## Facts

- Garden Ridge (retailer) purchased inflatable holiday snowmen from Advance (vendor) under written contracts containing “charge-back” provisions framed as liquidated damages for noncompliance.
- Advance provided quote sheets depicting “waving” snowmen; Garden Ridge issued purchase orders for approximately 950 nine-foot waving snowmen and 3,500 eight-foot waving snowmen.
- Advance delivered nine-foot waving snowmen but delivered eight-foot “banner” snowmen that differed from the quoted design.
- Garden Ridge discovered the substitution five days before Thanksgiving, accepted the shipments, proceeded with its advertising plan, and sold the snowmen without customer complaints.
- Garden Ridge’s witnesses conceded it earned about $113,000 profit on the snowmen and would have earned the same profit had the eight-foot items matched the quote sheets; it also claimed no actual harm from alleged labeling/carton-numbering deviations.
- Relying on the chargeback provisions, Garden Ridge assessed chargebacks totaling nearly $80,000 (100% of merchandise cost plus freight) and additional chargebacks exceeding $13,000 for other asserted compliance issues, while retaining and selling the goods.
- Testimony described Garden Ridge’s practice of charging back 100% cost plus freight for substitutions or even minor deviations; Garden Ridge’s CEO characterized chargebacks as a “penalty” for noncompliance.
- Garden Ridge sued for breach of contract and a declaration validating its chargebacks and nonpayment; Advance counterclaimed for breach of contract, contending the chargebacks were unenforceable penalties. A jury found for Advance and awarded damages for unpaid goods.

## Issues

1. Whether the contractual chargeback provisions, as applied to goods accepted and sold at a profit, were unenforceable penalties rather than valid liquidated damages under Texas law and UCC § 2-718.
2. Whether alleged jury-charge errors (failure to submit prior material breach, improper damages instructions, and comments on weight of evidence) required reversal.

## Decision

- The court affirmed the judgment for Advance.
- The court held the chargeback provisions were unenforceable as a matter of law as applied because they required payment of unreasonably large sums unrelated to anticipated or actual harm.
- The court rejected Garden Ridge’s jury-charge complaints as nonreversible because the penalty holding defeated Garden Ridge’s theory that nonpayment was contractually justified.

## Legal Principles

- Under Texas UCC § 2-718, liquidated damages are enforceable only if reasonable in light of anticipated or actual harm, difficulty of proving loss, and inconvenience or infeasibility of obtaining an adequate remedy.
- A stipulated sum that is unreasonably large in relation to anticipated or actual harm is an unenforceable penalty.
- Liquidated-damages clauses may be invalidated “as applied” when enforcement would permit recovery disconnected from the buyer’s actual loss, including where the buyer retains and profits from the goods.

## Conclusion

The court held that a retailer’s chargeback scheme demanding 100% of cost plus freight for nonconformities—despite accepting, selling, and profiting from the goods—operated as an unenforceable penalty under UCC § 2-718, and it affirmed the vendor’s recovery for the buyer’s nonpayment.


Garden Ridge, L.P. v. Advance Int'l, Inc., 403 S.W.3d 432 (Tex. App.—Houston [14th Dist.] 2013)