St. Mary's Law Journal
Creditors' Self-Help Remedies under UCC Section 9-503: Violative of Due Process in Texas.
In Sniadach v. Family Fiance Corp. and Fuentes v. Shevin, the Supreme Court stated that the due process clause of the 14th Amendment requires notice and an opportunity to be heard before seizing property under color of state law. Accordingly, creditor self-help repossession under Section 9.503 of the Uniform Commercial Code, and its Texas counterpart, are now constitutionally suspect, which can be seen in the numerous constitutional attacks in federal courts. Because deprivation of due process requires some form of state action, numerous cases have litigated the scope of state action. To find state action, there must be conduct of a state official, a creditor seizing unsecured property pursuant to state law, or explicit statutory changes to the common law that may be regarded as promoting certain private conduct. For self-help repossession, however, creditors may contractually reserve a security interest and right to peaceful repossession without the necessity of state intervention, assuming adequate notice and due process requirements are met or contractually waived, to avoid due process challenges. While the Supreme Court in Fuentes recognized a situation where postponing notice and opportunity for hearing may be justified, the self-help authorized under section 9.503 likely could not met the criteria for the exception. Several questions have been left open, however, regarding the creditors ability to seize property. The Court in Fuentes did not specify the type of proceeding required prior to seizure, nor did the Court speak to the ability of a debtor to waive their right to notice and hearing. As such, to avoid seizures being found void, prudent creditors in Texas should observe prior notice and hearing procedures before exercising their self-help repossession rights under section 9.503.
St. Mary's University School of Law
Creditors' Self-Help Remedies under UCC Section 9-503: Violative of Due Process in Texas.,
St. Mary's L.J.
Available at: https://commons.stmarytx.edu/thestmaryslawjournal/vol5/iss4/4