MBank El Paso, N.A. v. Sanchez

• Decision Date: 01 July 1992
• Docket Number: No. D-0233,D-0233
• Citation: 836 S.W.2d 151
• Parties: 17 UCC Rep.Serv.2d 1358 MBANK EL PASO, N.A., Petitioner, v. Yvonne SANCHEZ, Respondent.
• Court: Texas Supreme Court

Page 151

836 S.W.2d 151

17 UCC Rep.Serv.2d 1358

MBANK EL PASO, N.A., Petitioner, v. Yvonne SANCHEZ, Respondent.

No. D-0233.

Supeme Court of Texas.

July 1, 1992.

Rehearing Overruled Oct. 7, 1992.

Royal Furgeson, Jr., Philip R. Martinez, Lauren K. Specht, El Paso, for petitioner.

David S. Arditti, Patrick L. Quinn, Victor R. Arditti, El Paso, for respondent.

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 car 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) ("[T]his 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.Rptr 388, 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.

COOK, Justice, dissenting.

With this decision, the court creates strict liability where it is not warranted. I must respectfully dissent.

If the plaintiff in this case goes back to trial and proves that the repossessor committed a breach of the peace, then the bank which hired the contractor is liable. Liability is absolute and extreme. The bank has no defenses, outside of proving that no breach of the peace occurred. Even if the bank had no knowledge of the contractor's actions, the bank cannot defend. Even if the bank expressly ordered the contractor to proceed cautiously, the bank cannot protest. Even if the bank did not knowingly or recklessly violate the statute, the bank will be exposed to punitive damages.

Why has the court created...