Alger Petroleum, Inc. v. Spedalere

BISHOP, Judge. On February 24, 1989 a Confessed Judgment was entered by the Circuit Court for Baltimore County pursuant to the complaint of Margaret Spedalere, appellee, as the Personal Representative of the estate of Leonard E. Carnes. Alger Petroleum, Inc., Leola C. Brooks and Emmett H. Brooks, appellants, filed an Answer to the appellee’s complaint. Appellee filed a Motion to Strike the Answer which prompted appellants to file immediately a Motion to Vacate the Confessed Judgment.

After a hearing the Circuit Court for Baltimore County found that the Motion to Vacate was untimely and the Answer was insufficient to open the Confessed Judgment. The following is the chronology of the proceedings: February 24: Plaintiff files her Complaint for a Confessed Judgment against the Defendants. March 20: Defendants are served with a “Notice of Entry of Judgment by Confession” and with notice that a response must be filed within 30 days. April 6: Defendants file a timely Answer to the Complaint asserting defenses of fraud, illegality, and a general denial of liability. ⁶⁸ April 18: The thirtieth day after service on the Defendant.

April 27: Plaintiff files a Motion to Strike the Answer as not being in compliance with the form required by Maryland Rule 2-611. April 28: Defendants file a Motion to Vacate the Confessed Judgment in the form required by Maryland Rule 2-611. August 28: Hearing on Defendants’ Motion to Vacate Confessed Judgment. This timely appeal followed.

ISSUE The sole issue in this case is whether the trial court committed error by refusing to open the Confessed Judgment pursuant to the appellants’ Answer and Motion to Vacate. FACTS On November 24, 1987 Alger Petroleum, Inc. executed two promissory notes, each obligating it to pay the sum of $50,000.00 to Leonard E. Carnes, Jr. Pursuant to the first note, payments were to be made in equal semi-annual installments of $5,000.00, on January 1 and July 1 of each year, for a period of five years expiring on January 1,1993. 1 The second note required payment of the semi-annual $5,000.00 installments on April 1 and October 1 for a five year period expiring on April 1, 1993. 2 Both notes contained the same “Confession of Judgment” clause: 7. Confession of Judgment. Upon any default hereunder the Borrower authorizes any attorney admitted to practice before any court of record in the United States to appear on behalf of the Borrower in any such court in one ⁶⁹ or more proceedings, or before any clerk thereof and to confess judgment against the Borrower, without prior notice or opportunity for prior hearing, in favor of the holder of this Note in the full amount due on this Note (including principal and interest, and any and all penalties, fees and costs) plus attorney’s fees equal to five percent (5%) of the amount due.

The Borrower consents to the jurisdiction of and agrees that venue shall be proper in the Circuit Court of [sic] Baltimore City, Maryland. The Borrower waives the benefit of any and every statute, ordinance or rule of court which may be lawfully waived, conferring upon the Borrower any right or privilege of exemption, stay of execution or supplementary proceedings, or other relief from the enforcement or immediate enforcement of a judgment or related proceedings on a judgment. The authority and power to appear for and enter judgment against the Borrower shall not be exhausted by one or more exercises thereof, or by any imperfect exercise thereof, and shall not be extinguished by any judgment entered pursuant thereto. Such authority and power may be exercised on one or more occasions from time to time, in the same or different jurisdiction, as often as the holder shall deem necessary or advisable until all sums due under this Promissory Note have been paid in full.

In addition to these notes, appellants Leola C. Brooks and Emmett H. Brooks, Jr. executed an Unconditional Joint Guaranty Agreement whereby they agreed to be jointly liable for the above notes in the event that appellant Alger Petroleum, Inc. failed to make the agreed payments. This agreement contained a confessed judgment clause similar to those in the Notes except that in place of the 5% attorney’s fee this clause provided for 15%. Because appellants failed to make payments as promised and guaranteed, appellee 3 filed a Complaint, accompanied ⁷⁰ by the written instruments and affidavits. Judgment by Confession was entered against appellants in the then aggregate amount of $115,367.00.

On March 20, 1989 appellants were served with the Complaint and the supporting documents along with a Notice of Entry of Judgment by Confession which notified them that they had thirty (30) days within which to file a written motion to open, modify or vacate the judgment. On April 6, 1989 appellants filed the following pleading entitled “Answer of Alger Petroleum, Inc., Leola C. Brooks and Emmett H. Brooks, Jr.” Alger Petroleum, Inc., Leola C. Brooks and Emmett H. Brooks, Jr., Defendants, answer the Plaintiff's “Nar” and say: I The “Nar” fails to state a claim upon which relief can be granted. II Defendants generally deny liability under Counts One and Two. III Defendants assert that Margaret Spedalere is not fully authorized to sue in a representative capacity.

IV 1. Defendants assert the affirmative defense of collateral estoppel. 2. Defendants assert the affirmative defense of fraud. 3. Defendants assert the affirmative defense of illegality. ⁷¹ 4.

Defendants assert the affirmative defense of payment. Appellants then requested a jury trial. On the same day appellants sent a letter to appellee’s counsel which specified the details of the facts supporting the affirmative defenses alleged in the Answer. Appellee waited for the thirty (30) days to expire and on April 27, 1989 filed a Motion to Strike the Answer for noncompliance with the Rules. 4 On April 28, 1989 appellants responded by filing a Motion to Vacate Confessed Judgment, pursuant to Md.Rule 2-611, to which was attached a copy of the letter of April 6, 1989.

Appellants requested a hearing on the motion. At the hearing, appellants argued that the Answer ought to be treated as a Motion to Vacate, that the court had discretion to consider appellants’ motion to vacate filed after the thirty (30) day period expired and that the court may exercise its revisory power to open the Confessed Judgment and order a trial. The court determined that the Answer “certainly doesn’t qualitatively rise to the level of a motion to vacate” and denied the motion. The trial court also refused to consider appellants’ untimely motion to vacate and the letter attached to it as an exhibit and chose not to exercise its discretion to revise the judgment.

DISCUSSION Appellants argue that the trial court erred by refusing to vacate the Confessed Judgment and that the case should be ⁷² remanded for a trial on the merits. In support of this argument they aver that Md.Rule l-201(a) 5 requires the trial judge to view the Answer under the totality of the circumstances, but, in this case the trial judge did not inquire beyond matters of form. Further, appellants contend that because the facts in this case are evidence of substantial compliance with Md.Rule 2-611, and because the appellee was not prejudiced by the alleged noncompliance, the court should have stricken the judgment and permitted trial on the merits; especially since there was the proffer of a meritorious defense. Appellee responds that the Rule mandates a thirty (30) day period within which to file a motion to vacate.

She asserts that nothing is relevant if filed after that period expires. Next, appellee contends that the Answer is insufficient in form and substance to open or vacate a Confessed Judgment. Finally, appellee posits that prejudice is not a relevant inquiry pursuant to Maryland law. The pertinent provisions of Md.Rule 2-611 are as follows: Rule 2-611.

CONFESSED JUDGMENT (a) Entry of Judgment. — Judgment by confession shall be entered by the clerk upon the filing of a complaint, the original or a photocopy of the written instrument authorizing the confession of judgment for a liquidated amount, and an affidavit specifying the amount due and stating the address of the defendant or that the whereabouts of the defendant are unknown to the plaintiff. ⁷³ (c) Motion by Defendant. — The defendant may move to open, modify, or vacate the judgment within the time prescribed for answering by sections (a) and (b) of Rule 2-321. The motion shall state the legal and factual basis for the defense to the claim. (d) Disposition of Motion. — If the court finds that there is a substantial and sufficient basis for an actual controversy as to the merits of the action, the court shall order the judgment by confession opened, modified, or vacated and permit the defendant to file a responsive pleading. (Emphasis supplied.) The history of confessed judgments is easily tracked in the cases of the Court of Appeals.

In Tyrrell v. Hilton, 92 Md. 176, 186-87 , 48 A. 55 (1901) the Court stated: under the provisions of sec. 6, Art. 26 of the Code,[ 6 ] ...: “The clerk of any Court in this State may, during the recess of said Court, enter a judgment by confession, with the assent of the parties or attorneys, in writing, which shall be filed with the titling, narr., cause of action, and other papers, in the case in which said judgment was entered; and a judgment so entered shall, from the date of the entry of the same by the clerk, have the same effect as if entered during the session of the Court.” This is a very plain and simple act, the outgrowth and development of the constant tendency of law, to simplify procedure, both in pleading and practice. The ancient common law required the parties to be present and prosecute, or defend, in person. Special authority from the Crown was originally necessary to enable parties to appear by attorney, though subsequent statutes recognized a right so to appear; but this right was a mere privilege, for the convenience of the suitors, and did not exclude the right to sue or defend in person. At common law, attorneys were either orally appointed in Court, or by warrant out of Court, and the practice ⁷⁴ required the warrant to be filed in Court, but in this State the practice has never required a warrant of attorney to authorize the appearance of a defendant by attorney.

The Court continued: Sec. 6, of Art. 26 of the Code of 1888, provided that any Judge, in the recess of his Court, may order his clerk to enter a judgment by confession, with the assent of the parties, or their attorneys in writing, which shall be filed with the order of the Judge. The Act of 1890, ch. 411, repealed this section and re-enacted it as it appears in Poe’s Supplement as hereinbefore set forth. Under this Act, the order, as well as the presence of the Judge is dispensed with, and full authority is given the clerk to enter judgment upon compliance by the parties with the requirements of the Act. Tyrrell, supra at 187 , 48 A. 55 .

It is the absence of trial procedure which has prompted the Court of Appeals to recognize the disfavored status of confessed judgments by holding that such judgments are “freely stricken out on motion to let in defenses.” Phillips v. Taylor, 148 Md. 157, 163 , 129 A. 18 (1925); see also Billingsley v. Lincoln National Bank, 271 Md. 683, 689 , 320 A.2d 34 (1974); Katski v. Boehm, 249 Md. 568, 583 , 241 A.2d 129 (1968); Plitt v. McMillan, 235 Md. 349, 353 , 201 A.2d 787 (1964); Cropper v. Graves, 216 Md. 229, 234 , 139 A.2d 721 (1958) (All recognizing that it is necessary in order to do justice that courts should liberally exercise their jurisdiction over confessed judgments and, upon application showing prima facie defenses, vacate the judgment to permit trial on the merits). In addition the Court has held that: Such statutes ... being in derogation of the common law practice, must be strictly construed, but not with such strictness as to make them inoperative, or to defeat the manifest intention of the parties to the instrument authorizing the confession. This rule, like all others, has its reasonable limitations____ ⁷⁵ Tyrrell v. Hilton, supra, 92 Md. at 188 , 48 A. 55 . Such statutes remained in effect until the General Rules of Practice and Procedure were adopted: The General Rules of Practice and Procedure were adopted by this Court, effective September 1st, 1941, and a rule applicable to judgments by confession was then adopted. [G.R.P.P. Pt.

Three, II, Rule la-h] ... No change has been made in ... that rule since that time and is contained [first in Rule 735 and then] in Rule 645, of the Maryland Rules of Procedure, effective January 1, 1957. Remsburg v. Baker, 212 Md. 465, 468 , 129 A.2d 687 (1957). These General Rules of Practice and Procedure first prescribed a thirty (30) day period within which the judgment debtor needed to make a showing of meritorious defenses necessitating opening, vacating or modifying the judgment.

Commenting on this new development the Court held: This rule requiring a defendant to be summoned and show cause within thirty days from service upon him of a nisi order why the judgment should be vacated, opened, or modified, did not change the existing practice in such cases. It provided a means to inform the judgment debtor of the judgment, and afforded him an opportunity to move that it be vacated, opened, or modified. He should file a motion under oath, setting out fully all the facts and circumstances tending to show that the judgment should be stricken out, with a prayer that the judgment be reopened and that he be permitted to file pleas and try the case before a jury. Upon proper proof, the court will so order.

Foland v. Hoffman, 186 Md. 423, 431 , 47 A.2d 62 (1946). See also Remsburg v. Baker, supra 212 Md. at 468 , 129 A.2d 687 . This articulated purpose has remained constant and is embodied within Rule 2-611, infra. The attributes of a confessed judgment were best described by the Court in Keiner v. Commerce Trust Co., 154 Md. 366, 370 , 141 A. 121 (1927): ⁷⁶ A judgment by confession possesses all the incidents, is supported by the same presumptions, and is entitled to the same faith and credit, as any other judgment (Freeman on Judgments, par. 1337), and that is so whether the confession is by the defendant in person or by another with his consent.

Ibid. But while that is true, the widespread and general practice of embodying, in promissory notes, warrants of attorney authorizing a confession of judgment for the amount thereof, together with counsel fees, lends itself too readily to fraud and abuse, and in this state at least such judgments “are freely stricken out on motion to let in defenses.” Phillips v. Taylor, 148 Md. [157] 162 [ 129 A. 18 (1925)]. And although such a motion “must be supported by satisfactory proof of conditions which make such action necessary to serve the ends of justice” (Wisner v. Reeside, 139 Md. [221] 223 [ 114 A. 911 (1921)]), the court in dealing with it “should be very careful to see that no improper advantage has been taken of the maker of such note in entering judgment.” International Harvester Co. v. Neuhauser, 128 Md. [173] 181 [ 97 A. 372 (1916)]. It is against this background that we analyze appellants’ response to the entry of the Confessed Judgment in the case sub judice.

Appellants filed a pleading in the form of an Answer within thirty (30) days of their receipt of Notice of Entry of Judgment by Confession. After the thirty (30) day period expired, appellants filed a Motion to Vacate the Judgment by Confession accompanied by a copy of a letter that they mailed to appellee's counsel within the thirty (30) day period. At the hearing the trial court refused to consider the latter motion since it was not filed within the thirty (30) days. Appellants argue in their Reply Brief that Goldstein v. Peninsula Bank, 41 Md.App. 224 , 396 A.2d 542 (1979) supports the conclusion that their untimely motion to vacate should have been considered as an amendment to their timely but deficient Answer.

In that case, Goldstein properly filed a motion to strike out a confessed judgment ⁷⁷ entered against him within the thirty (30) day period of former Rule 645. The Bank responded with a motion ne recipiatur alleging Goldstein’s motion failed to set forth fully the facts supporting his defense and failed to cite the points and authorities. The trial court granted the Bank’s motion and refused to vacate the confessed judgment. We reversed, noting that Goldstein had alleged facts in his motion but that certain facts solely within the knowledge of the Bank were omitted.

The record revealed that Gold-stein’s attempts at discovery were delayed by the Bank, which obtained two extensions of the time to answer Gold-stein’s interrogatories, until after the hearing. We noted the inequity of, on the one hand, requiring Goldstein to plead facts not within his knowledge, and on the other hand, denying him discovery of those facts. We held that: ... [T]his ruling was error in the light of the