Superior Court Holds Possible Exception To Warrant Of Attorney Rule

In Pennsylvania, the general rule is that “a warrant of attorney to confess judgment may not be exercised twice for the same debt.”

However, in a recent decision, SDO Fund II D32 v. Donahue, 2020 Pa. LEXIS 492 (June 17, 2020) the Superior Court of Pennsylvania recently held that there may be an exception to that “black letter” rule.

In 2008, Gerard T. Donahue, president of 417 Lackawanna LLC, entered into a written guaranty agreement with PNC Bank N.A., rendering Donahue a guarantor and surety on account of a commercial real estate loan in the amount of $5.4 million extended to 417 Lackawanna by PNC, the opinion said.

The guaranty agreement contained a warrant of attorney that authorized PNC to confess judgment for the total amount due, upon an event of default, and that provided that “no single exercise” of the warrant, “or a series of judgments,” would exhaust the warrant of attorney, the opinion said.

Over the course of several years, Donahue, acting in his capacity as president of 417 Lackawanna as well as the guarantor, executed a series of amendments to the loan documents, the opinion said.

The amendments to the loan documents each contained a warrant of attorney authorizing the confession of judgment not only against 417 Lackawanna, as principal, but also against Donahue, as guarantor, and permitted the entry of multiple successive judgments until the debt was paid in full, the opinion said.

At one point during this period of time, PNC actually confessed judgment against Donohue under the loan documents but did not execute upon the confessed judgment and instead amicably resolved the dispute by instead amending the obligations of 417 Lackawanna under the loan documents with his permission as the guarantor, the opinion said.

According to the opinion, on each occasion, Donahue, as guarantor, also executed a separate document in which he “ratifie[d] and confirm[ed]” the confession of judgment provision contained in the guaranty.

PNC ultimately assigned the loan documents to SDO Fund II D32, the opinion said.

When 417 Lackawanna defaulted on the loan, the parties entered into a written forbearance agreement, which contained a warrant of attorney authorizing the confession of judgment against 417 Lackawanna, including the entry of “a series of judgments,” until the debt was paid in full, the opinion said.

Donahue again executed in his personal capacity as guarantor a separate document in which he again “ratifie[d] and confirm[ed]” the warrant of attorney contained in the guaranty agreement, the opinion said.

Upon the debt remaining unsatisfied, as per the forbearance agreement and a subsequently entered into amendment to the forbearance agreement, SDO filed a complaint in confession of judgment and entered a confessed judgment in the amount of $5,689,780.41 against Donahue.

Donahue then filed a petition seeking to strike and, in the alternative, to open the monetary judgment against him.

After the trial court denied the petition, Donahue then appealed the trial court’s ruling to the Superior Court.

On appeal, Donahue argued that a judgment may be confessed only once for the same debt and the law precludes repeated exercises of a warrant of attorney to confess judgment and that, since PNC had previously confessed judgment against him on the same debt, the warrant of attorney contained in the guaranty agreement had been exhausted when PNC exercised it against him, such that SDO could not use the warrant of attorney.

Additionally, Donahue pointed out that, when he consented as guarantor to the amendments to the loan documents by way of a separate document, none of these documents contained a new warranty of attorney, but rather merely stated that the warrant of attorney contained in the guaranty agreement was being “ratified” and “confirmed,” but those words “ratify” and “confirm” did not have the effect of revitalizing the previously exhausted warrant of attorney.

In response, SDO contended that parties could waive the general rule by agreement and permit multiple exercises of a warrant of attorney for the same debt and that the guaranty agreement plainly permitted multiple exercises of the warrant of attorney.

SDO further stated that Donahue submitted himself to new warrants of attorney in several of the amendments to the loan documents.

The Superior Court denied the appeal.

Although the Superior Court agreed that the ‘general rule’ in Pennsylvania is that a warrant of attorney to confess judgment may not be exercised twice for the same debt, it cited to its previous decision in the case of Dime Bank v. Andrews, 115 A.3d 358 (Pa. Super. Ct. 2015) for the proposition that “under certain circumstances, and to certain extents, parties to a note may waive this rule, allowing for multiple exercises of a warrant of authority to confess judgment.”

In reaching its conclusion, the Superior Court noted that a warrant of attorney is a contractual agreement and the parties to the contract are free to determine the extent of the power the warrant confers, including the number of times the holder of the warrant may exercise it.

As such, the Superior Court agreed with SDO that parties were free to waive the general rule by contract.

The Superior Court held that the plain language of the guaranty agreement empowered SDO to confess judgment against Donahue as many times as necessary until it received payment in full.

The Superior Court also noted that Donahue thereafter executed multiple agreements that ratified and confirmed the warrant of attorney contained in the guaranty agreement.

According to the Superior Court, the parties, through their own contracts, mutually agreed to allow for multiple exercises of the warrant of attorney to confess judgment. As such, the Superior Court ruled that the first confession of judgment by PNC had not exhausted the warrant of attorney.

As the trial court had determined that Donahue had submitted himself to separate warrants of attorney in several amendments to the loan documents, each of which authorized SDO to confess judgment against him for the default under the guaranty agreement, the Superior Court found no abuse of discretion by the trial court in denying Donahue’s petition.

Reprinted with permission from the July 10, 2020 edition of The Legal Intelligencer © 2020 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.