Landlord Can’t Amend Complaint After Confessing Judgment Against Tenant
Written by: Alan Nochumson
As the country continues to suffer from the recession, commercial landlords throughout Pennsylvania are being forced to deal with defaulting tenants who are thus unable to meet their financial lease obligations.
Most commercial lease agreements contain a contractual provision commonly known as a warrant of attorney which allows a commercial landlord to obtain a judgment (either for money or possession) against a defaulting tenant without providing that tenant with the opportunity to object prior to the entry of that judgment. This contractual provision is thus a quicker, easier and less costly way of obtaining judgment against a defaulting tenant than pursing claims through full-blown litigation.
A recent ruling by the Superior Court of Pennsylvania in TCPF Limited Partnership v. Skatell, however, illustrates why a landlord must carefully dot all of its “I’s” and cross all of its “T’s” prior to and at the time it obtains a confessed judgment.
In Skatell, the landlord agreed to lease a portion of a building to a tenant for the operation of a sandwich shop for a period of seven years. Since the tenant was incorporated, the landlord required the tenant’s president and others to separately agree to guarantee the tenant’s monetary obligations under the lease, according to the opinion. The guaranty agreement contained a warrant of attorney enabling the landlord to bring an action to confess judgment against the guarantors for any and all amounts due under the lease. The guaranty agreement contained language allowing for the successive exercises of the warrant of attorney until all monetary obligations under the lease had been discharged.
When the tenant committed monetary breaches under the lease, the landlord filed a complaint in confession of judgment against the guarantors of the lease seeking approximately $60,000, the opinion said. In the complaint, the landlord invoked the right to accelerate the rent and other charges due for the balance of the lease term. On the same day the complaint was filed, judgments by confession were entered in favor of the landlord and against the guarantors.
Subsequent to the filing of the complaint and entry of the confessed judgments, the landlord discovered that it had miscalculated the amount due under the lease by almost $150,000, the opinion said.
The landlord then requested leave of court to file an amended complaint in confession of judgment to increase the judgment amount to account for the amount which was actually due for the balance of the lease term. The trial court denied the landlord’s request.
The landlord then presented a second motion for leave to file an amended complaint. In that motion, the landlord sought to amend the paragraph of the original complaint where the landlord invoked its right to accelerate the balance due under the lease. Under the proposed amendment to the original complaint, that paragraph stated that the landlord would only be seeking that part which the landlord had already obtained judgment for, thus reserving the right to confess judgment for other amounts coming due under the lease. The trial court denied that motion as well.
The landlord then appealed the denial of both of these motions to the Superior Court.
The Superior Court first addressed the trial court’s refusal to allow the landlord to file the first amended complaint.
The landlord argued that it had the right under Rule 1033 of the Pennsylvania Rules of Civil Procedure to amend the original complaint to take into account the amount which was actually due under the lease.
Rule 1033 provides that a party to litigation may, either by filed consent of the adverse party or by leave of court, amend a complaint. The landlord contended that, since Rule 1033 allows for liberal amendments and because the proposed amendment did not “’present an entirely new cause of action or unfairly surprise or prejudice an opposing party’ the amendment should have been granted by the trial court.”
The Superior Court, however, reinforced that an amendment is not permitted under Rule 1033 “where it is against a positive rule of law”.
According to the Superior Court, the trial court correctly ruled that the landlord was clearly “‘without authority’ to reflect a different calculation of damages for the entire unexpired term of the lease” in that, “under the law of Pennsylvania, a warrant of attorney to confess judgment may not be exercised twice for the same debt.” In other words, where a power of attorney authorizes a confession of judgment and the power is once exercised, the power is thereby exhausted.
The Superior Court noted that, in the original complaint, the landlord had already invoked its right to accelerate the amount due under the lease for the balance of the lease term and sought and obtained judgment of a specified amount. By doing so, the Superior Court believed that the landlord’s power under the warrant of attorney was thus exhausted for the monetary breaches which had been committed by the tenant under the lease.
The Superior Court also agreed that the trial court properly denied the second attempt by the landlord to amend the original complaint because the landlord was, in essence, attempting to exercise the warrant of attorney twice for the same debt. ¨The landlord argued that the second attempt to amend the original complaint was legally permissible because the proposed amendment did not seek to alter the amount of judgment and, thus, did not require the exercise of the warrant of attorney. Rather, according to the landlord, the proposed amendment sought to correct a paragraph in the original complaint to state that the landlord was merely invoking its right to accelerate a portion (not all) of the amount due under the lease. In doing so, the landlord emphasized that the proposed amendment would require no new judgment, would keep the original confession of judgment intact and would allow it to confess another judgment for the remainder of the lease term.
The Superior Court found that the landlord was prohibited under Rule 2953 of the Pennsylvania Rules of Civil Procedure from so amending the original complaint.
Under Rule 2953, “[w]here an instrument authorizes judgments to be confessed from time to time for separate sums as or after they become due, successive actions may be commenced and judgments entered for such sums.”
The Superior Court pointed out that Rule 2953 restricts successive actions to “separate sums” claimed due and collectible under a warrant of attorney as contrasted to the “same sum” of money already confessed.
As for the second proposed amendment, the Superior Court believed that, since judgment had already been entered to collect the balance of the lease term, the landlord could not amend the original complaint so as to reserve the right to a subsequent exercise of the warrant of attorney for a separate sum because the warrant of attorney had already been exhausted for the underlying monetary breaches.
A landlord only gets one bite of the proverbial apple to confess judgment. That is not to say that the landlord cannot ever seek what is due and owing under the lease in a situation like Skatell. Rather, the landlord cannot confess judgment and must rather stand in line for his day in court with the other plaintiffs.
Reprinted with permission from the November 16, 2009 edition of The Legal Intelligencer © 2009 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. For information, contact 877-257-3382, email@example.com or visit www.almreprints.com.