Liability Under Indiana’s Uniform Commercial Code For Breaching The Peace

Lesson. A Lender (secured creditor) could be exposed to liability for breaching the peace (“disturbing the public tranquility or order”) if it refuses to halt a repossession after a borrower voices an objection to the seizure.

Case cite. Horizon Bank v. Huizar, 2021 Ind. App. LEXIS 317 (Ct. App. Oct. 13, 2021)

Legal issue. Whether Lender’s agents breached the peace during the repossession of Borrower’s vehicle.

Vital facts. After a payment default, Lender, through agents, repossessed a vehicle owned by Borrower that served as collateral for the loan. The agents went to the home of Borrower and his girlfriend, and found the vehicle backed into the driveway. Here’s what went down:

[Agent] went to [Borrower’s] front door and informed [Borrower] that he was there to repossess the vehicle because [Borrower] was behind on payments. [Agent] then showed [Borrower] the contract as the basis for the repossession. [Agent] testified that he could have just taken the vehicle without going to the door, but he was trying to allow [Borrower] to remove the personal property from the vehicle. While [Agent] was talking to [Borrower], [another Agent] got into the driver's seat of the unlocked vehicle and locked the doors. [Girlfriend] came outside and tried to open the vehicle's doors, but [Agent] kept locking the doors and refused to let her enter. [Borrower] then told [Agent] that the men needed to get off his property and that he was not letting them take the vehicle. [Agent] told [Borrower] that if he did not give up the keys to the vehicle, [Agent] would get the police involved. Eventually, [Borrower] instructed [Girlfriend] to provide the keys to [Agents]. [Girlfriend] then removed the personal property from the vehicle, and [Agents] left with the vehicle.

The vehicle later was sold at auction for $16,000.00, leaving a deficiency of $7,679.08 on the loan amount. (I will discuss the issue of damages in my next post.)

Procedural history. Borrower sued Lender on multiple legal theories, including alleged violations of Indiana’s UCC. (This post does not address all of Borrower’s legal claims.) The trial court found, among other things, that Lender breached the peace in violation of the UCC. Lender appealed.

Key rules.

Ind. Code 26-1-9.1-609 (within Indiana’s UCC) states that, after default, a secured creditor may take possession of collateral "without judicial process, if it proceeds without breach of the peace." Indiana appellate court decisions define “breach of the peace” as:

a violation or disturbance of the public tranquility or order, and the offense includes breaking or disturbing the public peace by any riotous, forceful, or unlawful proceedings. Further, the general rule is that the creditor cannot utilize force or threats, cannot enter the debtor's residence without consent, and cannot seize any property over the debtor's objections.

Indiana cases further state that:

if the repossession is verbally or otherwise contested at the actual time of and in the immediate vicinity of the attempted repossession by the defaulting party or other person in control of the chattel, the secured party must desist and pursue his remedy in court.

Holding. The Indiana Court of Appeals held that the trial court did not abuse its discretion in finding that Lender breached the peace.

Policy/rationale. Lender’s main defense was that Borrower ultimately surrendered the vehicle to Agents. The Court rejected the argument, reasoning:

[Borrower] told [Agents] that [they] needed to get off his property and that he was not letting them take the vehicle…. [Lender] contends that "[a]ny initial objection to the repossession was waived when [Borrower] voluntarily surrendered the keys to the vehicle." [Lender] further argues that "[Agents] did not continue the repossession of the vehicle once the objection was lodged and did not resume until [Borrower] consensually surrendered the keys." [Lender] conveniently omits that, during this apparent period of "suspended repossession," an [Agent] had locked himself inside the vehicle and refused to exit until [Borrower] produced the keys.

In the end, the Court felt that an improper "disturbance of the public tranquility or order" occurred when [Agent 1] refused to desist after [Borrower] objected to the repossession - in the context of [Agent 2] locking himself inside the vehicle until the keys were produced.

(My next post will discuss how Huizar handled the damages aspect of the case.)

Related posts.

• Prejudgment Possession (Replevin) of Equipment Permitted Under Indiana Law 
• Creditor May Repossess Collateral And Sue For Full Debt Simultaneously, And Generally Is Not Compelled To Accept Short Sale

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I represent judgment creditors and lenders, as well as their mortgage loan servicers, entangled in loan-related disputes. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.