The Uncertain Scope of the Breach of Peace Clause Under Article 9 of the Uniform Commercial Code

Introduction to the Exculpatory Breach of Peace Clause

The current expression of self-help repossession under Article 9 of the Uniform Commercial Code (“UCC”) puts limitations on the secured party's statutory right of self-help repossession. The former § 9-503 allowed a creditor to seize the collateral, after default, without engaging in the judicial process, if such creditor can do so without breaching the peace. The revised § 9-609(b)(2), in the relevant part, states that after a debtor's default, "a secured party (1) may take possession of the collateral … without judicial process if it proceeds without breach of the peace." Neither the former § 9-503 nor the revised § 9-609 under Article 9 defines the term "breach of the peace,” within the meaning of the UCC. Consequently, state courts have framed different rules of self-help enforcement, and federal courts have inconsistently interpreted them. Hence, the majority of jurisdictions use a case-by-case approach to examine whether a breach of peace has occurred.

Interpreting Breach of Peace in the Event of Violence or Potential Violence

Any act or conduct causing a disturbance of the public tranquillity or a violation of public order to incite violence, or provoke or excite others to break the peace, including violation of any law enacted to preserve peace and good order constitutes a “breach of peace.” It may consist of an act of violence or a threat likely to produce violence. In the case of Morris v. First Nat’l Bank & Trust Co.,[1] the bank’s three men committed a breach of peace when they surrounded and outnumbered the debtor's son while repossessing the mower. The Court held that the this conduct was a breach of the peace, as the debtor's son was afraid of being beaten by the two men, constituting an act likely to produce violence.

Such breaches of peace have also been found in cases of violence, including acts of physical force such as grabbing the debtor’s hands and pushing him away from the car and forcible removal of keys from the debtor’s hands.

Treatment of Trespass as a Breach of Peace

A repossessor generally breaches the peace if it enters the debtor’s restricted area to repossess the collateral without the latter’s consent. However, if the security agreement only provides that the secured party, on default, has the rights and remedies provided by the UCC, the right of repossession stated by former § 9-503 implies, just as it did at common law, a limited privilege to enter on the debtor's land.

Breach of Peace in Oral Protests

Whereas in some cases, the courts have held that there must be violence or an actual threat of violence to constitute a breach of peace, it may also occur in the case of oral protests because personal confrontations can lead to violence.

Five-Factor Balancing Test

The Balancing Test, which is used in certain jurisdictions to determine if a “breach of peace” has occurred while pursuing self-help repossession, takes five factors into account:

(a) The location of repossession;

(b) Whether an express or implied consent has been given by the debtor;

(c) Third-Party reactions;

(d) Kind of premises entered; and

(e) How did the creditor deceit the debtor.

The court in Giles v. First Va. Credit Servs.[2] weighed all the factors of this balancing test, holding that the act of repossession did not breach the peace as (a) it took place in the early morning hours, (b) the debtor expressly contractually consented to it, (c) the debtor’s neighbor did not confront the repossessor, (d) there was no entry to the debtor’s house but only to the non-enclosed driveway, and (e) there was no proof of deception by the creditor.

Failure to Anticipate the Future of Commercial Transactions

Because the drafters of the UCC failed to define what constituted a “breach of peace,” a lack of consistency has resulted across jurisdictions, as each court attempts to craft its own interpretation of the term. This has rendered the provision somewhat ambiguous, which makes it difficult not only for creditors to understand the exact limitations on their conduct during repossession but also for attorneys when trying to advise their clients. This variation has also caused needless litigation due to the unpredictability among creditors, debtors, and the public.

Proposed Remedies

(1) Need for a Functional Test

The term breach of the peace “involves a legal concept with shifting boundaries, not unlike the relatively elastic legal concept of probable cause. Thus, any attempt to define precisely what constitutes a breach of the peace will necessarily be under-inclusive, and may require tailoring before it may be appropriately used as a charge in a given case.”

Instead of a single definition, the UCC should implement a two-step bright-line test following the aforementioned Balancing Test to ensure greater balance between the interests of the debtor, the creditor and the public.

This test should first identify three kinds of conduct that will certainly constitute a breach of peace violation: (1) violence or constructive violence, (2) use of law enforcement during the act of repossession, and (3) disturbance to third-parties. If there is no violation of the rules under the first part, the courts must advance to the second part of the test, which requires examination of the degree of verbal confrontations or oral protests and trespass.

(2) Proposed Actions for the Secured Creditor or Repossessors

(a) In case of a default, the secured-creditor must first send notice to the defaulting party to hand over the collateral to such creditor voluntarily.

(b) Second, when a creditor has a reasonable doubt on whether his or her conduct will likely cause a breach of peace, such creditor should reasonably opt to bring a court case rather than self-help repossession. For example, repossession of household goods generally requires an entry into the defaulting party’s home, which most likely would result in a “breach of peace.”

(c) Third, a secured party must avoid repossessions that are likely to cause violence or threat of violence. Hence, it is recommended that the creditor should repossess the collateral in the early morning hours to ensure fewer chances of confrontation with the debtor.

[1] Morris v. First Nat’l Bank & Trust Co., 21 Ohio St. 2d 25, 50 Ohio Op. 2d 47, 254 N.E.2d 683 (1970). [2] Giles v. First Va. Credit Servs., 149 N.C. App. 89, 560 S.E.2d 557 (2002).

Jaskiran Kaur is currently enrolled in the LL.M. in Corporation Law program at the New York University School of Law. At NYU, Jaskiran has received the Dean’s Graduate Award scholarship and has taken specialized corporate courses including Corporate Finance, Restructuring Firms & Industries, M&A in Distressed Situations, Corporations, Secured Transactions, Contracts, and Negotiations. She also works as a Graduate Student Research Fellow for the NYU Pollack Center for Law & Business, where she is responsible for performing research and undertaking projects related to SEC enforcement actions and collecting variables for review. Before NYU, Jaskiran worked as a corporate associate at IndusLaw, one of the leading law firms in India. In her practice, she advised clients across various sectors, including real estate, fin-tech, logistics and e-commerce, on a range of transactions such as investments and acquisitions, structuring, advisory, real estate development, corporate and commercial matters. Jaskiran has particular experience in drafting and reviewing a wide range of commercial documents, such as business and asset transfer agreements, share purchase agreements, shareholders and subscription agreements, and other miscellaneous commercial agreements.