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.”

Contractual Exception to the General Rule

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.

Loan and Guaranty Background

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.

Amendments and Prior Confession

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 Donahue 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.

Forbearance Agreement and New Confession

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’s Petition and Appeal

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.

Superior Court’s Analysis and Ruling

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.

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.

The Superior Court agreed that the general rule is that a warrant of attorney to confess judgment may not be exercised twice for the same debt, but it cited 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.”

The Court reasoned that a warrant of attorney is a contractual agreement and the parties are free to determine the extent of the power the warrant confers, including the number of times it may be exercised. Because the guaranty agreement explicitly authorized “no single exercise” or “a series of judgments” until the debt was paid in full, the Court held that the warrant was not exhausted by the prior confession of judgment.

Accordingly, the Superior Court found no abuse of discretion by the trial court in denying Donahue’s petition.

Key Takeaway

SDO Fund II D32 v. Donahue illustrates that while Pennsylvania’s default rule limits warrants of attorney to a single exercise, parties may contractually waive that limitation. Clear, unambiguous language in a guaranty or loan agreement can expressly permit multiple confessions of judgment for the same debt, avoiding exhaustion of the warrant upon the first use.

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.