Warrants of Attorney to Confess Judgment - Loan Document Amendments
In a recent reported decision1, Judge Panepinto of the Court of Common Pleas for Philadelphia County issued an opinion striking a confessed judgment. In support of his decision to strike the judgment, Judge Panepinto held that the warrant of attorney was insufficient to support the entry of a confessed judgment because (i) the warrant of attorney pursuant to which judgment was confessed had not been initialed or acknowledged and (ii) the note evidencing the loan had been amended merely to extend the maturity date without the execution of a new warrant of attorney. Given the current economic environment in which loan amendments have become commonplace, bear this decision in mind when amending loan documents that contain a warrant of attorney to confess judgment. The decision is currently on appeal.
Reinvestment Fund, Inc. v. Brewery Park Associates L.P.
In March, 2007, Brewery Park Associates, L.P. (Defendant) signed a promissory note (the Original Note) for a loan from Reinvestment Fund, Inc. (Plaintiff). The Original Note contained a warrant of attorney, which granted Plaintiff the power to enter judgment against Defendant without prior notice and hearing. Defendant signed the Original Note, but neither signed nor initialed the pages which physically contained the warrant of attorney.2 Subsequently, Plaintiff and Defendant entered into a Note Modification Agreement (the Modification) to extend the maturity date of the loan. The Modification did not contain a new warrant of attorney.
On March 6, 2009, Plaintiff filed a complaint in confession of judgment pursuant to the warrant of attorney contained in the Original Note. Defendant responded by filing a petition to strike the confession of judgment. Defendant’s petition was granted. In support of his decision to strike the confessed judgment, Judge Panepinto relied on the Pennsylvania Supreme Court’s ruling in Frantz Tractor Co. v. Wyoming Valley Nursery.3 Judge Panepinto reasoned that Frantz Tractor supports the proposition that a separate and distinct warrant of attorney is necessary each time a loan is modified. Because Defendant had not signed a new warrant of attorney as a part of the amendment process, Judge Panepinto ruled that the warrant of attorney contained in the Original Note was no longer valid. Judge Panepinto also noted that Defendant neither signed nor initialed the pages containing the warrant of attorney in the Original Note.
Currently, this case is on appeal and should be decided by the end of 2012. It is possible that the appellate court will have a narrower interpretation of Frantz Tractor, which may result in the decision being overturned. Until the appeal is decided, however, defendants will likely cite Brewery Park Associates as authority to open or strike confessed judgments in situations where a loan has been modified without the execution of a new warrant of attorney.
In light of the foregoing, when originating or modifying a loan or other agreement that is subject to a warrant of attorney, lenders and other creditors should consider the following practices to protect their interests:
- Require the borrower to sign or initial the specific pages in any loan document or modification document containing the warrant of attorney;
- Require the borrower to sign a new warrant of attorney as part of every modification document regardless of the materiality of the modification; and
- Require the borrower to sign a separate Disclosure for Confession of Judgment, evidencing that the borrower is aware that the loan documents and/or modification documents, as applicable, contain a warrant of attorney.
1 Reinvestment Fund Inc. v. Brewery Park Associates, 2011 Phila. Ct. Com. Pl. LEXIS 283 (2011).
2 It is unclear from the decision whether Defendant signed the acknowledgement and waiver typically obtained by lenders when entering into agreements containing a warrant of attorney.
3 Frantz Tractor Co. v. Wyoming Valley Nursery, 384 Pa. 213, 120 A.2d 303 (Pa. 1956).
This article should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general information purposes only, and you are urged to consult a lawyer concerning your own situation with any specific legal question you may have in mind.