Understanding your repossession rights
By James Waite

Understanding your repossession rights

The outcome can be determined by what your contract says

Question: I own an equipment dealership in Texas. One of my customers, a limited liability company, recently rented a skid steer and never returned it. I have a GPS unit installed on it, so I know exactly where it is in a storage facility. It is being kept behind a gate and blocked in with a backhoe. I contacted the local police, but they say it is a “civil matter.” An attorney from an online legal forms company where I downloaded my form rental contract says I need to get a court order whenever I want to take back my equipment. I’m not sure I believe that, and I don’t see anything in their form contract about what to do in a situation like this. What do you say?

Answer: The lawyer from the online company is going to be wrong in most, though not all, cases, but we are going to have to unpack a few legal issues to understand why.

It’s tough to repossess what you can’t find. It was good thinking to put a GPS unit on your equipment, but I hope you also have your customer’s written consent. Texas Penal Code, Section 16.06 makes it illegal and a crime to “install an electronic tracking device on a motor vehicle owned or leased by another person unless the effective consent of the owner or lessee of the motor vehicle is obtained before the electronic or mechanical tracking device is installed.” A question exists as to whether a skid steer would fit the technical definition of a “motor vehicle” under Texas law, but given the ease of complying, it’s hard to imagine why a lessor would take the risk. So, if an acknowledgment of the customer’s consent to the use of electronic tracking devices is included in your contract, this likely will not be a problem. Otherwise, you will want to think carefully about how to proceed.

Can you actually go and get it? As is the case in virtually every jurisdiction in the U.S., you are entitled to repossess your property if you can do so without a “breach of the peace.”

Article 2A, Section 525 of the Uniform Commercial Code puts it this way:

(2) After a default by the lessee under the lease contract of the type described in Section 2A-523(1) or 2A-523(3)(a) or, if agreed, after other default by the lessee, the lessor has the right to take possession of the goods. If the lease contract so provides, the lessor may require the lessee to assemble the goods and make them available to the lessor at a place to be designated by the lessor which is reasonably convenient to both parties. Without removal, the lessor may render unusable any goods employed in trade or business, and may dispose of goods on the lessee’s premises (Section 2A-527).

(3) The lessor may proceed under subsection (2) without judicial process if it can be done without breach of the peace or the lessor may proceed by action.

In other words, you are free to go find and retrieve your property; provided you can do so without harming, or threatening to harm, anyone else or anyone else’s property. That might take some time and effort here, however. The prohibition on breaching the peace means you can’t legally cut locks off gates, break down fences or tow away the backhoe that is currently blocking access to your skid steer. As a practical matter, that leaves you with three options:

Repossession. You do have the option to retrieve your property in Texas, either by yourself or with the help of a third-party repossession company. In either case, you will have to wait for an opportunity to seize your equipment, presumably when the lessee’s gate is unlocked and the skid steer isn’t blocked in, or perhaps when it is out on a job site somewhere, assuming the customer will try to take it out and use it at some point. Monitoring your GPS data, of course, will likely be helpful here.

Waiting for an opportunity to repossess, however, can be time consuming and expensive both in terms of what you stand to lose in rentals as well as what you’ll pay the repossession company unless you elect to do it yourself, which can be dangerous. If it can be done relatively quickly and safely, repossession might be the preferred option. Be advised however, that if your customer moves your equipment to another state, that state’s law may require you to hire a bonded and/or licensed repossession company, send advance written notice of your intent to repossess and/or notify the local police after the repossession is completed. State laws can vary substantially on these issues, so you will want to be certain you comply with applicable law, wherever your repossession occurs. Also check your rental contract to see if it contains waiver and indemnity obligations of the lessee with respect to other claims arising in connection with the repossession. Lawsuits, credible or not, alleging injuries to the lessee’s real estate and/or personal property, damage to others’ property and/or even personal injuries suffered by individuals are not uncommon. If your online form contract doesn’t contain language regarding lessee defaults, odds are it won’t include these protections either, but it makes sense to check.

Pursue criminal charges. Try to convince the police to help you. Texas does have laws that prohibit both theft and theft-of-services, but few law enforcement officials have the time to educate themselves in all areas of criminal law. Consequently, equipment lessors who seek their help should be prepared to provide them with enough information to allow them to be certain that, when seizing equipment and/or arresting an alleged perpetrator, the police aren’t violating the law. Law enforcement officers have been under a microscope recently, and they’re understandably reluctant to do anything that might subject them to additional scrutiny. Make it easy for them. Make certain your rental contract includes a provision clearly indicating that failure to return rented equipment is a crime. Separately, be prepared for the police to tell you it’s a civil matter. Particularly in metropolitan areas, the police tend to be extremely busy with violent crimes, so it can be a good idea to foster connections with local government and law enforcement officials.

File a lawsuit. Proceeding immediately to filing a lawsuit is an option in cases like this, though it is not a required first step. Nonetheless, if it looks like repossession might be difficult, time consuming or dangerous, filing a lawsuit might be warranted for purposes of obtaining a repossession order or writ of replevin that can be served by a sheriff or marshal, and perhaps pursuing damages, including lost rent as well as losses associated with your inability to rent your equipment out during the period it remains out of your possession, other losses you might incur in connection with the lessee’s wrongful behavior, and interest on all amounts owing, preferably at a default rate, which in Texas is commonly 18 percent.

One of the problems with this strategy, however, is that in order for it to make sense economically, you also are going to need to be able to recover attorneys’ fees, costs of court and collection costs. If you can’t, such expenses could well exceed the amount of your claim. So again, take a look at your contract and try to determine whether it includes a provision awarding you attorneys’ fees if you prevail in a lawsuit. You’re going to need it here because your customer is a limited liability company (LLC). Although Texas law generally permits a party who prevails in litigation to recover attorneys’ fees from the losing party, it does not automatically allow for such recoveries against LLCs; rather, the contract must contain a prevailing party attorneys’ fees provision or you’re going to be out of luck. Given that your contract doesn’t contain default language, it probably doesn’t contain a prevailing party’s attorneys’ fees provision either. But again, it’s worth checking because if you aren’t able to recover your attorneys’ fees from the customer, then the best you’re likely to be able to do is to retrieve your equipment as soon, and hopefully with as little damage, as possible.

You also need to be prepared for a fight. That means you must:

Understand your opponent. Your customer brazenly is attempting to steal from you. This suggests that the customer may not understand the legal repercussions or may not care. More threateningly, the customer may have learned how to manipulate the system and use various mechanisms, including LLCs, potential lawsuits, threats and intimidation to frustrate lawful recovery attempts, lawsuits and criminal enforcement efforts.

Play a strong offense. If you find yourself dealing with the latter, you’re going to be hoping your contract provides you with the ability to seek as much in terms of recovery as possible, and the right to do so against as many defendants as possible — including not only your LLC customer, but also its owner(s) and in some cases, affiliated entities. To sidestep the corporate shield of limited liability provided by the customer’s LLC, your rental contract would need to include a guaranty. If your contract doesn’t include basic default and remedies provisions, however, it probably won’t include something as far reaching as a guaranty. Nonetheless, I would recommend checking.

Defense wins championships. Even if, in spite of your contract’s shortcomings, you feel you still have a viable claim, remember that’s only half the battle. If your customer can countersue you, that might be able to nullify your claim or perhaps just make it too risky to pursue. Before you proceed, I would advise you to review your contract for indemnity, defense and hold harmless provisions that require the lessee to pay you, hire an attorney to defend you, and hold you harmless — refrain from seeking recovery against you — with respect to allegations of negligence as well as alleged equipment defects, injuries to the lessee and/or others, and damage to their property including the lessee’s or someone else’s. In addition, look for other waivers of claims by the lessee, such as those arising under the Uniform Commercial Code, repossession-related claims and damages, incidental, consequential, exemplary and punitive damages, and rights to recover for things like delivery delays, maintenance failures, breakdowns, downtime and events of force majeure. As previously mentioned, make sure your contract includes a provision permitting you to install and monitor GPS tracking devices. If it lacks any of these protections, your customer’s attorney might feel motivated to raise counterclaims against you that significantly impair the net value of your claim, or worse, cost you more than you seek to recover.

In the end, you do have the right to recover your equipment, but do it carefully. Make certain you don’t breach the peace, and if you find yourself needing to pursue repossession in an unfamiliar state, make sure you review its repossession laws, as they may differ from your state in important ways. If you find that repossession actually is not a realistic option, you certainly can pursue your remedies in court, but doing so can be risky and expensive. Regardless, your outcome is, to a great extent, going to be determined by what your rental contract says or fails to say. Have a close look at it now, before you start down a path you might later wish you hadn’t. 

James WaiteJames Waite

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