The recent Pennsylvania case The Bancorp Bank v. Mancini highlights the importance of re-stating warrants of attorney in modification documents involving Pennsylvania commercial loans.
The facts, which are not clearly stated in the trial judge’s opinion, are summarized as follows: Mancini guaranteed a loan to a business in 2006. In connection with the transaction, Mancini executed a Surety Agreement, which contained a warrant of attorney, and a separate Disclosure for Confession of Judgment referencing the Surety Agreement. The loan was later modified in 2009 by a Modification Agreement. The Modification Agreement contained a warrant of attorney, a provision whereby guarantors consented to the modification and signature lines for the guarantors. However, Mancini did not sign a separate Surety Agreement in connection with the Modification Agreemen t, nor a Disclosure for Confession of Judgment. It is not clear from the trial court’s opinion how the warrant of attorney was written or if the surety agreements were referenced in any way beyond the consent of the sureties. Further, the Court does not describe the language in the original surety agreement or how it dealt with amendments or modifications.
Another loan was made to the business in 2009. The 2009 loan documents included a warrant of attorney. It is not clear from the facts stated if Mancini also guaranteed that loan or if the original surety agreement extended to all indebtedness of the borrower.
In 2012, the Bank filed a confession of judgment against Mancini, as guarantor, for amounts due under both the 2006 loan (as modified) and the 2009 loan. The Bank subsequently filed a Motion to Amend its Confession of Judgment to remove the amounts due under the 2009 loan (suggesting that in fact, Mancini had not guaranteed the 2009 loan). The trial court granted the Motion to Amend, and the Bank amended its Complaint in Confession of Judgment to reflect only the amounts due under the 2006 loan.
Mancini filed a Petition to Open or Strike the Judgment. The trial court granted the Petition to Strike the Judgment, basing its decision on three factors:
- The fact that Mancini executed a separate Surety Agreement and Disclosure for Confession in connection with the original loan in 2006, but did not execute separate agreements in connection with the 2009 Modification Agreement, and that the Modification Agreement did not clearly or expressly incorporate the warrant of attorney provisions of the 2006 loan documents, as to Mancini, and as such, the record upon which the Bank sought to confess judgment was not self-sustaining;
- The fact that notice under Rule 2958.1 (30 day notice of execution) was not properly served on Mancini, which precluded the court from having jurisdiction to enter the judgment by confession and supported striking the judgment; and
- The fact that the Bank amended its Complaint in Confession of Judgment after originally confessing judgment for the entire amount due under both the 2006 and 2009 loans , to include only the 2006 loan amount. The trial court held that such an amendment was a prohibited duplicative attempt to collect a single debt and that the warrant of attorney had been exhausted by attempting to collect the debt in the original Complaint in Confession of Judgment.
The second and third grounds for the trial court’s decision are problematic and not likely to be upheld. The 30 day notice under rule 2958.1 is an execution procedure which may be sent 30 days prior to execution on a confessed judgment. There is also a procedure for immediate execution (see my blog entry Execution on a Confessed Judgment Against Personal Property). However, a judgment creditor can choose not to send an execution notice for months or even years after the judgment is entered, or until the creditor actually executes on the judgment. The notice is not necessary for the court’s jurisdiction to enter the confessed judgment.
Likewise, the argument that the Bank was attempting to collect the same debt twice in contravention of Pennsylvania law seems dubious where the Bank was specifically granted leave to amend its complaint. Pennsylvania law does provide for a warrant to be exhausted once it is used. Again, the Court granted a motion to amend the judgment. It then treated it as a separate judgment and ignored the fact that it approved it. This seems incongruous.
However, the first ground might be upheld but requires a more thorough review of the language in the underlying documents. Even if not upheld, the issue could have easily been avoided . Pennsylvania law requires that the warrant of attorney be in writing and signed by the person to be bound. There is case law which states that a modified contract can incorporate a warrant of attorney from an original contract if it is clearly and expressly incorporated into the modified contract. Although the Modification Agreement in the instant case contained a warrant of attorney and was signed by Mancini, the court refused to consider the warrant of attorney from Mancini’s 2006 Surety Agreement as incorporated in th e modification documents. Again, it is not clear from the trial court’s recitation of the facts if this refusal was due to the wording of the Modification Agreement itself being insufficient to incorporate the warrant of attorney, or the fact that Mancini did not execute a separate Surety Agreement and Disclosure for Confession in connection with the Modification Agreement.
Regardless, to avoid this from becoming an issue, creditors should always re-state the warrant of attorney in all modification documents (not merely incorporate the warrant by reference).
The trial court’s decision was appealed to the Superior Court of Pennsylvania, which sua sponte quashed the appeal because it determined that there was no automatic right of appeal where a confessed judgment has been stricken. The propriety of the appeal being quashed is left for another day. The Bank filed a petition for allocator with the Supreme Court of Pennsylvania on March 22, 2013. The petition has not yet been decided by the court.