First Mut. Corp. v. Grammercy & Maine, Inc.

• Decision Date: 17 September 1980
• Citation: 176 N.J.Super. 428,423 A.2d 680
• Court: New Jersey Superior Court
• Parties: FIRST MUTUAL CORP., a New Jersey corporation, Plaintiff, v. GRAMMERCY & MAINE, INC. et als., Defendants, and FIRST NATIONAL FIDELITY CORPORATION, a New Jersey corporation, Plaintiff, v. N.B.J.T., INC. et als., Defendants.

Page 428

176 N.J.Super. 428

423 A.2d 680

FIRST MUTUAL CORP., a New Jersey corporation, Plaintiff, v. GRAMMERCY & MAINE, INC. et als., Defendants, and FIRST NATIONAL FIDELITY CORPORATION, a New Jersey

corporation, Plaintiff, v. N.B.J.T., INC. et als., Defendants.

Superior Court of New Jersey, Law Division Atlantic County.

Decided Sept. 17, 1980.

Paul S. Slotkin, Cherry Hill, for plaintiffs.

Edwin J. Jacobs, Jr., Atlantic City, for defendants N.B.J.T., Inc., Grammercy & Maine, Inc., Pacific Properties, Michael Land and Gail M. Land, his wife, Stuart B. Finifter and Lois H. Finifter, his wife (Tort, Jacobs, Gross, Rosenberger & Todd, Atlantic City, attorneys).

Kenneth B. Mackler, Atlantic City, for defendants Marvin A. Roth and Nancy Roth, his wife.

HAINES, J. S. C.

Plaintiff lending institutions, First Mutual Corp. and First National Fidelity Corporation, seek entry of judgments by confession on two promissory notes made by defendant corporations Grammercy & Maine, Inc. and N.B.J.T., Inc., one for $100,000 and the other for $180,000. Both notes are in default. They were to have been paid in six months, with interest at the rate of 30% annually. They were guaranteed by the individual defendants and further secured by first mortgages on the real properties owned by the two corporations, second mortgages on properties of a partnership known as Pacific Properties (composed of three of the individual guarantors), a seventh mortgage on a residence owned by defendants Land and a sixth mortgage on the residence of defendants Finifter. Defendants Michael Land and Stuart B. Finifter are attorneys-at-law practicing as partners in Atlantic City, New Jersey. Defendant Marvin Roth is a medical doctor practicing in that community. The monies were borrowed by them as part of their plan to acquire a number of adjoining properties in Atlantic City as a casino site.

At the time of the settlement on the two loans plaintiffs collected a 10% "loan discount fee" and Central National Fund, a mortgage broker, collected 5% for "consulting services and acquisition of financing." Thus, the net proceeds of the $180,000 loan received by the borrowers were $153,000 and the net proceeds received by them from the $100,000 loan were $85,000. The actual cost of these loans when these fees are added to interest ($27,000 on the first loan and $15,000 on the second) was $54,000 and $30,000, respectively. Consequently, each loan cost the borrowers 30% of the gross proceeds and 35.2% of the net proceeds, which translates to annual rates of 60% and 70.4%.

Plaintiffs move for the entry of judgment by confession. They have been procedurally meticulous in following the requirements of R. 4:45-2, the rule which sets forth the procedure for the confession of judgments. All defendants were notified of the motion and the required documents, and affidavits stating the amount due plaintiffs were presented on the return day. The motion was resisted by all defendants. They claimed to have defenses which would deny plaintiffs the right to enforce the notes. These defenses are that (1) the loans violated the Secondary Mortgage Loan Act, N.J.S.A. 17:11A, and under § 58 of that act are unenforceable; (2) the loans were illegal and unenforceable; (3) usury; (4) the mortgages must be foreclosed, pursuant to N.J.S.A. 2A:50-2, before any action may be brought on the notes for a deficiency, and (5) the confession of judgment provision in the notes is not enforceable by reason of N.J.S.A. 2A:16-9 and R. 4:45-1, both of which prohibit the entry of judgment by confession when the warrant of attorney is included in the body of the note. Plaintiffs deny defendants' right to raise these defenses in response to the motion, arguing that they have an absolute right to the entry of judgment by confession unless there is a showing of fraud, a claim not raised by defendants. It is plaintiffs' position that defenses may be asserted only after judgment is entered, by an application to open the judgment in accordance with R. 4:50. Should the motion be allowed?

A. The Confession of Judgment Rule and its interpretation

R. 4:45-2 provides in full as follows:

No judgment shall be entered on warrant of attorney in any action on a bond or other instrument for the payment of money, except on motion after notice to the defendant served in lieu of summons in accordance with R. 4:4-4 or by registered or certified mail. On the return day of the motion, the attorney at law, confessing judgment pursuant to the warrant, shall produce to the court his warrant therefor, the bond or instrument, and the affidavit of the plaintiff, his attorney or agent, to which is attached a copy of the warrant and instrument, stating the true consideration for the liability stated in the instrument, the amount then justly due the plaintiff, and that the judgment is not confessed with a fraudulent intent or to protect the property of the defendant from his creditors. The court may require additional proof in such form as it directs that the warrant was duly executed, the person liable is living and was notified of the application, and the debt or a part thereof is unsatisfied. The court shall then, if satisfied with the proofs, order entry of a judgment for such amount as it finds to be due.

Plaintiffs read this rule as limiting the court's inquiry to questions of fraud, the due execution of the warrant, the adequacy of notice and the existence of the debt. I am of the opinion that it is not to be read so restrictively.

The interpretation of the rule should be undertaken in its historical setting. The practice of entering judgments by confession without notice, has produced much criticism. The Comment to R. 4:45-2 says in part:

The practice of ex parte entry of judgment by confession has been in disrepute in this State for almost 150 years. See Ledden v. Ehnes, 22 N.J. 501, 509-510, 126 A.2d 633 (1965). Its unacceptability as a fundamentally unfair and oppressive mechanism is patent. While the revised rule does not wholly eliminate judgments by confession, it does eliminate their most objectionable feature by requiring notice to be given to the defendant before entry of judgment.

In Alderman ads. Diament, 7 N.J.L. 197 (Sup.Ct.1824), the court, addressing a judgment entered by confession, said:

... I think that these judgments entered upon bonds and warrants of attorneys should, upon proper application, be very readily and widely opened, for the method in which they are entered is the loosest way of binding a man's property that ever was devised in any civilized country. (at 198)

In Friendly Consumer Discount Co. v. Foell, 39 N.J.Super. 410, 422, 121 A.2d 434 (App.Div.1956), the court said: "Warrants to enter judgment though they are devices of the common law ... are to be regarded strictly; for through a warrant the debtor seeking a loan bargains away a very precious right, his right to a day in court."

The cases which have dealt with confession of judgment problems in this State have always dealt with a fait accompli : the judgment has been entered and the courts have been asked to set it aside. Considerable liberality has been exercised in this direction. In Ehnes v. King, 41 N.J.Super. 429, 432, 125 A.2d 349 (App.Div.1956), the court said: "A judgment by bond and warrant of attorney entered without the institution of suit and an opportunity of making a defense may be reopened at any time for proper cause ... Our courts have always exercised the power on equitable grounds to reopen such judgments." Hickory Grill v. Admiral Trading Corp., 14 N.J.Super. 1, 81 A.2d 187 (App.Div.1951), is to the same effect. No case has been found in this jurisdiction addressing the question of whether the entry of a judgment by confession may be denied when substantive defenses are asserted at the time of the application for judgment. This is understandable, since notice of such application was not required under our rules until the recent amendment of R. 4:45-2.

A cardinal rule with respect to the conduct of lawsuits in New Jersey is that they shall be prosecuted as straightforwardly and efficiently as possible. Formalities in pleadings are not of significance. Needless and circuitous procedures are to be avoided scrupulously. Not only the spirit of our rules, but their express provisions require the elimination of unnecessary procedural steps. Thus. R. 1:1-2 provides that: "The Rules in Part I through Part VIII, inclusive, shall be construed to secure a just determination, simplicity in procedure, fairness in administration and the elimination of unjustifiable expense and delay." Plaintiffs' argument that judgment by confession should be entered, then challenged, flaunts these requirements. There is no profit to anyone in a procedure which requires the entry of judgment, its opening under rules requiring the liberal exercise of discretion to open, Marder v. Realty Construction Co., 84 N.J.Super. 313, 319, 202 A.2d 175 (App.Div.1964), aff'd 43 N.J. 508, 205 A.2d 744 (1964) ("every reasonable ground for indulgence is tolerated"), and then a plenary hearing. Both fairness and efficiency are served by a procedure which permits the exhaustion of valid defenses before judgment is entered. It is reasonable to conclude, therefore, that, if the judgments requested by plaintiffs to be entered in this matter would be subject to reopening on application of defendants, they should not be entered until defenses have been explored and ruled upon in a plenary hearing.

The language of R. 4:45-2 supports this conclusion. It requires that motions to confess judgment be supported by an affidavit "... stating the true consideration for the liability stated in the instrument, the amount then justly due the plaintiff, and that the judgment is not confessed with a fraudulent intent ..." In addition, it permits the court to require additional proof that "the warrant was duly executed ... and the debt or a part thereof is...