Self help repossession

     Article 9 authorizes the secured party, after default, to take possession of collateral through self help, if done without a breach of the peace, or through judicial process.  U.C.C. 9-609.   Neither will be necessary if the debtor voluntarily surrenders the property.  Neither will be possible if the collateral is not tangible (e.g. receivables) and therefore cannot be possessed. 

    We are unaware of any empirical studies on the frequency of self help repossession, but have some thoughts on the contexts in which it is likely to be most common.  We surmise that self help repossession and judicial process are relatively rare where the debtor is operating a commercial venture, either because the debtor acknowledges that continuation of the business is futile and thus voluntarily surrenders equipment or inventory or because the debtor hopes for the continuation of the business and protects against repossession and judicial process by filing a petition for relief under Chapter 11 of the Bankruptcy Code. We also surmise that questions about the lawfulness of self help repossession (i.e. whether there is a breach of the peace) most often arise in the context of attempted repossession of automobiles purchased by consumers.  It is in that context where the interests of the parties are often in dramatic tension:  the debtor is vitally interested in retaining the automobile to drive to work, shop, and transport kids; the creditor is vitally interested in obtaining possession of and selling a valuable good at minimal expense and before damage, deterioration, or further depreciation.  (Much the same may be said of trailers, campers, waterborne vessels, and planes, but many fewer consumers own these types of goods.)   The number of businesses that specialize in repossession and auction of automobiles supports this hypothesis. Finally, we believe that repossession of consumer goods other than automobiles is much less frequent, probably because the value of the goods is not worth the effort, or because state law may bar a deficiency following sale of repossesed goods other than automobiles, or because a debtor will typically not permit the creditor entry to the premises in which such goods are usually located.   In addition, state consumer protection legislation may bar self help repossession in some cases.  See, e.g. Cal. Civ. Code 1799.100(c) (non-possessory security interest in consumer goods, other than vessels, vehicles, and aircraft, that have a fair market value of less than $1,000 per item at the time the security interest is created); Wis. Stat. § 425.206 (vehicles)  

     Professor Jean Braucher located 114 reported appellate opinions decided from 1945-1995 dealing with the issues of breach of the peace in self help repossession, or the remedy for breach of the peace.  In her article analyzing this research, J. Braucher, The Repo Code: A Study of Adjustment to Uncertainty in Commercial Law, 75 Wash. U.L.Q. 549 (Spring 1997), she indexes the cases by state and by issue (Id. at 617-26) and develops the following typology of cases in which breach of the peace is an issue:

     (1) an easy case of breach of the peace if a repossession occurs inside a residence without contemporaneous authorization, whether or not someone is at home;

     (2) an easy case of no breach of the peace where there is an uninterrupted repossession from a street or a driveway;

     (3) cases in which the range of fact situations and conclusions in the appellate opinions makes difficult any predictions about what constitutes a breach of the peace.  She subdivides these cases into three groups:  

           (a)  Interrupted repossessions where the debtor objects to the repossession or requests that the repossession cease;

           (b)  Repossessions that involve trespass on property of the debtor, whether or not by forced entry;

           (c)  Where repossession was facilitated by trickery. 

      Id. at 572-91.  Stone Machinery v. Kessler and Williams v. Ford Motor Credit Co. are but two of the many cases.  Consider them illustrative only.   To promote more meaningful protection for debtors (especially consumer debtors who are typically unable to afford litigating the issue), Professor Braucher unsuccessfully urged the drafters of revised Article 9 to expand and clarify the definition of a breach of the peace to promote greater certainty, along the lines suggested in her article at pp. 615-16. 

     Professor Braucher also reveals the uncertainty in both Article 9 and the case law about the appropriate remedy for breach of the peace.  Id. at 591-614.  Courts frequently remedy a breach of the peace as if it were conversion, an approach that Braucher criticizes, and sometimes remedy a breach as if it were a form of intentional tort (e.g. assault, tresspass, infliction of emotional distress) if the elements of those torts are present.  Few courts invoked the statutory remedy seemingly provided by former U.C.C. 9-507(1).  While the language of that section spoke of a remedy for "failure to comply with [the part of Article 9 dealing with default]," and while breach of the peace was a failure to comply with that part of Article 9, courts seem to have perceived the statutory remedy as directed primarily, if not exclusively, toward failure of the secured party to comply with the provisions concerning duties following repossession, such as the duties of notice or commercially reasonable disposition. U.C.C. 9-625(b)-(d) in revised Article 9 does not explicitly advance a solution.  Official Comment 3 to U.C.C. 9-625 states that the statutory remedy does apply to a breach of the peace, but perpetuates the uncertainty about how damages are to be calculated:  "Damages [including for breach of the peace] are those reasonably calculated to put an eligible claimant in the position that it would have occupied had no violation occurred. . . .   Subsection (b) supports the recovery of actual damages for committing a breach of the peace . . .  and principles of tort law supplement this subsection."      

      U.C.C. 9-602(6) explicitly prohibits waiver of the secured party's duty to refrain from breach of the peace.   Thus, the provision in our sample security agreement permitting the secured party entry to the debtor's premises to repossess collateral does not necessarily insulate the secured party from a claim of breach of the peace. 

     Creditors typically initiate self help repossession without giving the debtor notice of their intention to do so or of the time and place at which the repossession will occur and without giving the debtor an opportunity to be heard in a judicial forum on the issue of default.  Case law has made clear, however, that the federal constitutional guarantee of due process in the 14th Amendment (including, generally, the right to notice and hearing prior to the seizure of property) does not apply to self help repossession because repossession is not "state action."