The Pennsylvania Superior Court recently relaxed the Pennsylvania Courts’ trend of scrupulously constraining the use of warrants of attorney, also known as “confession of judgment” clauses in non-consumer credit transactions. In Graystones Bank v. Grove Estates, LP., 2012 Pa.Super. 274 (2012), affirmed at 2013 Pa. LEXIS 2855 (Pa. 2013) a debtor made a Promissory Note in favor of the creditor, which contained a warrant of attorney. After some time, the debtor began to have trouble making payments under the Note. The creditor then required the debtor to establish an interest reserve and pledge additional real property as collateral, and to enter a “Change in Terms Agreement.” The Change in Terms Agreement did not itself include a warrant of attorney.
Following entry of a confessed judgment, the debtor filed a Petition to Strike and Open the judgment, claiming as grounds, inter alia, that the warrant did not bear a relationship to the debtor’s signature as it did not appear on the same page as the warrant. The debtor further argued that because the Change in Terms Agreement did not contain the warrant, a confession upon the Note and Change in Terms Agreement was void and should be stricken. The Superior Court cited the trial Court’s reasoning approvingly, affirming its conclusions of law as to these issues:
Nor was the complete absence of the cognovit from the Change of Terms Agreement fatal, the court continued, deeming the agreement nothing more than an extension of the original Promissory Note’s maturity date and not, as Appellants argued, a new, comprehensive agreement setting new burdens and benefits upon the parties. As such, the Change of Terms Agreement was distinguishable from a lease renewal, which must contain its own warrant of attorney under our jurisprudence given its status as a novation expressing all rights and responsibilities between the parties from a new start date to end date. In contrast, the Change of Terms Agreement changed only the maturity date and, given the limits of its scope, did not purport to relieve Appellants from the remaining conditions set forth in the original Promissory Note. The court, therefore, found no defect or irregularity with the absence of a warrant of attorney from the Change of Terms Agreement.
Graystones Bank, at 1280. Until the Superior Court decided Graystones Bank, earlier authorities applied a scrupulous test requiring that a debtor’s signature must “directly relate” to the warrant of attorney. A line of cases were read to provide that the debtor’s signature must appear on the same page as the warrant of attorney, and that where the original agreement has been amended, the warrant of attorney must be restated or specifically incorporated into the amendment. Graystones Bank has relaxed that requirement, holding that a signature need not necessarily appear on the same page as the warrant to “directly relate” to it. The Graystones Bank Court further held that where an agreement containing a warrant has been amended, the amendment need not restate the warrant or specifically incorporate the warrant if the amendment does not constitute a novation – in essence, if the amendment is a modification of the existing agreement but does not replace the parties’ respective rights and duties with a new agreement, the original warrant of attorney will stand and confession entered upon it will be valid. The Superior Court approvingly quoted the trial court, which distinguished extensions of leases (which have generally been considered new contracts requiring that the warrant of attorney be restated) from mere amendments in arriving at its holding. The best practice, however, is at the time of loan origination to continue the custom of having the debtor sign the warrant on the same page, as well as to restate the warrant of attorney in any amendment of a credit agreement in order to remove the prospect that a debtor would raise these defenses – which are fact and circumstance intensive – to the entry of a confessed judgment. Of note is that the opinion in Graystones Bank was penned by the Honorable Correale Stevens, then President Judge of the Superior Court, who was subsequently nominated to the Pennsylvania Supreme Court, which affirmed his opinion Per Curiam. The now Justice Stevens did not participate in the consideration or decision of the Graystones Bank case before the Pennsylvania Supreme Court.