2.3 Possession
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2.3 POSSESSION
2.301 In General. In certain instances, the secured party has possession of the collateral at the time of default. In such cases, the secured party may proceed directly to sale or other disposition of the collateral. Many times, however, the debtor or a third party retains possession of the collateral and the secured party has no right to possession until default. 31 Sections 8.9A-609(b), 8.9A-610, and 8.9A-611 of the Virginia Code discuss the mechanisms by which the secured party may obtain possession after default and the obligations imposed upon the secured party once he or she obtains control over the collateral.
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2.302 Possession Under the U.C.C.—"Self-Help."
A. Obtaining Possession Without Breach of the Peace. Unless otherwise agreed, the secured party has the right to take possession of the collateral after default. 32 The secured party may exercise this right without commencing judicial action, unless repossession causes a "breach of the peace." However, if peaceful possession cannot be obtained, the secured party must resort to the judicial processes discussed below.
B. What Constitutes a "Breach of the Peace"? Although the Virginia Code does not define "breach of the peace," considerable case law has developed on the issue. In Wallace v. Chrysler Credit Corp., 33 an off-duty deputy sheriff repossessed a truck at 2:00 a.m. by starting the truck, "racing its engine, and zooming down a street." 34 The district court held that the deputy sheriff did not "breach the peace" within the meaning of Article 9 of the U.C.C. The court, in fact, approved of the stealth used in repossessing the truck at 2:00 a.m., noting that courts in almost all jurisdictions have held that the use of stealth in a self-help repossession is not a breach of the peace. 35
Also at issue in Wallace was whether the deputy sheriff breached the peace by threatening to throw the debtor in jail when, after the repossession, the debtor approached to discuss the repossession. The Wallace court held that once a creditor has gained sufficient dominion over the collateral, objection by the debtor is of no avail. 36
In reaching its decision, the Wallace court summarized law from other jurisdictions regarding breach of the peace, recognizing that most courts have found breach of the peace if there is violence or the threat of violence, 37 if the creditor has broken into and entered the debtor's residence, 38
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or if the creditor has broken into other closed buildings such as garages or stables. 39 The Wallace court also stated that a creditor does not breach the peace by entering onto a debtor's land because "the vindication of the creditor's security interest is more important than a trespass." 40 If the debtor is present and makes an objection, however, the creditor must desist. 41
The court noted that the Virginia Supreme Court has stated that "[t]he right to possession of chattels may be exercised without recourse to the courts, provided this can be done peaceably. It is only when a right of one is denied or resisted by another, that such party must resort to appropriate legal proceedings to enforce that right." 42
The U.C.C.'s provisions do not create remedies for consequential, special, or penal damages unless expressly stated therein or derived from
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other rules of law. 43 In certain instances, however, a secured party has been held liable to the debtor for compensatory and punitive damages for committing a breach of the peace during a self-help repossession. In Deavers v. Standridge, 44 the debtor drove the collateral (a car) to the creditor's place of business to tender overdue payments. The creditor refused to accept the payments and demanded that the debtor tender the entire unpaid balance, which the debtor could not do. In order to repossess the collateral, the creditor blocked-in the car with another vehicle and used offensive language when he informed the debtor that he would have to walk home. The appeals court upheld the jury's finding that the combined acts of blocking-in the vehicle and the use of offensive, insulting language were "sufficiently provocative of violence to constitute a breach of the peace" and affirmed an award of $1,000 in punitive damages. 45
In addition, there appears to be a split of authority as to whether or not deceit or chicanery can be used to obtain peaceful possession. In Ford Motor Credit Co. v. Byrd, 46 the debtor was lured to the automobile dealership under the guise that he was to review a statement of his account, which the debtor contended was not in default. While the debtor was in the dealership, the creditor repossessed his vehicle. The court found that [former] section 9-503 of the U.C.C. could not be interpreted to permit peaceful repossession under circumstances involving fraud, trickery, chicanery, or subterfuge. 47
C. Aids to Possession.
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1. Requiring the Debtor to Assemble the Collateral in a Convenient Location. 48 The security agreement may require the debtor to assemble the collateral in a mutually convenient location designated by the secured party. 49 However, if the debtor fails to comply, the secured party may have to seek the help of a court of equity to enforce this right. 50
2. Providing for Permission to Enter Debtor's Premises to Obtain Possession. Since the secured party cannot, without judicial help, obtain possession if a "breach of the peace" is involved, the security agreement should provide that the secured party may enter the debtor's premises to obtain possession. 51 However, if the debtor resists or the premises are locked, enforcement of such a clause over the debtor's objection probably would breach the peace. 52
3. Disposition of the Collateral on the Debtor's Premises. A secured party may dispose of collateral on the debtor's premises. As a practical matter, this alternative is not available unless the debtor or the debtor's landlord cooperates, since a sale of goods that cannot be delivered or inspected appears to be commercially unreasonable. 53
The secured party may render equipment unusable, 54 although the standard of commercial reasonableness precludes destructive acts. 55 There is no authority under this provision for rendering unusable other types of collateral, such as inventory or consumer goods.
D. Self-Help: Does It Require Due Process? The United States Supreme Court has ruled that the judicial system may not be employed in aid of repossession without some minimum level of due process. 56 The Court has not, however, addressed the question of whether the
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exercise by the secured party of its right to self-help repossession under section 503 of Article 9 (revised as section 609), without the aid of the state, implicates any due process issues. However, the United States Courts of Appeals that have examined this issue have held uniformly that the mere granting of the right to possession as in section 9-503 of the U.C.C. does not trigger sufficient state action to bring the Due Process Clause to bear. 57
This issue has been raised in several Virginia federal court decisions. 58 In each case, the court granted the defendant's motion to dismiss allegations that the self-help provisions of Article 9 of the U.C.C. were unconstitutional state actions. 59
Thus, the vast weight of authority seems to hold that the self-help provisions do not require compliance with the standards of the Due Process Clause.
2.303 Judicial Action by the Secured Party to Obtain Possession. If possession cannot be obtained without a breach of the peace, section 8.9A-609 of the Virginia Code provides that "the creditor may proceed . . . pursuant to judicial process." In other jurisdictions, this process would be an action for replevin; however, since Virginia has repealed its replevin statutes, other judicial processes must be employed.
A. Detinue. The detinue statute, sections 8.01-114 through 8.01-123 of the Virginia Code, provides for both prejudgment seizure of collateral and a determination on the merits of the secured party's claim to the collateral. A proceeding in detinue may be brought on a warrant or motion for
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judgment if prejudgment seizure is not sought at the time of filing. If the action is filed in circuit court, the initial pleading should be a complaint.
1. Prejudgment Seizure of Property. A petition in detinue for pretrial seizure may be filed to begin the proceeding or may be filed during a proceeding that has already been initiated.
a. Petition in Detinue Requirements. Pursuant to section 8.01-114(A) of the Virginia Code, a petition in detinue for pretrial seizure must:
1. | Describe the kind, quantity, and estimated fair market value of the specific personal property sought; | |
2. | Describe the basis of the plaintiff's claim of entitlement to recover the property with sufficient certainty to give the adversary reasonable notice of the nature and particulars of the claim and, if the claim is based on a contract to secure the payment of money, the amount due on the contract; and | |
3. | Allege one or more of the grounds for attachment set forth in section 8.01-534 and present specific facts in support of the allegation. |
Section 8.01-534(A) requires the plaintiff to allege that the principal defendant or one of the principal defendants:
1. | Is a foreign corporation or is not a resident of Virginia and owes debts within the locality in which the levy or attachment is sought, or that the defendant is entitled to the benefit of any lien on property within the locality in which the levy or attachment is sought; | |
2. | Is leaving or about to leave Virginia with intent to change domicile; | |
3. | Intends to remove, is removing, or has removed from Virginia the property sued for, or his or her own estate, or the proceeds of the sale of the property, or a material part of such estate or proceeds, so that there will be no property to satisfy the claim upon entry of judgment; |
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