Regal Finance Company, Ltd. and Regal Finance Company II, Ltd. v. Tex Star Motors, Inc.

IN THE SUPREME COURT OF TEXAS

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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.