Confessed Judgment Stricken Because Of Inconspicuous Warrant Of Attorney
Written by: Alan Nochumson
Most commercial lease and loan documents contain what is commonly known as a warrant of attorney.
According to the “Free Dictionary” by Farlex, a warrant of attorney is “a written authorization that allows an attorney named in it to appear in court and admit the liability of the person giving the warrant in an action to collect a debt” and “this writing is usually given to help ensure that the person signing it will pay the amount that he or she would be obliged to pay if a judgment were entered against him or her” with the understanding “that no action will be started against the signer if the obligation described in the paper is satisfied.”
In EFB Real Estate Investment LLC v. Chin, 2016 Phila. Ct. Com. Pl. LEXIS 160 (June 28, 2016), Philadelphia Court of Common Pleas Judge Gary Glazer determined whether a landlord had the right to file and obtain a confessed judgment for money in connection with a lease dispute between the parties.
In EFB Real Estate Investment, the landlord owned a building located on Bustleton Avenue in Northeast Philadelphia, the opinion said. A portion of the building was leased to doctors of dental surgery and their respective dental practices, the opinion said.
In late 2012, the landlord’s predecessor-in-interest entered into an office space lease agreement with the tenants.
Page 6 of the office space lease agreement contained a paragraph titled “Default” in bold text that set forth what happened in the event of a default of the terms and conditions of the lease agreement. The fourth subpart of that paragraph contained a warrant of attorney allowing the landlord to file and obtain a confessed judgment for money against the tenants if such a default existed. In the summer of 2013 and the winter of 2014, the landlord’s predecessor-in-interest and the tenants entered into separate amendments to the agreement. Neither lease amendment made any reference to the warrant of attorney contained in the original lease agreement.
In the spring of 2016, by way of complaint, the landlord confessed judgment against the tenants. In the complaint, the landlord alleged that the tenants vacated the leased premises in breach of the lease agreement. Specifically, the landlord stated in the complaint that the tenants acquired a nearby property with the intent of moving their dentistry businesses and vacated the leased premises after launching a false campaign that allegedly took place in a portion of the building rented to a different tenant.
The tenants subsequently filed a petition to strike and, in the alternative, to open the confessed judgment.
In the petition, the tenants argued that the confessed judgment should be stricken because the record contains a fatal flaw—the warrant of attorney is inconspicuous and the signature of the tenants at the bottom of the office space lease agreement bears no direct relation to the warrant of attorney.
In the alternative, the tenants argued that the confessed judgment should be opened on the legal theory of nuisance. According to the tenants, the landlord leased another portion of the building to a different tenant that used its portion of the building as a brothel and, as a result thereof, the tenants could not properly advertise their dental practices as an online search of their location yielded ”images of ‘unclad staff and allusions to sexual services provided.'”
Glazer ultimately agreed that the confessed judgment should be stricken because of the inconspicuous nature of the warrant of attorney contained within the agreement.
“In Pennsylvania, a motion to strike a judgment will not be granted unless a fatal defect in the judgment appears on the face of the record” and “if the record is self-sustaining, the judgment will not be stricken,” the opinion said.
“It is a firmly established rule of construction in the case of warrants of attorney to confess judgments that the authority thus given must be clear, explicit and strictly construed, that if doubt exists it must be resolved against the party in whose favor the warrant is given, and that all proceedings thereunder must be within the strict letter of the warrant.”
In striking the confessed judgment, Glazer concluded that the tenants’ “signature fails to bear a direct relation to the remote, minute and inconspicuous language of the warrant-of-attorney.”
In doing so, Glazer relied upon how the term “conspicuous” is defined in the Commercial Code. According to the Commercial Code, “with reference to a term, means so written, displayed or presented that a reasonable person against which it is to operate ought to have noticed it” and “whether a term is ‘conspicuous’ or not is a decision for the court.”
The Commercial Code further notes that “conspicuous terms include the following: (i) a heading in capitals equal to or greater in size than the surrounding text, or in contrasting type, font or color to the surrounding text of the same or lesser size[; and] (ii) language in the body of a record or display in larger type than the surrounding text, in contrasting type, font or color to the surrounding text of the same size, or set off from surrounding text of the same size by symbols or other marks that call attention to the language.”
Glazer did not believe that the warrant of attorney was set forth conspicuously, in that the lease agreement is a nine-page document and the warrant of attorney is found on page 6 thereof.
While the warrant of attorney is contained in the paragraph titled “Default” and the title of that paragraph is set forth in bold text, Glazer pointed out that the body of that paragraph is printed in very minute type, the body itself is not bolded, and the body is subdivided into various subparts.
According to Glazer, the warrant of attorney is located in the fourth subpart “of this minutely-typed provision” and the signatures of the tenants “appear on page 9 of a document, at the end of 13 additional provisions, most of which are also minutely typed.”
To make matters worse, in Glazer’s opinion, “the entire document seems to have been produced by a cut-and-paste method, and the random, inexplicable changes in font sizes therein give a confusing appearance to the entire document.”
Since Glazer granted the tenants’ petition upon these grounds, Glazer declined to address the merits of the tenants’ petition to open the confessed judgment.
Surprisingly, Glazer’s memorandum opinion does not discuss if the amendments to the agreement nullified the warrant of attorney.
In Pennsylvania law, it is well established that a warrant of attorney contained in one document will not become a part of another document that incorporates the terms of the document setting out the power to confess judgment by general reference.
Pennsylvania courts refuse to foist a warrant of attorney to confess judgment upon anyone by implication or by general and nonspecific reference.
A general reference in the body of an executed instrument to terms and conditions to be found outside the agreement is insufficient to bind the party to a warrant of attorney not contained in the body of the instrument unless the party signs the warrant where it does appear.
Several years ago, in Bancorp Bank v. Mancini, 2013 Phila. Ct. Com. Pl. LEXIS 49 (February 19, 2013), the Philadelphia Court of Common Pleas held that a modified contract incorporates a warrant of attorney from the original contract only if it is “clearly and expressly” incorporated into the modified contract.
In Bancorp Bank, the parties had executed loan documents, which contained a warrant of attorney, and also executed a separate surety agreement with a separate warrant of attorney. The loan documents in Bancorp Bank were later modified and specifically mentioned that the “sureties” acknowledge their consent to the modifications of the loan previously entered into by the parties. However, the modified loan did not “clearly and expressly” incorporate the warrants of attorney of either the loan documents or the separately executed disclosure of confession of judgment. As such, the trial court in Bancorp Bank held that that the modified loan nullified the original loan and attendant warrant of attorney contained therein and struck the confession of judgment as being defective on its face. Furthermore, as the original loan was nullified and no additional surety agreement was executed following the modification, by implication, the warrant of attorney in the surety agreement was extinguished, as well.
Similarly, the landlord and the tenants in EFB executed the agreement, which contained a warrant of attorney and thereafter it was modified by the amendments that did not contain warrants of attorney.
Just as in Bancorp Bank, the amendments to the lease agreement did not “clearly and expressly” incorporate the warrant of attorney, thus, extinguishing the previously issued warrant of attorney.
LESSONS LEARNED
Glazer’s ruling in EFB Real Estate Investment sheds light into how closely Pennsylvania courts scrutinize this highly onerous tool—the warrant of attorney.
From my experience, there are many things an attorney should do when drafting an agreement containing a warrant of attorney.
First of all, the warrant of attorney should be in bold and capitalized lettering in order to make it conspicuous.
Furthermore, the tenant or borrower, as the case may be, should be obligated to acknowledge the existence of the warrant of attorney by placing his or her initials immediately after the warrant of attorney.
Finally and equally important, there should be a separate disclosure signed by the tenant or borrower, as the case may be, setting forth what is the warrant of attorney and what due process rights they are foregoing as a result of the warrant of attorney being included in the agreement between the parties.
Reprinted with permission from the July 12, 2016 edition of The Legal Intelligencer © 2016 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. For information, contact 877-257-3382, reprints@alm.com or visit www.almreprints.com.
