Corporate

Breach of the Peace in Self-Help Repossession under U.C.C. Article 9

 
The recent financial crisis has caused a number of debtors to default on their loan obligations, and as a result, more and more secured creditors are repossessing the collateral securing their loans. The UCC permits self-help repossession if the creditor can seize the collateral without breaching the peace. Because Article 9 itself does not define breach of the peace, it has been left to the courts to craft a workable definition.
 
Professor Livingston writes: The recent financial crisis has caused a number of debtors to default on their loan obligations, and as a result, more and more secured creditors are repossessing the collateral securing their loans. Under Article 9 of the Uniform Commercial Code, secured parties are allowed to repossess collateral after the debtors default through two means: (1) self-help and (2) use of the judicial process. Self-help is an attractive option for creditors because it is usually quicker and cheaper than judicial process, which necessitates seeking a writ of replevin in court and having the sheriff enforce it.
 
The Code permits self-help repossession, however, only if the creditor can seize the collateral without breaching the peace. In addition, creditors are usually vicariously liable for the actions of the recovery specialists or repo agents hired to repossess the collateral on the creditors behalf. Finally, if a creditor or its agent does commit a breach of the peace, the debtor may recover damages for the infraction. Thus, secured parties must ensure that neither they nor their agents breach the peace in recovering the collateral.
 
Because Article 9 itself does not define breach of the peace, it has been left to the courts to craft a workable definition. As will be discussed below, a recent Texas appellate case shows a court reviewing both civil and criminal definitions of breach of the peace in an effort to find a viable standard. All in all, a courts determination of whether the creditor breached the peace during the repossession is a heavily fact-laden inquiry, and a change in one or two facts often produces a different outcome. [citations omitted]