Young v. Mayne Realty Co.

Liss, J., delivered the opinion of the Court. This case arises out of a demand promissory note dated December 1, 1976, executed by appellant, George R. Young, in favor of Mayne Realty Co., Inc. The note authorized entry of a judgment by confession. On April 16,1980, appellee sued appellant in the Circuit Court for Montgomery County. Its declaration was accompanied by the note, an affidavit by the president of the corporation, and an order to confess judgment.

On the day the case was docketed, judgment by confession was entered in favor of appellee in the amount of $40,410.80, representing principal, interest, attorney’s fees and court costs. Appellant filed a timely motion to vacate the judgment on the grounds that he had a meritorious defense to the action and that enforcement of the note was barred by the Statute of Limitations. Appellee filed an affidavit in opposition to the motion to vacate, alleging that appellant recently acknowledged the debt. Appellant then filed a reply affidavit in which he alleged: (1) that he never acknowledged the debt; (2) that appellant executed the note at the request of appellee; (3) that the appellee represented to the appellant that the execution of the note was for "bookkeeping purposes only”; and (4) that payment of the note would not be enforced. ⁶⁶⁴ A hearing was held and the trial judge denied appellant’s motion on the ground that the Statute of Limitations did not constitute a "meritorious defense” within the meaning of Maryland Rule 645.

It is from that judgment that this appeal was noted. Appellant raises two issues to be decided by this appeal: I. Did the lower court err in denying appellant’s motion to vacate a judgment that had been entered on a confessed judgment note on the ground that a defense based on the Statute of Limitations does not constitute a meritorious defense under Maryland Rule 645?

II

Did appellant’s affidavit set forth a meritorious defense? We shall consider the two issues together. I. and II. Rule 645 requires that a motion to vacate a confessed judgment shall be made on the ground that the defendant has a meritorious defense to the cause of action, and that in order to vacate such a judgment the evidence presented at the hearing must establish the existence of "substantial and sufficient grounds for an actual controversy as to the merits of the case.” Rule 645 d.

Both appellant and appellee, in their respective briefs, have become entangled in a struggle over semantics. Appellant argues that his burden of showing a "meritorious defense” 1 is satisfied by the showing of a "defense that has merit.” Appellee contends just as strenuously that a meritorious defense must be a "defense to the merits,” and therefore a plea of limitations is not a plea to the merits for it does not deny the plaintiff’s right of action, but only the exercise of the right. See Foos v. Steinberg, 247 Md. 35 , 230 A.2d 79 (1967). The question as to whether a defense based upon limitations constitutes a meritorious defense under Rule 645 and ⁶⁶⁵ could thereby serve as a ground to vacate a confessed judgment is, so far as we have been able to determine, a novel issue.

Maryland Code (1974, 1980 Repl. Vol.) Sec. 5-101 of the Courts & Judicial Proceedings Article provides that: A civil action at law shall be filed within three years from the date it accrues unless another provision of the Code provides a different period of time within which an action shall be commenced. Rule 645 d, which governs the procedure for vacating a confessed judgment, stipulates: d. Disposition of Application.

The motion shall be heard promptly by the court. If the evidence presented at the hearing establishes that there are substantial and sufficient grounds for an actual controversy as to the merits of the case, the court shall order the judgment by confession vacated, opened or modified with leave to the defendant to file a pleading and the case shall stand for trial. If the evidence does not establish that there are substantial and sufficient grounds for actual controversy as to the merits of the case, the judgment shall stand to the same extent as a judgment absolute entered after trial. The trial judge took no evidence from either of the parties and after hearing legal argument, he dismissed the motion to vacate the confessed judgment on the ground that the Statute of Limitations did not constitute a meritorious defense within the meaning of Rule 645.

We do not agree. The effect of the trial judge’s holding would be to deprive any defendant in a confessed judgment suit of the defense of limitations otherwise available to other debtors under Section 5-101 of the Courts Article. We perceive nothing in the statute which requires a holding that debts secured by cognovit notes are to be treated differently from other ⁶⁶⁶ indebtedness so far as the defense of limitations is concerned. The courts are required to enforce the Statute of Limitations as adopted by the Legislature and have no authority to create an unauthorized exception merely on the ground that such exception would be within the spirit or reason of the statute.

McMahan v. Dorchester Fertilizer Co., 184 Md. 155 , 40 A.2d 313 (1944). We conclude that a "meritorious defense” is not necessarily a defense to the merits of the transaction from which the note arose, but it is a defense that has merit. The case of Gelzer