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Sanchez v. MBank of El Paso, No. 08-89-00384-CV (Tex. App.—El Paso June 6, 1990; rehearing overruled July 5, 1990)

Factual and Procedural Background

On July 12, 1986, two men employed by El Paso Recovery Service arrived at Appellant Yvonne Sanchez's home in a tow truck and attached the tow to her MBank-financed 1978 Pontiac Trans‑Am parked in her driveway. When Appellant confronted them and demanded they stop, she locked herself inside the automobile to delay removal until help arrived. The men continued, moving the vehicle into the street (only then identifying their purpose), forcibly attempted to remove Appellant, and ultimately drove her, locked inside the car, at high speed to a repossession lot where the car was left in a fenced and locked yard with a loose guard dog. Appellant was later rescued by her husband and the police.

Appellant sued, alleging El Paso Recovery Service and its employees were agents of MBank and that, while acting within the course and scope of their employment, they willfully breached the peace in violation of Tex. Bus. & Com. Code Ann. § 9.503, causing damages. MBank moved for summary judgment asserting El Paso Recovery Service was an independent contractor. The trial court granted summary judgment for MBank. Appellant appealed. The Court of Appeals reversed and remanded.

Legal Issues Presented

  1. Whether a secured party (MBank) may be held liable for a breach of the peace committed by an independent contractor (El Paso Recovery Service) during a nonjudicial repossession.
  2. Whether the duties imposed by Tex. Bus. & Com. Code Ann. § 9.503 (that repossession without judicial process be done without a breach of the peace) are nondelegable, such that the secured party remains liable despite having employed an independent contractor to repossess collateral.

Arguments of the Parties

Appellant's Arguments

  • Although conceding the relationship between MBank and El Paso Recovery Service was that of employer/independent contractor rather than employer/employee, Appellant contended the statutory duties in Section 9.503 are nondelegable; therefore MBank remains liable for the breach of the peace committed by the repossession agents.

Appellee's (MBank's) Arguments

  • MBank argued summary judgment was proper because El Paso Recovery Service was an independent contractor and, as a general rule, an employer is not liable for the torts of an independent contractor.
  • MBank maintained that neither of the Restatement exceptions (statutorily imposed safeguards nor inherently dangerous work) applied: the statute does not prescribe specific safeguards and repossession is not inherently dangerous.
  • MBank cited King v. Associates Commercial Corporation and Gessell v. Traweek for the proposition that an employer has no duty to supervise an independent contractor unless the work is inherently dangerous, and argued the repossession here did not meet that standard.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Jones v. Southwestern Newspapers Corporation, 694 S.W.2d 455 (Tex.App.—Amarillo 1985, no writ) States the general rule that an employer is not liable for negligent or tortious acts of an independent contractor; also recognizes exceptions (e.g., employer who knowingly hires a negligent independent contractor remains liable). The court cited Jones to frame the general rule and to identify recognized exceptions to the nonliability principle as part of its analysis.
Gulf, C. S.F. Ry. Co. v. Stephenson, 273 S.W. 294 (Tex.Civ.App.—Galveston 1925, no writ) Example of exception where employer failed to comply with statutes and was liable for contractor's work causing harm. Used to illustrate that Texas recognizes statutory-duty exceptions to the general rule of nonliability for independent contractors.
Quanah, A. P. Ry. Co. v. Goodwin, 177 S.W. 545 (Tex.Civ.App.—Amarillo 1915, writ ref'd) Employer's duty (to keep street crossings in repair) could not be shifted to an independent contractor; employer remained concurrently liable. Included as an example of a Texas case recognizing that certain duties may not be delegated to an independent contractor.
Cage v. Creed, 308 S.W.2d 78 (Tex.Civ.App.—Waco 1957, no writ) Excavations deemed inherently dangerous; employer held liable for contractor's negligence in failing to maintain safeguards. Used to support the proposition that inherently dangerous activities are an exception to the independent-contractor nonliability rule.
King v. Associates Commercial Corporation, 744 S.W.2d 209 (Tex.App.—Texarkana 1987, writ denied) Repossession case cited for proposition that employer has no duty to supervise an independent contractor unless the work is inherently dangerous (as defined by Gessell). The court noted MBank cited King but explained King did not address Section 9.503 or the nondelegable-duty theory and was decided on negligent-hiring facts; therefore it was not dispositive here.
Gessell v. Traweek, 628 S.W.2d 479 (Tex.App.—Texarkana 1982, writ ref'd n.r.e.) Defines "inherently dangerous" as work "which will probably result in injury to a third person or the public." The court referenced Gessell's definition when discussing the inherently dangerous exception and evaluated whether nonjudicial repossession falls within that concept.
General Finance Corporation v. Smith, 505 So.2d 1045 (Ala. 1987) Under UCC language identical to Tex. Bus. & Com. Code § 9.503, held that duty to refrain from breach of the peace in repossession is nondelegable and employer remains liable for contractor's breach. The court cited this sister-state decision as supportive authority for concluding Section 9.503 imposes a nondelegable duty on secured parties.
Nichols v. Metropolitan Bank, 435 N.W.2d 637 (Minn.App. 1989) Under UCC language identical to § 9.503, held the duty to avoid breach of the peace in repossession is nondelegable; employer could be liable where repossession created special risks inherent in the contemplated work. The court relied on Nichols as further out-of-state support for the nondelegability principle and the applicability of the inherently dangerous analysis to repossession cases.

Court's Reasoning and Analysis

The court began with the general principle that an employer normally is not liable for torts of an independent contractor but acknowledged recognized exceptions (Restatement (Second) of Torts §§ 424, 427): (1) where a statute or regulation imposes a duty to provide specific safeguards and (2) where the work contracted is inherently dangerous. The court examined Tex. Bus. & Com. Code Ann. § 9.503, which allows a secured party on default to take possession of collateral without judicial process so long as it can be done "without breach of the peace."

The court reasoned that (1) the right to take possession without judicial process is in derogation of the owner's constitutional due process rights and is a "harsh remedy" more likely to be abused because it bypasses judicial scrutiny; (2) the statute conditions that right on avoiding a breach of the peace, thereby imposing a duty on the secured party when choosing self-help repossession; and (3) a breach of the peace is a criminal misdemeanor under the Texas Penal Code (disorderly conduct).

Based on these considerations, the court concluded the statutory duty imposed by § 9.503 is nondelegable. The court further concluded there is an element of inherent danger in a nonjudicial repossession because repossession likely involves technical trespass, removal of property against the owner's will, and a substantial risk that breach of the peace or physical harm may occur. The court analogized to inherently dangerous operations (such as excavations) to support this view.

The court also noted supporting authority from other jurisdictions with identical UCC provisions (Alabama and Minnesota decisions) that have held the duty to refrain from a breach of the peace in a repossession is nondelegable and that employers may be liable for tortious performance by repossession contractors.

Holding and Implications

Holding: The Court of Appeals sustained Appellant's point of error, held that the duties imposed by Tex. Bus. & Com. Code Ann. § 9.503 are nondelegable, reversed the trial court's summary judgment in favor of MBank, and remanded the cause for trial.

Implications:

  • Direct effect: The summary judgment for MBank was reversed and the case was remanded for trial to address liability and damages.
  • Legal consequence identified by the court: A secured party who elects to repossess collateral without judicial process is subject to a nondelegable duty to avoid a breach of the peace; accordingly, the secured party may be held liable for tortious acts committed by an independent repossession contractor in carrying out a repossession that breaches the peace.
  • The opinion relied on analogous authority from other states and legal principles (including inherent-danger analysis) to support its conclusion; the court did not purport to limit liability beyond the statutory context it analyzed.

Y v. nne G. SANCHEZ, Appellant,

KOEHLER, Justice.

This is an appeal from a summary judgment granted in favor of MBank El Paso in a suit for damages arising out of the repossession of an automobile owned by the Appellant. We reverse and remand.

On July 12, 1986, two men hired by El Paso Recovery Service came to Appellant's home in a tow truck. They proceeded to hook the tow truck to Appellant's MBank financed 1978 Pontiac Trans-Am automobile parked in her driveway. Appellant, who was in the yard cutting the grass at the time, asked them their purpose and demanded that they cease their attempt to take the automobile and leave the premises. When they ignored her, she entered and locked herself in the automobile in an effort to stall them until the police or her husband could arrive. It was only after they got the automobile in the street that they identified their purpose. One of the men tried to get Appellant out of the automobile, asked her to get out twice and told her that she would be spending the weekend with their Doberman pinscher guard dog. She refused to get out. They then took the automobile with Appellant locked in it on a high speed ride from her home to the repossession lot where it was parked in a fenced and locked yard with a loose guard dog. She was rescued sometime later by her husband and the police.

Appellant filed suit, alleging that El Paso Recovery Service and its employees were agents and employees of MBank and while acting within the course and scope of their employment, willfully breached the peace in violation of Tex.Bus. Com. Code Ann. sec. 9.503 (Vernon Supp. 1990), causing damages to Appellant. MBank filed its motion for summary judgment on the grounds that El Paso Recovery Service was an independent contractor. Summary judgment was granted on that basis.

In Appellant's sole point of error, she avers that the trial court erred in granting the summary judgment in favor of MBank since the breach of the peace violation by the employees of El Paso Recovery Service was imputed to MBank. Though Appellant concedes that the relationship between MBank and El Paso Recovery Service is that of employer/independent contractor and not that of employer/employee, she nevertheless contends the duties imposed by Section 9.503 are nondelegable and therefore, MBank remains liable for the independent contractor's tortious acts. Section 9.503 provides in part as follows:

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. (Emphasis added).

As a general rule, an employer or owner is not liable for the negligent or tortious acts of an independent contractor in prosecuting the work for which he was employed. Jones v. Southwestern Newspapers Corporation, 694 S.W.2d 455 (Tex.App. — Amarillo 1985, no writ). There are a number of exceptions to this rule, however. In the Restatement (Second) of Torts, secs. 424, 427 (1965), cited by both parties, two of the exceptions to the general rule that an employer is not liable for the negligent or tortious acts of an independent contractor are (1) where the employer is by statute or administrative regulation under a duty to provide specific safeguards for the safety of others, he is liable to the others for whose protection the duty is imposed for harm caused by the failure of the contractor employed by him to provide the required safeguards (sec. 424), and (2) where the employer employs an independent contractor to do work involving a special or inherent danger to others, he is liable for physical harm to persons resulting from the contractor's failure to take reasonable precautions against the danger (sec. 427).

Texas recognizes these exceptions to the general rule as well as a number of others: Gulf, C. S.F. Ry. Co. v. Stephenson, 273 S.W. 294 (Tex.Civ.App. — Galveston 1925, no writ), where the independent contractor was employed by the railroad to tear out fences along a right-of-way, the railroad, having failed to comply with applicable statutes, was liable for crop damage resulting from livestock entering through fence openings; Quanah, A. P. Ry. Co. v. Goodwin, 177 S.W. 545 (Tex.Civ.App. — Amarillo 1915, writ ref'd), where the railroad had a duty to keep street crossings in repair, the duty could not be shifted to an independent contractor and the railroad remained concurrently liable for the contractor's negligence; Cage v. Creed, 308 S.W.2d 78 (Tex.Civ.App. — Waco 1957, no writ), where the employer was liable for the negligence of his contractor in failing to keep burning flares around an excavation on a public road, excavations being deemed inherently dangerous; Jones, 694 S.W.2d at 458, where an employer knowingly hires a negligent independent contractor, the employer remains liable for the contractor's negligence.

MBank contends that neither the specific statutory safeguard exception nor the inherently dangerous work or condition exception applies, since the statute in question does not provide for specific safeguards nor is the repossession of property inherently dangerous. While no Texas cases exactly in point have been cited or found, MBank did cite King v. Associates Commercial Corporation, 744 S.W.2d 209 (Tex.App. — Texarkana 1987, writ denied), for the proposition that the employer has no duty to supervise the work of an independent contractor or its employees unless the work is "inherently dangerous," the latter term being defined in Gessell v. Traweek, 628 S.W.2d 479 (Tex.App. — Texarkana 1982, writ ref'd n.r.e.), as work "which will probably result in injury to a third person or the public." King is a repossession case, tried on a negligent hiring theory and decided on the basis that there was no evidence to support the jury's finding of negligent hiring of the independent contractor. After reciting the "inherently dangerous" exception, the Texarkana Court of Appeals makes no further reference to that theory of liability. The possible applicability of Section 9.503 was neither raised nor mentioned, nor was the theory of nondelegable duty.

Our analysis of Section 9.503 leads us to conclude that the statute does impose a nondelegable duty on a secured party who wishes to repossess the collateral property without resorting to judicial process, or as it is sometimes termed "self-help repossession," to do so in such a manner as to avoid a breach of the peace. First, the right to take possession of property legally possessed by another person without the need to utilize judicial process is in derogation of the owner's constitutional rights not to be deprived of property except by due process of law. But for the fact that a secured party is given a greater right to possession of the property than the one from whom it is taken, the person taking the property would be guilty of theft. Tex.Penal Code Ann., sec. 31.03 (Vernon 1989). It is therefore a harsh remedy and not being subject to judicial scrutiny, more likely to be abused. Second, the statute in granting this valuable right, imposes a duty on the secured party to repossess only if it can be done without disturbing public tranquility and order. A breach of the peace, for our purposes synonymous under Texas law with disorderly conduct, is a misdemeanor criminal offense. Tex.Penal Code Ann., sec. 42.01 (Vernon 1989).

We further conclude that there is an element of inherent danger in a nonjudicial repossession. Since there is likelihood that the repossessor will commit a technical trespass by entering upon someone else's property to take possession of the collateral and that the repossession will be done not only without the owner's consent but in many cases against his will, there is a considerable risk that a breach of the peace, assault or worse may occur. If an excavation, properly dug, shored, fenced and lighted, remains inherently dangerous, then a repossession, always bordering on the edge of illegality if not carried out carefully, is also inherently dangerous.

In reaching these conclusions, we are not without support from our sister states. Under uniform commercial code provisions identical to our Section 9.503, the Supreme Court of Alabama and the Court of Appeals of Minnesota have held in fact situations similar to ours that where there was a repossession with an attendant breach of the peace, the duty to refrain from a breach of the peace is nondelegable and the employer cannot escape liability for the tortious performance of the independent contractor. General Finance Corporation v. Smith, 505 So.2d 1045 (Ala. 1987); Nichols v. Metropolitan Bank, 435 N.W.2d 637 (Minn.App. 1989). The Minnesota court also held that the employer could be liable if the repossession "created special risks which were inherent in the contemplated work to be performed by . . . [the repossession contractor]." 435 N.W.2d at 640.

Appellant's point of error is sustained. Judgment of the trial court is reversed and the cause is remanded for trial.

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SANCHEZ v. MBANK OF EL PASO
(Jul 5, 1990)