MBank El Paso, N.A. v. Sanchez

836 S.W.2d 151, 1992 WL 148108

• Court: Texas Supreme Court
• Decided: October 7, 1992
• Docket: D-0233
• Status: Published

Opinions

OPINION

MAUZY, Justice.

Section 9.503 of the Texas Business and Commerce Code allows a secured creditor to use nonjudicial repossession “if this can be done without breach of the peace.” The issue in this case is whether a secured creditor may avoid liability for breaches of the peace by using an independent contractor to carry out repossession. The court of appeals, applying section 9.503, held that a creditor cannot delegate the duty of peaceable repossession to an independent contractor. 792 S.W.2d 530. We agree, and therefore affirm.

MBank El Paso hired El Paso Recovery Service to repossess Yvonne Sanchez’s automobile because of her default on a note. Two men dispatched to Sanchez’s home found the ear parked in the driveway, and hooked it to a tow truck. Sanchez demanded that they cease their efforts and leave the premises; but the men nonetheless continued with the repossession. Before the men could tow the automobile into the street, Sanchez jumped into the car, locked the doors, and refused to leave. The men then towed the car at a high rate of speed, with Sanchez inside, to the repossession yard. They parked the car in the fenced repossession yard and padlocked the gate. Sanchez was left in the repossession lot, with a Doberman pinscher guard dog loose in the yard, until later rescued by her husband and police.¹

Sanchez filed suit against MBank, alleging that it was liable for the tortious acts of El Paso Recovery Service. MBank moved for summary judgment on the ground that El Paso Recovery Service was an independent contractor for whom MBank bore no responsibility. The trial court granted summary judgment in favor of MBank. The court of appeals reversed, holding that section 9.503 of the Texas Business and Commerce Code imposes a nondelegable duty on a secured party pursuing nonjudicial repossession to do so without breaching the peace. 792 S.W.2d at 532.²

MBank acknowledges that section 9.503 imposes a duty on a secured party not to breach the peace, but argues that the secured party may delegate that duty to an independent contractor. We disagree.

Section 9-503 of the Uniform Commercial Code (UCC) provides in part:

Unless otherwise agreed a secured party has on default the right to take possession of the collateral. In taking possession a secured party may proceed without judicial process if this can be done without breach of the peace or may proceed by action.

Tex.Bus. & Comm.Code § 9.503 (emphasis added). This provision, by its terms, gives a secured party two choices: it may repossess the collateral “if this can be done without breach of the peace,” or it may take legal action. If the secured party chooses the first of those options, it runs the risk that the repossession may, in fact, breach the peace. When that happens, the secured party may be held liable in tort.³

The rule imposing liability on secured parties for breaches of the peace is based on longstanding policy concerns regarding the exercise of force or violence. See Godwin v. Stanley, 331 S.W.2d 341, 342-43 (Tex.Civ.App.—Amarillo 1959, writ ref’d n.r.e.). The preservation of peace, courts recognize, “is of more importance to society than the right of the owner of a chattel to get possession of it.” Willis v. Whittle, 82 S.C. 500, 64 S.E. 410 (1909). See also Singer Sewing Mach. Co. v. Phipps, 49 Ind.App. 116, 94 N.E. 793 (1911) (quoting 3 William Blackstone, Commentaries *4) (“[TJhis natural right of recaption shall never be exerted, where such exertion must occasion strife ... or endanger the peace of society.”).

As a general rule, when a duty is imposed by law on the basis of concerns for public safety, the party bearing the duty cannot escape it by delegating it to an independent contractor. Section 424 of the Restatement (Second) of Torts (1965) provides:

One who by statute or by administrative regulation is under a duty to provide specified safeguards or precautions for the safety of others is subject to liability to the others for whose protection the duty is imposed for harm caused by the failure of a contractor employed by him to provide such safeguards or precautions.

Comment a to section 424 further explains that a duty to take safety precautions cannot be delegated to an independent contractor:

The rule stated in this Section applies whenever a statute or an administrative regulation imposes a duty upon one doing particular work to provide safeguards or precautions for the safety of others. In such a case the employer cannot delegate his duty to provide such safeguards or precautions to an independent contractor.

See also Bond v. Otis Elevator Co., 388 S.W.2d 681, 685-86 (Tex.1965) (building proprietor has a nondelegable duty to maintain elevators in safe condition); Berry v. Golden Light Coffee Co., 160 Tex. 128, 327 S.W.2d 436, 439 (1959) (motor carrier has a nondelegable duty to prevent tortious injury to its customers).

We believe that section 9-503 of the UCC imposes a duty on secured creditors pursuing nonjudicial repossession to take precautions for public safety. See, e.g., Nichols v. Metropolitan Bank, 435 N.W.2d 637, 641 (Minn.Ct.App.1989) (“a secured party must ensure there is no risk of harm to the debtor and others if the secured party chooses to repossess collateral by self-help methods”), pet. for review denied (Minn.1989); General Fin. Corp. v. Smith, 505 So.2d 1045, 1048 (Ala.1987) (“A secured party is under a duty to take those precautions which are necessary at the time to avoid a breach of the peace.”). Applying section 424 of the Restatement, a secured creditor is prohibited from delegating this duty to an independent contractor. See Nichols, 435 N.W.2d at 640; Smith, 505 So.2d at 1048.

Other jurisdictions agree that a creditor cannot escape the duty of peaceable repossession by delegating it to an independent contractor. See General Fin. Corp. v. Smith, 505 So.2d at 1048; Sammons v. Broward Bank, 599 So.2d 1018, 1021 (Fla.Dist.Ct.App.1992); Massengill v. Indiana Nat’l Bank, 550 N.E.2d 97, 99 (Ind.Ct.App.1990); Nichols v. Metropolitan Bank, 435 N.W.2d at 640; McCall v. Owens, 820 S.W.2d 748, 751-52 (Tenn.Ct.App.), appeal denied (Tenn.1991); Ragde v. Peoples Bank, 53 Wash.App. 173, 767 P.2d 949, 950 (1989);⁴ see also Henderson v. Security Nat’l Bank, 72 Cal.App.3d 764, 140 Cal., 390-91 (1979) (bank held liable for torts committed by its independent contractor in the course of repossession); Southern Indus. Sav. Bank v. Greene, 224 So.2d 416, 418 (Fla.Dist.Ct.App.1969) (“Once having chosen this remedy [of repossession under section 9-503], the instituting party subjects itself to any liability due to negligence in the course of enforcement.”); Cottam v. Heppner, 777 P.2d 468, 472 (Utah 1989) (“By negative implication, [section 9-503] prohibits repossessions that involve a breach of the peace.”).⁵

The legislative history in Texas of the adoption of section 9.503 supports the same conclusion. The Texas UCC states that it was intended, in part, “to make uniform the law among the various jurisdictions.” Tex.Bus. & Comm.Code § 1.102(b)(3). Additionally, to emphasize this intent, the legislature has adopted a separate statute stating that “[a] uniform act included in a code shall be construed to effect its general purpose to make uniform the law of those states that enact it.” Tex. Gov’t Code § 311.028. Since other states have generally considered the duty of peaceable repossession nondelegable, the legislature presumably intended the same rule to apply here.

A secured creditor certainly has a strong interest in obtaining collateral from a defaulting debtor. That interest, however, must be balanced against society’s interest in the public peace. If a creditor chooses to pursue self-help, it must be expected to take precautions in doing so. If this burden is too heavy, the creditor may seek relief by turning to the courts. See Tex.Bus. & Comm.Code § 9.503 (“In taking possession a secured party may proceed without judicial process if this can be done without breach of the peace or may proceed by action.”); see also General Elec. Credit Corp. v. Timbrook, 291 S.E.2d at 385.⁶ By pursuing a legal remedy, a creditor shifts the responsibility for repossession to officers of the law. See Southern Indus. Sav. Bank v. Greene, 224 So.2d at 418.⁷

Because the Bank chose to pursue nonjudicial repossession, it assumed the risk that a breach of the peace might occur. See id. (“[T]he bank having chosen its remedy must stand by the attendant duties and liabilities thereof.”).⁸ Under section 424 of the Restatement (Second) of Torts, the Bank remains liable for breaches of the peace committed by its independent contractor.⁹ We therefore affirm the judgment of the court of appeals.

Dissenting opinion by Justice COOK. Dissenting opinion by Justice HECHT joined by Justices GONZALEZ and CORNYN.

1 . MBank has conceded throughout this proceeding that the facts alleged amount to a breach of the peace. Thus, for the purpose of this writing, we assume that a breach of the peace occurred.

2 . The court of appeals also held that nonjudicial repossession is an inherently dangerous activity, so that a secured creditor remains liable for physical harm resulting from the contractor's failure to take precautions against the danger. See Restatement (Second) of Torts § 427 (1965). Because of our disposition of the nondelegability issue, we do not reach this alternative ground for the court of appeals' holding.

3 . See, e.g., Griffith v. Valley of Sun Recovery and Adjustment Bureau, Inc., 126 Ariz. 227, 613 P.2d 1283, 1286 (1980); Henderson v. Security Nat'l Bank, 72 Cal.App.3d 764, 770, 140 Cal.Rptr. 388, 391 (1977); Thrasher v. First Nat'l Bank, 288 So.2d 288, 289 (Fla.Dist.Ct.App.1974); Whisenhunt v. Allen Parker Co., 119 Ga.App. 813, 168 S.E.2d 827 (1969); Van Bibber v. Norris, 404 N.E.2d 1365 (Ind.App.1980); Benschoter v. First Nat’l Bank, 218 Kan. 144, 542 P.2d 1042, 1049 (1975), app. dismissed, 425 U.S. 928, 96 S.Ct. 1656, 48 L.Ed.2d 170 (1976); Morris v. First Nat'l Bank and Trust Co., 21 Ohio St.2d 25, 30, 254 N.E.2d 683, 686-87 (1970); General Elec. Credit Corp. v. Timbrook, 170 W.Va. 143, 291 S.E.2d 383, 385 (1982).

4 . The dissenting opinion by Justice Cook dismisses the Ragde decision with the assertion that it "did not raise the issue we consider in this case,” 836 S.W.2d at 157, and the dissenting opinion by Justice Hecht similarly declines to acknowledge the case. In Ragde, Peoples Bank had contracted with Seattle Recovery Services (SRS) to repossess Ragde's car. Ragde subsequently sued both the Bank and SRS, raising claims including breach of the peace and breach of the UCC. After the trial court granted summary judgment for the defendants, the appellate court held:

[Section 9-503] empowers a secured creditor to take possession of collateral upon default

by the debtor, provided the creditor can do so without a "breach of the peace.” When a repossession results in a "breach of the peace,” the creditor is liable for resultant damages, including damages for personal injuries sustained by the debtor in resisting the repossession.

767 P.2d at 950 (emphasis added). Thus, facing the same issue we face today, the Ragde court indicated that a creditor is liable for torts committed when its independent contractor breaches the peace.

5 . Neither of the dissenting opinions cites a single decision from any state reaching a contrary result. To downplay the agreement among other jurisdictions, the dissenting opinion by Justice Cook notes that the Smith court is "the only supreme court which has written on the issue we face today.” 836 S.W.2d at 157. It fails to note, however, that the Supreme Courts of Minnesota and Tennessee both chose to leave intact lower-court holdings imposing liability on secured creditors for torts committed by their independent contractors in the course of repossession. See Nichols v. Metropolitan Bank, 435 N.W.2d at 640; McCall v. Owens, 820 S.W.2d at 751-52.

6 . "Creditors have other options [in addition to repossession] that do not threaten rights that our laws have always jealously protected. If there can be no repossession without peace breaching, they can sue.”

7 . "Once having chosen this remedy [of repossession under UCC section 9-503], the instituting party subjects itself to any liability due to negligence arising in the course of enforcement. This would not be the case had the appellants chosen the legal remedy of replevin, whereby the legal officer executing the writ of replevin is primarily liable for damages arising from his actions.”

8 . The Bank could have mitigated the attendant risks by undertaking repossession itself, or by taking sufficient precautions to ensure that its contractor would not breach the peace. To the extent that it failed to do so, the Bank was not acting as “honestly and carefully" as the dissenting opinion by Justice Cook suggests. 836 S.W.2d at 158.

9 . Since the availability of punitive damages against the Bank is neither briefed nor argued by either party, we do not reach that question. Compare McCall v. Owens, 820 S.W.2d at 752 (punitive damages are recoverable) with General Fin. Corp. v. Smith, 505 So.2d at 1049 (Torbert, C.J., concurring) (punitive damages are available only if the creditor "authorized, participated in, or ratified the independent contractor’s acts”).