Breach of the Peace - Are Punitive Damages Possible

Lenders know that once a loan goes into default, a secured creditor can recover the collateral from a debtor either by judicial foreclosure or self-help repossession. The Uniform Commercial Code (UCC) allows a creditor to utilize the remedy of repossession so long as it can be accomplished without a breach of the peace.

The definition of the breach of the peace is left to the courts and the definition has evolved over time and is not the same in all jurisdictions. Importantly, some courts have held that if the breach of the peace is of such an extreme nature that involves wanton and reckless disregard of the property rights of another, the creditor maybe liable for punitive damages.

This article will examine a case that held the creditor liable for actual and punitive damages resulting from a repossession that was deemed a breach of the peace.

Please keep in mind that concept of breach of the peace only is applicable in the situations where a creditor has decided to utilize the self-help provisions of the UCC or similar state statutes. It does not apply if self-help is not available or is prohibited by state law. Check your state statutes prior to attempting to repossess any collateral.

The common belief is that a breach of the peace only occurs if there is some sort of confrontation, usually involving physical interaction, such as a heated argument between the party attempting the repossession and debtor. The current case law does not limit a breach of the peace to only such situations. The trend established by recent court cases is that self-help repossessions are not favored by the courts and the list of actions that have been determined to be a breach of the peace has been expanded.

Although some creditors undertake to repossess the collateral themselves, the common practice is to utilize a professional "repo man" to located and retrieve the collateral. The collateral in many instances is an automobile, but any personal property may be the subject of a repossession attempt. In most jurisdictions, the repo man or a repossession company is considered an "independent contractor" and normally an employer is not liable for the unauthorized or unlawful actions of the independent contractor. The following case, Williamson v. Fowler Toyota, Inc., 956 P.2d 859 (Okla. 1998), is illustrative of how a court may, however, hold the lender liable for the actions of the third-party contractor. The court in the Williamson case held that a repossessing creditor has a non-delegable duty to refrain from breaching the peace during repossession and the creditor is liable for a breach of the peace by an independent contractor retained by the creditor. In addition, the actions of the independent contactor were so egregious, the court held the creditor liable for not only actual damages but also punitive damages.

The issue of the case was whether a creditor was liable for trespass and the resulting damage caused by an independent contractor employed by the creditor to repossess secured collateral, an automobile. The creditor, Fowler Toyota, hired a man to repossess the vehicle when the buyer defaulted. At the time of the repossession, the vehicle was located in a secured car lot at Williamson Auto where it was being repaired. The vehicle was located by the repo man who cut a chain to a locked gate and removed the vehicle. Prior to the repossession Williamson was not aware of the claim of Fowler and neither Fowler nor the repo man contacted Williamson regarding the matter. The vehicle was delivered to Fowler and the method of repossession was disclosed. Fowler made no attempt to contact Williamson and sold the vehicle. Fowler also told the repo man not to trespass to repossess vehicles in the future and continued to utilize his services. Williamson estimated his losses at $15.00 for the lock and chain and $30.00 (one hour) of billable time. He sued Fowler and was awarded $45.00 in actual damages and $15,000.00 in punitive damages by the Trial Court. The Court of Civil Appeals reversed the trial court but the state Supreme Court affirmed the original Trial Court judgment.

The Supreme Court reasoned that the duty of a creditor to repossess peaceably under the provisions of the UCC was non-delegable and the creditor was liable for the actions of a repossessor even if the repossessor was acting as an independent contractor. In addition the Court held the creditor was vicariously liable for punitive damages for the actions of the repossessor retained by the creditor and stated it was the responsibility of a secured creditor to make sure the party it hires acts within the law while repossessing the collateral.

Even though the punitive damage award in this case was not large, the holding indicates the willingness of a court to hold a creditor liable for the actions of an independent contract who is retained to repossess collateral. Care should be taken in the selection of a party to conduct repossessions. The parties selected should be familiar with the laws in your jurisdiction and be instructed to refrain from any actions that could be construed as a breach of the peace. While each case will be decided on an individual basis, caution must be taken and it is better to err on the side of caution than to assume that all repossessions will be conducted in a lawful manner.

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