretion to determine
proper jury instructions, and “[i]f an instruction might aid the jury in answering the
issues presented to them, or if there is any support in the evidence for an
instruction, the instruction is proper.” Thota, 366 S.W.3d at 687 (quoting La.-Pac.
Corp. v. Knighten, 976 S.W.2d 674, 676 (Tex. 1998)). “An instruction is proper if
it (1) assists the jury, (2) accurately states the law, and (3) finds support in the
pleadings and evidence.” Id. (citing Columbia Rio Grande Healthcare, L.P. v.
5
Advance argues that Garden Ridge failed to preserve this particular complaint about the
allegedly ex ante nature of the liquidated-damages determination. Garden Ridge specifically
objected to the inclusion of this particular instruction. The context of the charge conference also
reveals that although Garden Ridge requested and the trial court allowed an instruction
paraphrasing the first sentence of section 2.718(a) to indicate when liquidated damages were
reasonable, Garden Ridge did not agree to the trial court’s inclusion of the instruction addressing
reasonableness with regard to “actual damages” because that particular instruction, in contrast
with the previous instruction Garden Ridge requested and the court allowed, did not reflect a
“legally permissible” basis for the jury to award damages to Advance. Thus, Garden Ridge
sufficiently made the trial court aware of its complaint that its actual incurred damages should
not be included in any reasonableness assessment by the jury of whether the chargebacks
constituted penalties, and the trial court overruled Garden Ridge’s complaint. See Thota v.
Young, 366 S.W.3d 678, 689 (Tex. 2012) (“[T]he procedural requirements for determining
whether a party has preserved error in the jury charge are explained by one basic test: ‘whether
the party made the trial court aware of the complaint, timely and plainly, and obtained a ruling.’”
(quoting State Dep’t of Highways v. Payne, 838 S.W.2d 235, 241 (Tex. 1992))).
16
Hawley, 284 S.W.3d 851, 855–56 (Tex. 2009)). We will not reverse a judgment
for a charge error unless that error was harmful because it “probably caused the
rendition of an improper judgment” or “probably prevented the petitioner from
properly presenting the case to the appellate courts.” Id. (citing TEX. R. APP. P.
44.1(a) and 61.1); Proler, 373 S.W.3d at 760 (citing La.–Pac. Corp., 976 S.W.2d
at 676 (Tex. 1998)); see also Bed, Bath & Beyond, Inc. v. Urista, 211 S.W.3d 753,
757 (Tex. 2006). We examine the entire record to determine whether the
instruction probably caused an improper judgment. Thota, 366 S.W.3d at 686–87;
Urista, 211 S.W.3d at 757.
As discussed above in subsection II.A.1.b, a party can prove that a
liquidated-damages clause is unenforceable and void as a penalty if it shows that
the actual damages incurred by the other party are much less than or
disproportionate to the contracted-for amount. The complained-of instruction here
essentially tracks the language from Phillips—that a liquidated-damages provision
is unreasonable and unenforceable as a penalty “because the actual damages
incurred were much less than the amount contracted for.” See 820 S.W.2d at 788.
Therefore, the instruction properly stated the “actual harm” portion of the
common-law test. Id.; see also Chan, 2008 WL 2986379, at *3. Further, the
complained-of instruction correlates to the equivalent portion of the UCC test that
“[a] term fixing unreasonably large liquidated damages is void as a penalty.” TEX.
BUS. CODE ANN. § 2.718(a).
However, because the instruction concerns whether the chargeback
provisions are unreasonable and thus unenforceable as penalties, which is a legal
issue for the trial court to decide, Phillips, 820 S.W.2d at 788, we conclude that the
trial court improperly submitted this instruction6 to the jury. The complained-of
6
The trial court also improperly submitted the previous instruction, which Garden Ridge
17
instruction describes a reasonableness analysis that the trial court itself was
supposed to conduct—this instruction, despite its proper statement of the law,
would not assist the jury. See Thota, 366 S.W.3d at 687. Moreover, although the
Phillips court indicated that in some cases the jury might have to resolve a factual
issue before the trial court can decide the ultimate legal question of enforceability,
here, no fact issues remained; the trial court already had found that Garden Ridge
suffered no breach-of-contract actual damages due to Advance’s noncompliance
violations when the court directed a verdict against Garden Ridge on that claim.
See 820 S.W.2d at 788. As a matter of law, these chargebacks were unreasonable
and void as penalties; “consequently, [the instruction] w[as] surplusage, expressly
prohibited by the Texas Supreme Court in Acord v. General Motors Corp., 669
S.W.2d 111, 116 (Tex. 1984).” Bean v. Baxter Healthcare Corp., 965 S.W.2d 656,
664 (Tex. App.—Houston [14th Dist.] 1998, no pet.); see also Elloway v. Pate,
238 S.W.3d 882, 896 (Tex. App.—Houston [14th Dist.] 2007, no pet.) (citing
Acord, 669 S.W.2d at 116). The trial thus abused its discretion by unnecessarily
instructing the jury on the reasonableness of Garden Ridge’s chargebacks.
Our review of the record reveals, however, that this abuse of discretion was
harmless.7 Including a surplus instruction on the law is only harmful when it
requested and which essentially tracks the first sentence of section 2.718:
Parties may agree in a contract to damages payable upon a breach if that
contractual amount is reasonable in light of the anticipated or actual harm caused
by the breach, the difficulties of proof of loss, and the inconvenience or non-
feasibility of otherwise obtaining an adequate remedy.
See TEX. BUS. & COM. CODE ANN. § 2.718(a). We note that this instruction also properly
references “actual harm” as a component of the reasonableness test.
7
Garden Ridge insists that we must presume harm pursuant to Harris County v. Smith, 96
S.W.3d 230 (Tex. 2002), and Crown Life Ins. Co. v. Casteel, 22 S.W.3d 378 (Tex. 2000). The
Texas Supreme Court, however, has refused to extend the presumed-harm scenario to instruction
error. See Thota, 366 S.W.3d at 692–93 (concluding that “even assuming the new and
18
amounts to a comment on the weight of the evidence. Bean, 965 S.W.2d at 664
(discussing Acord, 669 S.W.2d at 113, 116). Although the trial court instructed
jurors about a potential situation where Advance’s damages may be reduced to
essentially nothing—that is, if Garden Ridge’s chargebacks actually were
reasonable and thus enforceable as a matter of law—including this instruction was
not “reasonably calculated to cause [nor] probably did cause prejudicial harm to
appellant[]” Garden Ridge. See Acord, 669 S.W.2d at 116 (citation omitted).
Moreover, by including this instruction, the trial court “did not offer [its] opinion,
assume the truth of a material fact, exaggerate, minimize, or withdraw relevant
evidence.” See Bean, 965 S.W.2d at 664. Therefore, including the surplus
instruction did not constitute a comment on the weight of the evidence.
Nor did including the improper instruction mislead or confuse the jury in its
determination of damages on Advance’s breach-of-contract claim. Advance
presented evidence relating to over $92,000 in chargebacks Garden Ridge
assessed, and evidence that these chargebacks reflected what Garden Ridge
deducted from Advance’s merchandise invoices. The jury’s answers to what was
“the difference between what Garden Ridge agreed to pay and what it actually paid
for [the] snowmen” reflect that the jury considered the contract rate as what
Garden Ridge agreed to pay for the nine-foot and eight-foot snowmen within PO
‘721 and PO ‘743, which included collection of freight, and that Garden Ridge
actually paid nothing whatsoever to Advance for these snowmen. Thus, the jury
found that for the snowmen Advance had proven its full amount of damages—that
the differences reflected the exact amounts Garden Ridge charged back. The jury’s
answer to what was “the difference between what Garden Ridge agreed to pay and
independent cause instruction in this charge constituted error, it does not raise a Casteel issue”);
Urista, 211 S.W.3d at 756–57 (declining to extend Casteel’s presumed-harm analysis to trial
court’s submission of an erroneous unavoidable-accident instruction).
19
what it actually paid for other items charged back on [Advance’s] Exhibit” reflects
that the jury considered the evidence presented on the remaining approximately
$13,000 in chargebacks and determined that Advance had proven damages on
$500 of these other chargebacks. Therefore, the erroneous instruction did not
probably cause the rendition of an improper judgment; and we overrule Garden
Ridge’s second issue.
C. Instructions on breach of contract
In its final issue, Garden Ridge argues that the trial court’s inclusion of the
UCC’s definition regarding what constitutes the acceptance of goods—section
2.606(a)8—and the UCC’s provision that the buyer must pay the contract rate for
goods it accepts—section 2.607(a)9—in its instructions to the jury on Advance’s
breach-of-contract claim constituted an impermissible comment on the weight of
the evidence. During the charge conference, Garden Ridge objected to the
inclusion of these instructions as unnecessary because Garden Ridge did not
dispute that it accepted the goods. Garden Ridge thus contends that these
8
Section 2.606(a) provides:
(a) Acceptance of goods occurs when the buyer
(1) after a reasonable opportunity to inspect the goods signifies to the seller that
the goods are conforming or that he will take or retain them in spite of their non-
conformity; or
(2) fails to make an effective rejection (Subsection (a) of Section 2.602), but such
acceptance does not occur until the buyer has had a reasonable opportunity to
inspect them; or
(3) does any act inconsistent with the seller's ownership; but if such act is
wrongful as against the seller it is an acceptance only if ratified by him.
TEX. BUS. & COM. CODE ANN. § 2.606(a).
9
“The buyer must pay at the contract rate for any goods accepted.” TEX. BUS. & COM.
CODE ANN. § 2.607(a).
20
“surplusage” instructions improperly “nudged” the jury toward Advance’s theory
of the case. The trial court overruled Garden Ridge’s objections, which properly
are preserved for our review. See Thota, 366 S.W.3d at 689.
This is a UCC breach-of-contract case in which Advance pleaded, and
presented evidence, that Garden Ridge breached by accepting and then not paying
the contract price for the snowmen and other goods at issue. The parties do not
dispute that their contracts are governed by the UCC. Section 2.606(a) and section
2.607(a), the sources of the trial court’s instructions, are located in the UCC
subchapter concerning “Breach, Repudiation, and Excuse.” Further, both of these
instructions properly state the law. TEX. BUS. & COM. CODE ANN. § 2.606(a) &
2.607(a) (West 2009). These instructions thus are proper because they (1) assisted
the jury in answering the breach question, (2) accurately stated the law, and (3)
found support in the pleadings and evidence. See Thota, 366 S.W.3d at 687 (citing
Hawley, 284 S.W.3d at 855–56). We therefore conclude that the trial court did not
abuse its discretion by submitting the complained-of trial instructions.
III. CONCLUSION
Accordingly, having overruled all of Garden Ridge’s issues, we affirm the
trial court’s judgment.
/s/ Tracy Christopher
Justice
Panel consists of Justices Frost, Christopher, and Jamison. (Frost, J., concurring).
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APPENDIX A
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