Texas Commercial Law Firm
Foreclosure
3. Breach of the peace. The most important restriction upon repossession of collateral is that it be done without “breaching the peace”. A breach of the peace may expose a creditor to tort liability, liability under §9-507 and deprive the creditor of the right to a deficiency judgment. Although the most critical element in repossession, the term “breach of the peace” is somewhat vague. The Texas Supreme Court appears to have made repossession a riskier alternative in the case Mbank El Paso, N.A. v. Sanchez, 836 S.W. 2d 151 (Tex. 1992, hearing overruled). In Sanchez, the Texas Supreme Court stated that a secured creditor trying to repossess collateral has two choices: (1) it may repossess if this can be done without breach of the peace; or (2) it may choose to take legal action. If the secured creditor chooses the first option, it runs the risk that repossession may, in fact, breach the peace and if that happens, the secured creditor may be held liable in tort. Id.
In Sanchez, the court found that the bank, which had hired a towing service to repossess an automobile, could not delegate the duty to avoid breach of peace even though the towing service was an independent contractor. Id. The court imposed on secured creditors pursuing non-judicial repossession a duty to take precautions for the public safety. Nevertheless, there are instances when repossession has been determined to be allowable.
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