United Pac. Ins. Co. v. Lamanna's Estate

• Citation: 436 A.2d 965,181 N.J.Super. 149
• Parties: UNITED PACIFIC INSURANCE COMPANY, Plaintiff, v. ESTATE OF Angelo LAMANNA, deceased and Rose Lamanna, Defendants.
• Decision Date: 01 May 1981
• Court: Superior Court of New Jersey

Page 149

181 N.J.Super. 149

436 A.2d 965

UNITED PACIFIC INSURANCE COMPANY, Plaintiff, v. ESTATE OF Angelo LAMANNA, deceased and Rose Lamanna, Defendants.

Superior Court of New Jersey, Law Division,

Atlantic County.

Decided May 1, 1981.

Gary J. Lesneski, Haddonfield, for plaintiff (Archer Greiner & Read, Haddonfield, attorneys).

Louis J. Greco, Hammonton, for defendants (Donio & Greco, Hammonton, attorneys).

HAINES, J. S. C.

The United States Constitution, Art. IV, § 1, provides in part that

Full Faith and Credit shall be given in each State to the Public Acts, Capital Records, and Judicial Proceedings of every other State.

Plaintiff United Pacific Insurance Company entered a judgment by confession in Pennsylvania against Angelo Lamanna, who is now deceased, and his wife Rose, in the amount of $30,000. The present suit is based upon that judgment and seeks the entry of a like judgment in New Jersey, with interest.

Plaintiff, acting as surety, executed certain performance bonds in connection with Pennsylvania construction projects, requiring, however, as a condition precedent to its execution of these bonds, the delivery of an indemnity agreement, signed by the Lamannas and others, as security for its undertaking. The required agreement was signed and delivered by the Lamannas. It contained the following provision for the confession of judgment:

... That if Surety shall be required or shall deem it necessary to set up a reserve in any amount to cover any claim, demand, liability, expense (etc.) ... to immediately upon demand deposit with Surety an amount of money sufficient to cover such reserve and any increase thereof ... and the undersigned, in the event of their failure to comply with such demand, hereby authorize and empower any attorney of any court of record of the United States or any of its territories or possessions, to appear for them or any of them in any suit by Surety and to confess judgment against them or any of them for any sum or sums of money up to the amount of any or all bond or bonds, with costs, interest and reasonable attorneys fees, such judgment, however, to be satisfied upon the payment of any and all such sums as may be found due by the undersigned to Surety under the terms of this Agreement. Demand shall be sufficient if sent by registered or certified mail to the undersigned at the address or addresses given herein or last known to Surety, whether or not actually received.

In March 1976 plaintiff established a $250,000 loss reserve on one of the bonds and sent a written demand to the Lamannas among others, requesting the deposit of an amount sufficient to cover the reserve and any increase thereof. The demand was not honored and United Pacific confessed judgment against the Lamannas in the Court of Common Pleas of Philadelphia County, Commonwealth of Pennsylvania, on December 20, 1976 in the amount of $30,000. The judgment has not been paid.

Cross-motions for summary judgment have been filed. The central facts as to many issues are not in dispute and may be disposed of as questions of law. Judson v. Peoples Bank & Trust Co. of Westfield, 17 N.J. 67, 110 A.2d 24 (1954).

I. The Pennsylvania Proceedings

On December 20, 1976 Pennsylvania counsel for United Pacific filed a complaint for confession of judgment in the Court of Common Pleas of Philadelphia County, Pennsylvania, pursuant to Pennsylvania Rule of Civil Procedure 2951(b), and judgment was thereby entered against the Lamannas. On the same date the Pennsylvania prothonotary sent notice of the entry of judgment to the Lamannas, pursuant to Pennsylvania Rule 236. Rose Lamanna denies receipt of the notice. Her husband, Angelo Lamanna, died on February 23, 1977. On August 5, 1977 United Pacific's Pennsylvania counsel wrote to the Lamannas regarding their liability. The letter said, in part: "As you know, judgment has been entered against you in the amount of your liability on the indemnity agreement which you signed ...." Additional letters containing similar references to the judgment were sent to the Lamannas on October 21, 1977 and December 22, 1977. Counsel spoke to Rose Lamanna by telephone in December 1977; she acknowledged receiving the correspondence and said she had ignored the letters on the advice of her son. Pennsylvania Rule 2959 permits a defendant against whom a judgment by confession has been entered to obtain relief therefrom by petition. It does not fix a time limit within which such petition must be filed. The Lamannas have never applied for relief under this rule.

This suit was commenced by United Pacific on April 4, 1978. Defendants, for the first time, claim that the Pennsylvania judgment is not entitled to full faith and credit. Angelo Lamanna is said to have died without assets. The motion for summary judgment, while made on behalf of his estate and Rose Lamanna, is supported by an affidavit setting forth facts concerning her alone. She contends that she never received notice from United Pacific demanding money pursuant to the indemnification agreement. While not denying that she signed the agreement, she says it was not signed in Pennsylvania. Finally, she states that the contents of the indemnity agreement were never explained to her, that she was not advised that it contained a confession of judgment clause and that the nature and effect of that clause was not disclosed to her. These facts are accepted as true for the purpose of this decision. It appears from other proofs that the indemnity agreement was mailed to the Lamannas, signed and returned by them to a Pennsylvania notary public who completed the acknowledgement. The acknowledgement, signed by the notary, says that "before me personally appeared Angelo Lamanna and Rose Lamanna ... who executed the foregoing agreement and acknowledged that they executed the same for the purposes, consideration and uses therein set forth as their free and voluntary act and deed." This was not true.

II. The Full Faith and Credit Clause

New Jersey courts have long recognized foreign judgments by confession and have held that they are entitled to full faith and credit. Hazel v. Jacobs, 78 N.J.L. 459, 75 A. 903 (E&A 1910). In Gotham Credit Corporation v. Powell, 22 N.J.Misc. 301, 38 A.2d 700 (Dist.Ct. 1944), a judgment by confession was given full faith and credit although the warrant upon which the judgment was entered did not comply with New Jersey requirements. See, also, Rollenhagen v. Stevenson, 23 N.J.Misc. 219, 43 A.2d 173 (Sup.Ct. 1945). Judgments by confession are permitted in New Jersey, R. 4:45, although they will not be enforced unless there is strict compliance with all required procedures. Friendly Consumer Discount Co. v Foell, 39 N.J.Super. 410, 121 A.2d 434 (App.Div. 1956). No public policy denies recognition to a foreign judgment by confession. In Zelek v. Brosseau, 47 N.J.Super. 521, 136 A.2d 416 (App.Div. 1957), aff'd 26 N.J. 501, 141 A.2d 17 (1958), the Appellate Division said:

There may be exceptional cases where the full faith and credit clause does not require that recognition be given a judgment of a sister state which is in violation of the laws and policy of the forum, but, it has been said, there are no exceptions in the case of a money judgment rendered in a civil action by the Courts of another state. (at 523, 136 A.2d 416)

This general rule of deference is modified by two decisions of the United States Supreme Court: Overmyer Co. v. Frick Co., 405 U.S. 174, 92 S.Ct. 775, 31 L.Ed.2d 124 (1972), and Swarb v. Lennox, 405 U.S. 191, 92 S.Ct. 767, 31 L.Ed.2d 138 (1972). Overmyer dealt with an Ohio judgment entered on a cognovit note, i.e., a note containing a clause which permitted entry of judgment by confession. The Supreme Court held that "a cognovit clause is not, per se, violative of the Fourteenth Amendment due process." 405 U.S. at 187, 92 S.Ct. at 783. It decided that due process requirements of reasonable notice and opportunity to be heard could be waived and were waived by Overmyer. That conclusion was reached because the judgment debtor was a corporation, represented by counsel, aware of the significance of the note and of the cognovit provision for which it received consideration. It was found that Overmyer signed the note in an arms-length transaction, knowingly and voluntarily agreeing to the procedure for confession of judgment. The court, said, however, that

Our holding, of course, is not controlling precedent for other facts of other cases. For example, where the contract is one of adhesion, where there is great disparity in bargaining power and where the debtor receives nothing for the cognovit provision, other legal consequences may ensue. (at 188, 92 S.Ct. at 783)

The court commented upon the fact that the judgment debtor could apply to the Ohio court to vacate the judgment provided it showed that it had a valid defense. Justice Douglas, concurring, noted that a confessed judgment in Ohio must be vacated if the debtor's claimed defense was sufficient to raise a jury question.

In Swarb, a class action and a companion case to Overmyer, a three-judge District Court held that the Pennsylvania confession of judgment system complies with due process standards only when it is shown in a given case that "there has been an understanding and voluntary consent of the debtor in signing the document." 314 F.Supp. at 1091. Absent such consent, the procedure violates due process requirements of notice and opportunity to be heard. The court also decided that natural persons residing in Pennsylvania, who signed consumer financing contracts and leases containing cognovit provisions need show only that their incomes were under $10,000 annually to prove that they did not intentionally waive known rights when they executed confession of judgment clauses. The District Court said:

The evidence indicates that the debtors did not fully understand the rights which they were relinquishing by signing these notes, that is,...