On July 24, 2013, the PA Supreme Court agreed to hear an appeal, led by Grove Estate LP, regarding a dispute over whether a $10.7 million confession of judgment was improperly executed against a developer who defaulted on a 2008 loan. In Graystone Bank v. Grove Estates, LP, A.3d, 2012 PA Super 274 (2012), the defendant's attorney argued that the warrant of attorney to confess judgment contained in an agreement 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.
As a creditor in Pennsylvania, there is no greater tool than a valid confession of judgment clause in your written agreement with a customer and, as such, it is vital that an experienced PA debt collection lawyer be able to enter and enforce this judgment when a customer does not pay.
What is a Confession of Judgment?
Pa. R. C. P. 2950, et seq. provides that one party to a contract can agree to allow the other party to enter judgment against him or her in the event of a default; this is known as a confession of judgment. This permits a creditor, or their attorney, to ask the court for an immediate judgment to be entered against a defaulting debtor without requiring or permitting the debtor to respond or contest the judgment. The debtor has voluntarily submitted to a certain jurisdiction and for the entry of judgment without service of process in the event of a default. This is a more streamlined procedure than having a PA debt collection lawyer file a civil Complaint, go through discovery, and attend hearings to prove the other party is in default in order to obtain a judgment.
While contracts that include a confession of judgment clause are highly controversial as a potential violation of due process, since one party is essentially contracting away his or her right to raise any legitimate defenses, confession of judgment clauses are fully enforceable and legal in PA. However, in PA, there cannot be a confession of judgment against any natural person in connection with a consumer credit transaction, only under commercial agreements. For example, a judgment may not be confessed against an individual who uses a credit card to purchase furniture for their home, but could be confessed if the furniture is used in an office or place of business.
Requirements and Procedure for a Confession of Judgment in PA
In order for a confession of judgment to be enforceable, it should not only be conspicuously placed in the agreement itself, but the language used must be very specific and signed by the party who is authorizing judgment to be confessed against them. There must be no doubt that the signing party was aware of what was being signed and was conscious of the implications of the confession of judgment clause. Furthermore, as evidenced in Graystone Bank, "warrant of attorney" language should also be incorporated on the same page as the confession of judgment language, which specifically authorizes the creditor's attorney or authorized agent, to confess the judgment against the debtor through the filing of a Confession of Judgment Complaint.
There are a number of procedural requirements which must be followed when attempting to have a judgment entered based on a confession of judgment clause. A Complaint in Confession of Judgment should be filed by a PA debt collections lawyer and must include:
- The names and addresses of the parties involved;
- A copy of the agreement showing the debtor's signature;
- A statement regarding the assignment of the debt, if any;
- An averment of default or condition precedent, if required by the agreement before the entry of judgment;
- The amount due based on matters outside the agreement, e.g. attorney's fees and interest;
- A demand for judgment as authorized by the agreement; and
- Signature and verification of the filing party.
Confession of judgment clauses are an effective tool for any creditor or business owner in PA, but require a substantial amount of knowledge and expertise when drafting them to be enforceable. Due to the strict requirements for a confession of judgment to be valid, it is best to consult with an experienced PA debt collections lawyer when preparing such a clause or any written commercial contract. By using our free Business Debt Collections Guide, business owners or creditors can be prepared to deal with uncooperative customers and will learn a number of useful and practical tips and strategies to implement in their business.