Warrants of Attorney to Confess Judgment – Location, Location, Location …. Loan Modifications …. Attorney’s Fees
In a recently reported decision, the Superior Court of Pennsylvania upheld an order entered by the lower court denying a borrower’s petition to strike and/or open a confessed judgment.1 The borrower argued that the warrant of attorney to confess judgment contained in the loan note was invalid because the borrower’s signature did not appear on the same page as the warrant. The court denied this argument and held that the warrant of attorney to confess judgment, which appeared in all capitalized letters on the page immediately preceding the signature page, was valid. The court also addressed the ongoing issue of whether the warrant needs to be restated in a loan modification.
Grove Estates LP (Borrower) executed a $9.5 million Promissory Note (Note) dated August 29, 2008, in favor of Graystone Bank (Bank). The Note contained a warrant of attorney to confess judgment in all capitalized letters on the penultimate page of the Note (on the page immediately preceding the page with the Borrower’s signature). The maturity date of the Note was subsequently extended pursuant to a Change in Terms Agreement, which did not contain a warrant of attorney to confess judgment. The Bank confessed judgment against the Borrower after the Borrower failed to pay the outstanding principal balance and accrued interest under the Note on the extended maturity date.
The Borrower filed a Petition to Open and/or Strike the Confessed Judgment and Request for Stay (Petition), which was denied by the Court of Common Pleas of York County. The Borrower appealed.
The Superior Court agreed with the Court of Common Pleas that Pennsylvania's legal precedent does not necessarily require the warrant to appear on the same page as the Borrower’s signature. The court held that the warrant in the Note printed conspicuously in all capitalized letters on the page immediately preceding the page with the Borrower’s signature was sufficient. The Superior Court distinguished this case from other case law where the warrant was not located in the body of the document, but only referenced therein, or where the warrant was subsequent to the signature or too distant from the signature.2
The Superior Court also upheld the Court of Common Pleas’ finding that the absence of the warrant in the Change in Terms Agreement, given its sole and limited scope of only extending the maturity date, was not fatal.3
Lastly, the Superior Court addressed the Borrower’s argument that the attorney fee provision in the warrant was not reasonable. The warrant in the Note provided for legal fees of 10%. In citing McMullen v. Kutz4, the Superior Court noted that even where a warrant expressly states a specific amount of attorneys’ fee, such fees must remain reasonable under the given circumstances. The Superior Court found that the Court of Common Pleas did not determine whether the 10% attorney fee provision in the warrant was reasonable in this case, and remanded this issue to the Court of Common Pleas for review.
In light of this decision, lenders should consider the following recommendations in originating or modifying a loan:
- Incorporate the warrant of attorney to confess judgment on the borrower’s/guarantor’s signature page or the page immediately preceding thereto;
- Due to differing court opinions, require the borrower/guarantor to sign a new warrant of attorney to confess judgment in connection with any loan modification; and
- When making or modifying a loan, require the borrower/guarantor to sign a separate disclosure for confession of judgment, evidencing the borrower’s/guarantor’s understanding and awareness of the confession of judgment provisions in the documents.
1 Graystone Bank v. Grove Estates, LP, --- A.3d ----, 2012 WL 6204836 (Pa.Super. 2012), 2012 PA Super 274 (2012).
2 Frantz Tractor Co. v. Wyoming Valley Nursery, 384 Pa. 213, 120 A.2d 303 (1956); L.B. Foster Co. v. Tri-W Cost. Co., 409 Pa. 318, 186 A.2d 18 (1962); Egyptian Sands Real Estate, Inc. v. Polony, 222 Pa. Super. 315, 294 A.2d 799 (1972); Jordan v. Fox, Rothschild, O’Brien & Frankel, 20 F.3d 1250 (3d Cir. 1994).
3 Please note that, in another recent case, the Court of Common Pleas of Philadelphia County held that the warrant of attorney to confess judgment was insufficient when (i) the warrant in the original promissory note was not initialed or acknowledged by the borrower and (ii) the subsequent amendment, which merely extended the maturity date of the promissory note, did not contain a new warrant of attorney. Reinvestment Fund Inc. v. Brewery Park Associates, 2011 Phila. Ct. Com. Pl. LEXIS 283 (2011).
4 McMullen v. Kutz, 603 Pa. 602, 985 A.2d 769 (2009).