IN THE SUPREME COURT OF TEXAS
════════════
No. 08-0148
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Regal Finance Company, Ltd.
and Regal Finance Company II, Ltd., Petitioners,
v.
Tex Star Motors, Inc.,
Respondent
════════════════════════════════════════════════════
On Petition for Review from
the
Court of Appeals for the
Fourteenth District of Texas
════════════════════════════════════════════════════
Argued September 9, 2009
Justice
Johnson, dissenting.
The Court concludes there is some evidence to support the jury’s findings
of damages based on Regal’s disposal of repossessed
vehicles in a commercially reasonable manner, even though there is no evidence
the dispositions conformed to standards in the one jury instruction setting out
how sales could be commercially reasonable. The Court’s holding effectively
approves the jury’s having decided on its own what the
standards are for commercially reasonable dispositions of repossessed
automobiles. It then remands the case for the court of appeals to measure the
factual sufficiency of the evidence against that unknown standard.
The Court’s analysis is flawed in two major ways. First, the Court does
not adhere to the rule that sufficiency of the evidence must be measured against
definitions as they are given in the jury charge, even if the definitions are
incomplete or incorrect. Second, lay jurors are not presumed to know the meaning
of legal terms such as “commercially reasonable.” So even assuming it would have
been proper for the jury to determine whether Regal’s
sales of vehicles were commercially reasonable using a standard other than the
definition given in the charge, the only way the jury would have known another
standard would have been through evidence such as properly qualified expert
testimony regarding the other standard. There was no such evidence. Accordingly,
I disagree with the Court’s conclusion that there is legally sufficient evidence Regal’s
sales were commercially reasonable and thus disagree with its holding that there
is legally sufficient evidence of Regal’s damages to
the extent those damages were based on commercially reasonable sales.
I. The Jury
Charge Defined “Commercially Reasonable”
The jury charge contained standard instructions, including the
instruction that “[w]hen words are used in this charge in a sense that varies
from the meaning commonly understood, you are given a proper legal definition,
which you are bound to accept in place of any other meaning.” See Tex. R. Civ. P. 226a. A trial court
must submit “such instructions and definitions as shall be proper to enable the
jury to render a verdict.” Tex. R. Civ.
P. 277. Jury charges are directed to lay jurors untrained in the law,
thus charge language is evaluated from the perspective of such a juror. See Columbia Rio Grande Healthcare, L.P. v. Hawley, 284
S.W.3d 851, 862 (Tex. 2009); Galveston, H. & S.A. Ry. Co. v.
Washington, 63 S.W. 534, 538 (Tex. 1901).
Neither of the parties nor the Court maintains that laypersons have a
common understanding of the legal term “commercially reasonable” as it is used
in the Uniform Commercial Code (UCC). Thus, the term is one that should have
been defined in the charge. See Tex. & P. Ry. Co. v. Mercer, 90
S.W.2d 557, 560 (Tex. 1936) (explaining that “proximate cause” is a legal phrase
requiring definition); Magnolia Petroleum Co. v. Long, 86 S.W.2d 450, 455
(Tex. 1935); Reliable Consultants, Inc. v. Jaquez, 25 S.W.3d 336, 344 (Tex. App.—Austin 2000, pet.
denied); Mayes v. Stewart, 11 S.W.3d 440, 455 (Tex. App.—Houston [1st
Dist.] 2000, pet. denied) (“While the trial court must explain legal or
technical terms, its discretion in determining the sufficiency of such
explanations is broad.”); Johnson v. Whitehurst, 652 S.W.2d 441, 447
(Tex. App.—Houston [1st Dist.] 1983, writ ref’d n.r.e.) (“The only requirement to be observed is that the
trial court must give definitions of legal and other technical
terms.”).
The issue arises from Question 6 of the charge which submitted Regal’s alleged damages. The question began by asking what
sum of money, if any, would fairly and reasonably compensate Regal for its
damages. The question had four parts with separate elements of damages submitted
in each part. Parts (a) and (b) and their accompanying instructions are the
parts relevant to the Court’s decision. In those parts, the jury was instructed
to find Regal’s damages measured by
a. The difference, if any, between the unpaid balance on
all Loans that Tex Star has not guaranteed and the amount received by [Regal]
upon the sale of the vehicles that served as collateral for such
Loans.
In answering this question, consider only Loans relating
to vehicles that [Regal] sold in good faith and in a commercially reasonable
manner. Good faith means honesty in fact and the observance of
reasonable commercial standards of fair dealing.
Every aspect of the disposition, including the method,
manner, time, place and other terms must be commercially reasonable. A sale
is commercially reasonable if it conforms to reasonable commercial practices
among dealers in the type of property that was the subject of the
sale.
The fact that a greater amount could have been obtained
by a collection, enforcement, disposition, or acceptance at a different time or
in a different method from that selected by [Regal] is not of itself sufficient
to preclude [Regal] from establishing that the collection, enforcement,
disposition, or acceptance was made in a commercially reasonable
manner.
. . . .
b. The difference, if any, between the unpaid balance on
all Loans that Tex Star has not guaranteed and the amount received by [Regal]
upon the sale of the vehicles that served as collateral for such Loans. For
purposes of this question, consider only Loans relating to vehicles that [Regal]
sold in good faith and in a commercially reasonable manner as those terms are
defined in the preceding paragraphs, and after giving reasonable notice to
Tex Star.
(emphasis
added).
In regard to the second paragraph of instructions to (a) the Court says
“read in context, the first sentence [“Every aspect of the disposition,
including the method, manner, time, place and other terms must be commercially
reasonable”] conveys the general rule, the second sentence [“A sale is
commercially reasonable if it conforms to reasonable commercial practices among
dealers in the type of property that was the subject of the sale”] offers an
alternative method to prove commercial reasonableness, and the following
paragraph [“The fact that a greater amount could have been obtained by a
collection, enforcement, disposition, or acceptance at a different time or in a
different method”] allows that other commercially reasonable methods may be
used.” ___ S.W.3d ___. But under this record, the
second sentence does not merely set out an alternative method by which
the jury could determine whether the sales were commercially reasonable, as the
Court says it does; it gives the only method in the charge for evaluating
whether Regal’s sales were commercially reasonable and
therefore defined the term. Thus, for purposes of this case, the second sentence
told the jury what the term “commercially reasonable” means, and it can hardly
be disputed that lay persons understand that what a word or term means is a
definition of the term. See also Black’s Law Dictionary 455 (8th ed.
2004) (“define” means to state or explain explicitly, to fix or establish, to
set forth the meaning of a word or phrase; “definition” means the meaning of a
word as explicitly stated in a drafted document); Merriam-Webster’s Collegiate Dictionary
327 (11th ed. 2003) (“definition” is a statement expressing the essential nature
of something or a statement of the meaning of a word or word group or a sign or
symbol). As a definition of the term, the second sentence set forth the only
standard in the charge by which the jury could evaluate whether Regal’s sales were commercially reasonable and still follow
the charge, regardless of whether the definition was a complete statement of the
law. Therefore, the sufficiency of the evidence of a commercially reasonable
sale must be measured against the definition in the charge. Romero v. KPH
Consol., Inc., 166 S.W.3d 212, 221 (Tex. 2005) (“The sufficiency of the
evidence must be measured by the jury charge when, as here, there has been no
objection to it.”); City of Fort Worth v. Zimlich, 29 S.W.3d 62, 71 (Tex. 2000) (“Since neither
party objected to this instruction, we are bound to review the evidence in light
of this definition.”); Osterberg v.
Peca, 12 S.W.3d 31, 55 (Tex. 2000) (“[I]t is the court’s charge, not some
other unidentified law, that measures the sufficiency of the evidence when the
opposing party fails to object to the charge.”).
The text of Question 6 supports the conclusion that it defines the term
“commercially reasonable” as used in the charge. Although the term could have
been defined in different ways pursuant to the UCC and cases cited by the Court,
it was not;1 it was defined in one way. The trial
court did not include words qualifying the definition as one of several
alternative ways Regal could have proven its sales were commercially reasonable.
See Tex. Bus. & Comm.
Code § 9.627(b)(3). Further, the structure of
the sentence militates in favor of using the definition as a complete
definition, and against the jury’s considering the definition as one of several
alternatives. The foregoing is also consistent with the specific language in (b)
that refers to definitions of “good faith” and “commercially reasonable” in (a).
The instruction in (b) inquired about damages Regal incurred due to unpaid
balances on “Loans relating to vehicles that [Regal] sold in good faith and in a
commercially reasonable manner, as those terms are defined in the
preceding paragraphs.” (emphasis added).
And, contrary to the Court’s statement, the third paragraph of (a) does
not imply to the jury that there are other methods of determining whether
dispositions of collateral are commercially reasonable or offer any guidance for
what would comprise a commercially reasonable sale. It neither adds to nor
detracts from the definition of “commercially reasonable” in the preceding
paragraph. Rather, the third paragraph merely emphasizes that the process of a
disposition is what must be commercially reasonable, and that the end result—the
price received for the collateral—should not by itself dictate a finding that a
disposition did not conform to commercially reasonable methods.
Further supporting the conclusion that the sentence “A sale is
commercially reasonable if it conforms to reasonable commercial practices among
dealers in the type of property that was the subject of the sale” defines
“commercially reasonable” as opposed to merely offering the jury an alternative
method to make its findings is the fact that the structure of the sentence is
consistent with that of other definitions throughout the charge. The charge
contained a separate “Definitions” section and also included definitions in
connection with individual jury questions, although they were not always labeled
as definitions. Several examples illustrate the point. In the “Definitions”
section, “apparent authority” was among the words and phrases defined. The
definition did not contain language such as “When the term ‘apparent authority’
is used, it means . . .” or “‘Apparent authority’ is defined as . . .” but it
nevertheless clearly was a definition both because of its being in the
“Definitions” section and because it substantively would be understood by a lay
jury as defining the term:
Apparent authority exists if a party (1) knowingly
permits another to hold himself out as having authority or, (2) through lack of
ordinary care, bestows on another such indications of authority that lead a
reasonably prudent person to rely on the apparent existence of authority to his
detriment. Only the acts of the party sought to be charged with responsibility
for the conduct of another may be considered in determining whether apparent
authority exists.
See Black’s Law Dictionary 455 (8th ed.
2004); Merriam-Webster’s Collegiate
Dictionary 327 (11th ed. 2003).
Next, Question 1 inquired whether Regal and Tex Star agreed Tex Star
would maintain a dealer reserve account, and the jury was instructed that it
could consider “any earlier course of dealing” between Regal and Tex Star. The
immediately following instruction set out the essential legal nature of the term
“course of dealing” and could only be construed as a definition even though it
was not identified as such:
A course of dealing is a sequence of conduct concerning
previous transactions between the parties to a particular transaction that is
fairly to be regarded as establishing a common basis of understanding for
interpreting their expressions and other conduct.
And in Question 3 the jury was asked: “Did Regal partly perform?” An
accompanying instruction did not specify that it was defining “partial
performance” but it manifestly did so because it set out the meaning of the
term:
Partial performance occurs when—
a.
a party takes actions that can only be explained as reliance on an oral
promise;
b.
the party acting in reliance on the contract has suffered a substantial
detriment for which it has no adequate remedy; and
c.
failure to enforce the oral promise would award an unearned benefit to
the other party.
In Question 9 inquiring whether Tex Star and its principals committed
fraud, “fraud” was defined by an instruction that was not specifically
identified as a definition:
Fraud occurs when—
a.
a party makes a material misrepresentation,
b.
the misrepresentation is made with knowledge of its falsity or made
recklessly without any knowledge of the truth and as a positive
assertion,
c.
the misrepresentation is made with the intention that it should be acted
on by the other party, and
d.
the other party justifiably relies on the misrepresentation and thereby
suffers injury.
The foregoing demonstrate that within the charge
there were three structural concepts relevant to the issues on this appeal.
First, whether a jury instruction was a definition depended on the instruction’s
context and substance rather than on whether the instruction was labeled as a
definition. Second, definitions in the charge typically did not include language
limiting the meaning of the word or term defined to the enumerated elements and
no other elements. Third, the trial court’s general instruction that the jury
was bound to accept and apply the definitions given in the charge required the
jury to make its findings according to the substance and essential elements set
out by the definitions in the charge even though the large majority of
instructions that defined terms did not limit the definitions to the words used
in defining the terms by including language such as “only if” or “if but only
if.”
Citing Texas Business and Commerce Code section 9.627(b)(1)-(3) and
comment 3, the Court says “Article Nine provides several examples of
commercially reasonable dispositions, commonly referred to as safe harbors,”
then lists three examples from the statute. ___ S.W.3d
___. The Court further notes that “a comment to Article Nine explains
that these safe harbors are not the exclusive means of proving commercial
reasonableness.” ___ S.W.3d ___ The Court also lists ten factors, noting
“[a]lthough commercial reasonableness is not precisely
defined in Article Nine, courts have considered a
number of non-exclusive factors when addressing the term.” ___
S.W.3d ___. The Court recites evidence of several different methods that
Regal used to sell the vehicles, such as soliciting bids from wholesalers,
private sales to a small number of trusted wholesalers, and auction, and
concludes that Regal’s evidence on the method and
manner of its sales, together with the loan files and their contents, creates
more than a suspicion or surmise that at least a portion of Regal’s sales were commercially reasonable. The problem is,
the jury did not have (1) the benefit of the Court’s knowledge of the UCC; (2)
access to the appellate opinions the Court cites; or (3) knowledge of the
various factors the Court says could be considered when the jury was determining
whether Regal’s sales were commercially reasonable,
because the information was not included in the charge and there was no evidence
such as expert testimony that those factors should be considered and if so, how.
Even if some of the jurors had the benefit of the Court’s knowledge of the UCC
and the appellate opinions the Court cites, unless the charge instructed the
jury that such law or particular aspects of it was applicable or the law was
injected into the trial through evidence, the jury could not use it in making
its decisions. That is because the jury was bound and limited by the charge
language and, in matters beyond the common knowledge and understanding of lay
jurors, by the charge and evidence admitted at trial, such as testimony from
experts. See, e.g., Mack Trucks v. Tamez, 206 S.W.3d 572, 583 (Tex. 2006); FFE Transp.
Servs. v. Fulgham, 154 S.W.3d 84, 89 (Tex. 2004).
The three paragraphs of instructions and definitions in (a), when read as
a lay jury would read them, seamlessly and in a logical manner told the jury
what evidence was required for Regal to have proven its damages. Paragraph two
of (a) begins by instructing the jury to consider only loans relating to
vehicles Regal sold (1) in good faith and (2) in a commercially reasonable
manner. That paragraph, by the next sentence, defines “good faith” as “honesty
in fact and the observance of reasonable commercial standards of fair dealing.”
The next paragraph then defines “commercially reasonable manner” by telling the
jury that in order for a disposition to be in a commercially reasonable manner,
every aspect of the disposition must be commercially reasonable. The following
sentence defines “commercially reasonable”: “A sale is commercially reasonable
if it conforms to reasonable commercial practices among dealers in the same type
of property that was the subject of the sale.” But nowhere did the charge tell
the jury what factors or elements would be considered reasonable among dealers
in repossessed automobiles or otherwise constitute commercial reasonableness.
Because the trial court did not tell the jury what those factors or elements
were, the only way the lay jury would have known what they were would have been
from evidence such as testimony by someone with expertise in the subject.
Without being instructed as to factors or elements of a commercially reasonable
sale or having expert evidence of them, the jury could only speculate as to what
the factors were and how to tell if the evidence met legal
requirements.
The Court says that by the court of appeals’ reading of the second
sentence of the second paragraph—“A sale is commercially reasonable if it
conforms to reasonable commercial practices among dealers in the type of
property that was the subject of the sale”—the court of appeals converted one of
UCC Article 9’s safe harbor provisions into a mandatory condition of proof. The
Court reasons that “if” cannot mean “only if” because then the first sentence of
the second paragraph and the third paragraph of (a) would be superfluous.
Respectfully, I disagree with the Court’s reasoning. First, reading the “if” to
be “only if” merely reinforces the fact that the sentence is a definition.
Second, reading “if” in such manner simply does not make the first sentence of
the second paragraph and the third paragraph of (a) superfluous. Rather, as is
noted above, such a reading makes the instruction and definitions under (a) a
clear, understandable, and logical set of instructions by which the jury could
measure the evidence. Third, if there was an erroneous conversion of a safe
harbor provision into a mandatory condition of proof, it was done by the trial
court in its charge, in a question on which Regal had the burden of proof, and
without objection from Regal. Regal, however, maintains in this Court that the
instructions under (a) are legally correct.
The real difficulty here is that Regal did not have a qualified expert
witness testify as to what were reasonable commercial practices among dealers in
the same type of property that Regal was liquidating, or that Regal’s actions conformed to such practices. The jury and
the parties were bound by the charge. This Court should be also.
Contrary to the Court’s characterization of the court of appeals’
opinion, the court of appeals adhered to the record before it, the jury charge
as given, and well-established principles in reaching its result. The court of
appeals’ analysis that the third paragraph defines “commercially reasonable”
fits with the surrounding instructions in (a) and is
logical:
[T]he charge submitted in this case states that a sale
is commercially reasonable if it conforms to the dealer standard. The plain
meaning of this language does not suggest that the dealer standard is either a
safe harbor or an otherwise optional standard, or that any other factors may
even be considered, let alone balanced, but instead that a sale is commercially
reasonable if (and thus, only if) the dealer standard is met. Regal’s contention would thus not only render the
definition submitted in the charge meaningless, it would authorize a
reviewing court to measure the sufficiency of evidence against a different
standard than was submitted to the jury . . . .
246 S.W.3d at 750-51 (emphasis
added).
In sum, under this record I would hold that the instruction that a
commercially reasonable disposition was one that conformed to reasonable
commercial practices among dealers in the type of property involved in the sale
was a definition. The jury was bound to use that definition. Because there was
no evidence that Regal’s sales were commercially
reasonable as defined by the charge, I would affirm the court of appeals’
judgment on that issue.
II. Evidence to
Prove Another Standard for Commercial
Reasonableness
Even if the Court is correct and the charge did not define “commercially
reasonable” sales but only provided an alternative way in which they could be
proven, then evidence such as testimony from an expert would have been necessary
for the jury to know if Regal’s sales were
commercially reasonable.2 That is because, as previously noted, the
issue involves matters beyond jurors’ common understanding and there is no other
standard expressed in the charge. See Mack Trucks, 206
S.W.3d at 583; Fulgham, 154 S.W.3d at 89;
Turbines, Inc. v. Dardis, 1 S.W.3d 726, 738
(Tex. App.—Amarillo 1999, pet. denied). Because the jury was allowed to
determine Regal’s sales were commercially reasonable
in the absence of evidence from which it could properly tell whether “Every
aspect of [each] disposition, including the method, manner, time, place and
other terms” conformed to reasonable commercial practices among dealers in
repossessed vehicles, and in the further absence of evidence establishing either
another standard for commercially reasonable sales or from which it could
properly tell how to determine if Regal’s sales were
commercially reasonable, then the jury’s finding can only have been based on
some unknown standard at which it arrived by speculation.
The evidence showed how James Wright disposed of the automobiles for
Regal, that Wright had used those sales methods for many years, that he had previously sold a great number of vehicles
using some or all of the methods, and that some of the general methods he used,
such as auction or private sale, were acceptable to other witnesses. But more
was required. There must have been evidence that Wright’s general methods were
commercially reasonable and also that “[e]very aspect
of [each] disposition, including the method, manner, time, place and other
terms” was commercially reasonable. There was no way for the jury to know if his
methods and every aspect of them were commercially reasonable because it was not
given standards by which it could tell if they were. Accordingly, I would hold
that the evidence is legally insufficient to support a finding that Regal’s sales were commercially reasonable, even apart from
the lack of evidence to support a finding that Regal’s
sales were commercially reasonable under the definition in the
charge.
III.
Conclusion
I would affirm the judgment of the court of appeals as to damages Regal
claims based on the jury’s answers to Questions 6(a) and 6(b) and consider the
remainder of the issues presented by the parties.
________________________________________
Phil Johnson
Justice
OPINION DELIVERED: August 20, 2010
1 For
example, Tex Star submitted a proposed instruction setting out numerous factors
the jury could consider in determining if Regal’s
disposition methods were commercially reasonable. The proposed instruction
included language allowing reasonable commercial practices among dealers in the
type of property that was the subject of the sale to be considered as a factor.
The trial court refused the instruction.
2 I agree
with the court of appeals that sales might be proven commercially reasonable
under some combinations of facts and jury charge language absent expert witness
testimony. 246 S.W.3d at 752 n.9. Such a combination of
facts and charge language is not present
here.