A Little Something About Breaching the Peace
Insights 
Ken Weinberg · January 15, 2020
Most lenders who have had one or more deals go bad are familiar with the magical words “breaching the peace.” This legal concept can come into play when a borrower breaches its obligations under the underlying loan documents and the lender desires to repossess the goods pledged as collateral for the loan and sell such goods to recoup some of the lender’s losses. Article 9 of the Uniform Commercial Code (“UCC”) places various requirements on the lender and one of these requirements is that a lender can only repossess goods if it can do so without breaching the peace. As will be discussed in more detail below, what constitutes a breach of the peace is a somewhat hazy area of the law that depends on the facts and circumstances of each case. This article provides some guidelines that may be useful for lenders when repossessing goods.
Two additional points are noteworthy. First, a lender cannot insulate itself by merely relying on a repo-company and if the repo-company breaches the peace, the lender may be liable. The official comments to Revised Article 9 recommend that courts “hold the secured party responsible for the actions of others taken on the secured party’s behalf, including independent contractors engaged by the secured party to take possession of the collateral.”
Article 9, Section 609 of the UCC establishes a lender’s right to exercise self-help when reclaiming property from a borrower who has failed to make timely and adequate payments for the property. This notion of self-help means that the lender can retake the property in default without resorting to a judicial process involving lawyers, courts, marshals, and the like. However, the right to self-help is limited by the requirement that the lender proceed in a manner that will not result in a “breach of the peace”.i Unfortunately, the UCC offers no definition of this phrase and official comments to the UCC make clear that the drafters intentionally left the phrase undefined because they wanted the concept to be developed by the courts on a case-by-case basis. Although this omission creates a gray area for lenders trying to establish what actions are permissible when repossession of collateral becomes necessary, the following examples will help clarify the analysis employed by various courts when determining whether a breach of the peace has occurred, which will in turn enable the lender to establish prudent and effective repossession policies. Of course, the answer to the question of what constitutes a breach of the peace necessarily varies among jurisdictions. Nonetheless, there are some common themes expressed by many jurisdictions and those themes are outlined below.
One area in which most, if not all, courts agree is that security agreements purporting to “waive” breach of the peace claims in advance are not worth the paper they are printed on. In fact, Article 9 of the Uniform Commercial Code specifically makes such waivers unenforceable.ii In
other words, courts will not allow the lender to insert a clause into the loan documents which contains a promise from the borrower not to sue the lender for a breach of the peace should repossession become necessary. There is even some support that the mere inclusion of such a clause can invalidate the entire agreement. iii
Another area in which courts in different states have been consistent in their analysis of claims involving breach of the peace is that violence, or even the perception of violence, occurring during repossession will invariably result in an action for breach of the peace. In Deavers v. Standridge,iv the Georgia Court of Appeals ruled that the offensive and insulting language used by a seller as he repossessed a car was “sufficiently provocative of violence to constitute a breach of the peace.” In Harris Truck & Trailer Sales v. Foote,v the Tennessee Court of Appeals found no breach of the peace when the seller repossessed a truck from a private truck terminal and a key factor in this case was the lack of actual or potential violence during the repossession.
Many courts have held that if the borrower begins actively protesting while the lender attempts to repossess goods, the repossession should stop immediately and the lender should leave the premises.vi The reason for this interpretation is that once a borrower begins protesting, the possibility of violence increases. The perception of violence may be found even when the party attempting to repossess goods behaves in a non-threatening manner. In one case, a woman awoke at 5 A.M. to find that her car was being repossessed from her driveway. She protested the repossession and called the police to sort out the problem. A Georgia court of appeals determined that even though the men performing the repossession were “polite, unabusive, and unprofane”, the fact that they continued the repossession despite the woman’s protests created a “hostile environment that could have led to a breach of the peace”.vii
Some states have ruled that protests of third parties such as a spouse or children will effectively preclude a lender from exercising self-help repossession.viii While not all states follow this analysis, the safest practice for a lender is to cease repossession efforts when confronted with a protesting borrower or third party.
When the goods to be repossessed are located on property belonging to a third-party, courts are more likely to find a breach of the peace, especially if the circumstances surrounding the repossession are unusual (i.e. repossessions at odd hours, or in remote places, etc.). ix This analysis, too, turns on the likelihood of violence occurring during the repossession.
A mere trespass, such as going onto a borrower’s driveway and repossessing a vehicle, is typically not considered a breach of the peace.x However, when the goods are enclosed in some way, however, such as within a fenced-in area, the lender’s right to self-help is severely limited.xi In fact, “[a]ny unauthorized entry into a closed dwelling is probably a breach of the peace.”xii One reason for this is the inherent possibility of violence that accompanies such unauthorized entries. Another reason is that an unauthorized entry may expose other property to theft at the hands of third parties. For example, cutting through a chain link fence in order to gain access to the goods located within the fenced-in area would expose all other property within that fenced-in area to the possibility of theft.xiii
In the event that the borrower voluntarily allows the repossession to occur, or simply remains peaceful and voices no protest, the repossessing party should establish a verifiable paper trail to prevent subsequent claims of breach of the peace. Having the borrower, as well as any witnesses present, sign a letter of consent allowing the repossession may offer the lender some protection against lawsuits down the road. If the borrower initially consents to the repossession, then changes its mind and begins protesting after the lender has seized the goods, most courts will rule that the lender is free to continue the repossession without fear of a breach of the peace complaint.xiv
In many jurisdictions, deceptive tactics used to gain access to, or control of, goods that is to be repossessed may subject the lender to liability. One example is Ford Motor Credit Co. v. Byrd, where a creditor employing such methods was held liable for the tort of conversion (a legal term that basically means “theft”).xv
If a lender breaches the peace while repossessing goods, it “may be liable for trespass, conversion, assault and battery and other torts.”xvi Damages may include both compensatory as well as punitive damages.xvii There is substantial case law supporting the notion that lenders are responsible for any torts they commit if a breach of the peace occurs.xviii Lenders should therefore take appropriate steps to ensure that any employees or independent agents used in repossession actions are following the correct procedures, and that they are aware of the significant ramifications that follow from not adhering to those procedures.
An additional liability issue to consider relates to the borrower’s personal property that is not part of the collateral. When repossessing goods that may contain additional property of the borrower, the lender must make sure to check the goods thoroughly for any personal property not
subject to the repossession action. Even if a lender successfully repossesses goods without breach of the peace, that lender may still be liable for damages if the goods contained personal belongings in the trailer of the truck or within other compartments.xix Obtaining a signed release from the borrower, indicating that there is no personal property within the goods, can protect the lender from subsequent actions.
Ken Weinberg has been involved in equipment leasing and finance transactions having an aggregate value well into the billions of dollars, including TRAC, First Amendment, FMV, service contract and other true lease structures; synthetic leases, leases intended as security, equipment finance agreements, and traditional loan transactions; progress payment, interim funding and construction financings; sublease and inventory structures; mixed goods and services transactions; vendor lease programs; assignments and syndications; warehouse and funding lines; and refinancings, back-leveraging, lease assignments, sales of interest and portfolio acquisitions.
Attorney Advertising. This document is not intended to be and is not considered to be legal advice. Transmission of this document is not intended to create, and receipt does not establish an attorney-client relationship. Prior results do not guarantee a similar outcome.
