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Tom would have to be very lucky to get away with this.
Assuming he had a valid security agreement that was properly filed in the county clerk's office, Tom was relying on a section of the Uniform Commercial Code that allows a secured party to take possession of his collateral upon the default of the debtor and to do so "without judicial process if this can be done without breach of the peace. . ."
The meaning of the phrase "breach of peace" has not been defined in the UCC, but there has been significant case law that has interpreted it. Most cases deal with the repossession of an automobile or mobile home and primarily cover the situation where the debtor is a consumer and the property is on the consumer's property. Tom's situation is a business transaction where he sold power mowers to Jim, who is in the landscaping business. Nevertheless, a breach of peace as applied to consumers is also applicable to a business transaction.
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To determine whether a breach of peace has occurred, the courts inquire as to whether
- an entry was made by the creditor upon the debtor's premises, and
- the debtor (or one acting on his behalf) consented to the repossession.
Whereas an automobile may be recaptured while left out on a driveway, it certainly cannot be recaptured if it is parked in a garage and forceable entry is made into the garage. Any kind of verbal or physical opposition to the repossession is sufficient to constitute a breach of peace. And when a car has been driven away with the debtor running after the car screaming, the court has held this to be a breach of peace.
In one instance, a creditor repossessed a piano from the debtor's home in the absence of the debtor, and the debtor maintained that the house had been locked. The creditor insisted that he entered through an unlocked door, but nevertheless the court held that this was a breach of peace.
Some security agreements contain clauses purporting to authorize a forceable entry onto premises to repossess the equipment subject to the lien, but most courts frown on the enforcement of this clause.
A creditor who breaks a lock to enter a debtor's business is probably guilty of a breach of peace, since the action resembles forcible entry of a debtor's residence. If consent to the removal of the property is obtained by fraud or deceit, such as flashing a counterfeit police officer's badge, the creditor may be liable for an unlawful repossession. The use of a police officer's badge or the assistance of a police officer, a sheriff, or some other law enforcement official does not create a peaceful possession even if the debtor voluntarily surrenders the property when confronted by such a person. The mere presence of a sheriff in uniform, with or without a sidearm, amounts to constructive force, intimidation, and oppression constituting a breach of peace.
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Most states agree that oral protests are sufficient to find the creditor guilty of a breach of peace. The minority of the courts require something more than an exchange of words before they will reach the decision that there was a confrontation. It seems practical that if oral protests are made, the cautious creditor should back off.
If the creditor chooses to be cautious and does not want to take any risk of liability or exposure to a suit for conversion or for other damages, then he or she should obtain voluntary surrender or use a court proceeding to recover the property. The only time a repossession of business equipment should be made is when the debtor or his or her representatives are not present, and are not even within viewing distance of the act of repossession.
Certainly, the creditor should not break or enter into the premises of the debtor's business. With this in mind, the cautious creditor will find it difficult to execute a peaceful repossession. The requirement would be that the equipment is off the premises and not within viewing distance or verbal distance of the debtor or any agent who is acting on behalf of the debtor.
Furthermore, the creditor should be certain to review the security agreement and consult with an attorney.
When a repossession firm is involved, the creditor should communicate clear instructions.
In this instance, Tom might meet all the qualifications of a peaceful repossession if Jim's two employees leave the power mowers on the courthouse lawn and disappear for an hour in the diner to have lunch. We will assume that the two employees are unable to view the power mowers from the diner. If the employees saw Tom pull up with his truck and came running out of the diner shouting, a removal of the power mowers may well expose Tom to a suit for damages because he engaged in a breach of the peace during the act of repossession.
Often, when there is a breach of peace, the creditor may also be liable for significant punitive damages, since it is an intentional and willful act by the creditor.
Note also that even if Tom were successful in repossessing the movers without breaching the peace, he certainly should not resell them the next morning without consulting his attorney. The security agreement or state law will probably require a public or a private sale. Strict compliance with the law is necessary to protect your right to sue the debtor for any deficiency.
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Editor's Note: This article originally appeared in the Credit & Collection Manager's Letter.
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