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June 1, 1970

Nellie SWARB et al.
William M. LENNOX et al.

Per Curiam

Sur Pleadings and Proof

This action, requesting that the court declare the Acts of April 14, 1834, P.L. 333, § 77, 17 P.S. § 1482 (III); February 24, 1806, P.L. 334, 4 Sm. L. 270, § 28, 12 P.S. § 739; and March 21, 1806, P.L. 558, 4 Sm. L. 326, § 8, 12 P.S. § 738, and Pennsylvania Rules of Civil Procedure 2950 to 2976 and any operations thereunder to be unconstitutional and invalid, is now before the court after final hearing on application for a permanent injunction *fn1" restraining the defendant Sheriff of Philadelphia County and the defendant Prothonotary of the courts of that County from recording and executing upon any judgments by confession. On December 23, 1969, the assigned District Judge entered a temporary restraining order, staying the execution of judgments against the named plaintiffs (Document 4). This order was extended and amplified after the convening of the three-judge court by order dated January 12, 1970 (Document 6). *fn2" Amendments were made to the complaint and additional parties were added as intervenors as follows: *fn3"

A. Octavius Green was dismissed as plaintiff (Document 35).


B. The Middle Atlantic Finance Corporation, Oxford Finance Companies, Inc., Valiant Finance Company, Friendly Consumer Discount Company, Fidelity Consumer Discount Company, Major Acceptance Corp., Carver Loan & Investment Co., Inc., Abbott Finance Company, Cardinal Consumer Discount Co., Western Finance Company, Peoples Consumer Discount Co., Scott Consumer Discount Co., Central Consumer Discount Co., Nu Way Finance Co., and Mid-Penn Consumer Discount Co. were allowed to intervene as parties defendant (order of February 3, 1970 -- Document 41).

 The Pennsylvania procedure challenged in this suit permits a debtor to sign an agreement containing a clause authorizing the Prothonotary, court clerk, or any attorney to appear in any court, at any time, to confess judgment against the debtor for any unpaid portion of the debt along with various fees and charges. (See footnote 14 below.) The burdens of establishing a defense imposed upon a defaulting debtor who has signed a contract containing a confession of judgment clause and against whom judgment has been entered are greater than those faced by the typical debtor. The judgment entered as a result of a confession clause has the same force and effect as any other judgment, *fn4" i.e., it acts as a lien upon the debtor's presently owned property and on after acquired property if the judgment is revived in the case of real property or is executed upon in the case of personal property. After learning that a judgment has been entered against him, the debtor has two modes of relief. The first available remedy is a petition to strike the judgment. This petition is available only in those cases where irregularities constituting fatal defects are apparent on the face of the record. *fn5" The other available remedy is the petition to open judgment. *fn6" The most striking feature of this latter petition is that the burden of proof is placed upon the debtor who is considered the proponent of a claim and who must convince the court of the need for equitable relief. *fn7" See Ahrens v. Goldstein, 376 Pa. 114, 102 A. 2d 164 (1954); Lukac v. Morris, 108 Pa. Super. 453, 164 A. 834 (1933). The placing of this burden upon the debtor is in direct contrast to the burdens in a normal or pre-judgment creditor-debtor action. In those cases instituted by a creditor against a debtor, the creditor is considered the proponent of a claim and the burdens are his.

 In seeking to open a judgment, the debtor must proceed on depositions. Pa. R. Civ. P. 209. See Kine v. Forman, 404 Pa. 301, 172 A. 2d 164 (1961). These depositions provide the only basis upon which the assigned judge decides the case. Besides the burden and expense necessitated by the preparation of these transcripts, the debtor will also require the services of an attorney. Another item of expense necessitated by this petition is the Sheriff's costs incurred for the staying of the Sheriff's sale.

 The Pennsylvania Supreme Court has described this procedure as follows in Cutler Corp. v. Latshaw, 374 Pa. 1, 97 A. 2d 234, 236 (1953): *fn8"


"A warrant of attorney authorizing judgment is perhaps the most powerful and drastic document known to civil law. The signer deprives himself of every defense and every delay of execution, he waives exemption of personal property from levy and sale under the exemption laws, he places his cause in the hands of a hostile defender. * * * For that reason the law jealously insists on proof that this helplessness and impoverishment was voluntarily accepted and consciously assumed." *fn9"

 Judgments and executions entered in accordance with the above procedure comply with the due process of law clause of the Fourteenth Amendment provided that there has been an understanding and voluntary consent of the debtor in signing the document containing the confession of judgment clause. See National Equipment Rental, Ltd. v. Szukhent, 375 U.S. 311, 316, 84 S. Ct. 411, 11 L. Ed. 2d 354 (1964); American Surety Co. v. Baldwin, 287 U.S. 156, 168-169, 53 S. Ct. 98, 77 L. Ed. 231 (1932). However, if there has not been such an understanding consent, the above-described Pennsylvania procedure violates the due process requirements of notice and an opportunity to be heard prior to the entry of judgment. Sniadach v. Family Finance Corp., 395 U.S. 337, 339-340, 89 S. Ct. 1820, 23 L. Ed. 2d 349 (1969); *fn10" Armstrong v. Manzo, 380 U.S. 545, 550, 85 S. Ct. 1187, 14 L. Ed. 2d 62 (1965); Mullane v. Central Hanover Tr. Co., 339 U.S. 306, 313-315 and 318, 70 S. Ct. 652, 94 L. Ed. 865 (1950); Coe v. Armour Fertilizer Works, 237 U.S. 413, 422-426, 35 S. Ct. 625, 59 L. Ed. 1027 (1915); cf. Goldberg v. Kelly, 397 U.S. 254, 90 S. Ct. 1011, 25 L. Ed. 2d 287. The evidence must be examined to determine whether understanding consent to this Pennsylvania procedure is present in the execution of the documents containing such clauses by members of the class on whose behalf this suit is brought.

 The record made at the hearing in February 1970 *fn11" included a stipulation specifying that the named plaintiffs would testify to one or more of the following facts if called:


(1) That the first notice which they received of any action being taken against them on a judgment entered before January 1, 1970, was the notice that a Sheriff's sale was being scheduled upon their real or personal property.


(2) That when they contacted the judgment plaintiff or his counsel to try to arrange to prevent the scheduled execution of a writ upon the confessed judgment, they were told that the original debt had become enlarged by penalties, execution costs, and fees for the judgment plaintiff's attorneys in the liquidated amount of fifteen to twenty per cent. of the alleged debt remaining.

 This stipulation contains approximately 2 1/2 legal-size pages of confessed judgments entered against 47 named plaintiffs. *fn12" These judgments vary in amount from $249.23 to $25,800.00. The stipulation also recites that writs have been delivered to the Philadelphia Sheriff upon many of these judgments for the purpose of having execution on such judgments and that "notices received by Plaintiff debtors after judgment has been entered contain no explanation of the procedures to be followed in order to stay a sale or set aside judgment." The stipulation also recites:


"E. That debtors who wish to attack the validity or correctness of a judgment confessed against them are able to do so only by filing a petition to open or strike.


"F. That debtors who must stay a sheriff's sale during the pendency of their petitions must pay whatever sheriff's costs have accrued before the stay will be made effective.


"G. The Philadelphia Bar Association Minimum Fee Schedule provides for attorney's fees of $150 for the filing of a petition to open.


"H. That where transcripts of depositions must be prepared for the Court, they must be transcribed at a cost to the petitioner of $1.00 per page.


"I. That the remaining unpaid portion of debtors' obligations are increased by a 15-20% attorney's fee in those cases in which execution is filed. *fn13"


* * *


"K. That in 1968, Defendant Burke, Prothonotary of the Court of Common Pleas of Philadelphia recorded 52,601 judgments by confession, which number was over 50% of all actions docketed by his office during the year.


* * *


"M. That the lien created by the entry of a judgment by confession is not divested by the granting of a petition to open judgment but only after the petitioner has been successful in defending on the merits."

  The evidence in the record indicating that the named plaintiffs did not knowingly consent to the entry of the judgments against them or to the execution of such judgments consists of the following:


A. The testimony of Doris Mims, who lived in a home held in her name as trustee for her son and earned approximately $6100. per year, after reading a confession of judgment clause contained in a note which she had signed previously (N.T. 47-48), *fn14" that she could not understand its meaning and could not explain it to the court (N.T. 48).


B. The testimony of Mr. Thomas Veney, a detective with the Consumers Fraud Division of the District Attorney's office, that 95% of the notes brought to him by those complaining of fraud contained confession of judgment clauses which were not understood by the persons signing such notes. He was asked to explain what procedures he followed after receiving a complaint in his office. He testified that he reviewed the loan papers and explained the meaning of each of the clauses. Upon explaining the meaning of the confession of judgment clause, in almost every case (N.T. 88), the debtor expressed disbelief and shock at both the existence of the clause and its legal meaning.


C. A study by David Caplovitz, Ph. D., entitled "Consumers in Trouble," dated February 1968, which included a survey of debtors in default in Philadelphia, as well as three other cities. The study included a sampling of debtors from the execution books (containing executions against real and personal property) in the office of the Sheriff of Philadelphia County. The study includes 245 Philadelphia debtors, the great majority of whom had semi-skilled or unskilled occupations (page 175). 56% of these debtors had family incomes below $6,000. and 18% earned less than $3,000. (page 188). Only 4% of the debtors had incomes of over $10,000. and only 12% had incomes between $8,000. and $10,000. Only 30% of the default debtors had graduated from high school (page 181). Of the 236 debtors who were aware of signing a contract, only 14% knew that the contract contained a confession of judgment clause (page 21). *fn15"


D. Testimony by Mr. Casnoff, an officer in a consumer finance company, that the only explanation given to signers of judgment notes was that they were signing "a judgment note" (N.T. 102-104).

 The foregoing evidence shows that many persons adversely affected by such confessed judgments have limited educational backgrounds and limited resources. Cf. Sniadach v. Family Finance Corp., supra, 395 U.S. at 340-342, 89 S. Ct. 1820.

 Although the complaint as amended (par. 4(f)) alleges a class action on behalf of all "individual natural" Pennsylvania residents "who have signed contracts authorizing * * * judgments to be entered against them," under the above acts and rules, the evidence offered by plaintiffs does not justify a finding that contracts other than notes used in consumer transactions, *fn16" including leases and consumer loans, are signed by such residents without an understanding of their significance. As noted above, the principal evidence of such lack of understanding was presented in the testimony of Miss Mims, Mr. Veney, Mr. Casnoff, and through Dr. Caplovitz's study entitled "Consumers in Trouble," all of which considered notes incident to consumer transactions and consumer financing. Confession of judgment clauses in bonds and warrants of attorney accompanying mortgages are normally signed at Title Company settlements *fn17" and notice of execution on the mortgaged property must be given by certified mail under Philadelphia Common Pleas Rule 3129* (f)(1), which is not referred to in the complaint. Furthermore, under Regulation Z (12 C.F.R. 226ff.) and Form NRR-3 (ID-2), there must be affirmatively called to any home mortgagor's attention the fact that he is subjecting his home to a lien in signing any such bond and warrant of attorney, and he is given three days within which to rescind the transaction. We find that plaintiffs have not sustained their burden of proof of the lack of valid consent to the confession of judgment procedure involved in the execution of bonds and warrants of attorney accompanying mortgages. Since the Supreme Court of the United States has consistently held that a rule of constitutional law is not to be formulated "broader than is required by the precise facts to which it is to be applied" [ Liverpool, N.Y. & P. Steamship Co. v. Emigration Commissioners, 113 U.S. 33, 39, 5 S. Ct. 352, 28 L. Ed. 899 (1885)], this record requires that any relief in this case be confined to a class consisting of individual natural Pennsylvania residents signing leases and consumer financing agreements, other than bonds and warrants of attorney accompanying mortgages, containing confession of judgment clauses. *fn18" See Mishkin v. New York, 383 U.S. 502, 512-513, 86 S. Ct. 958, 965, 16 L. Ed. 2d 56 (1966) ("The far-reaching and important questions tendered by this claim are not presented by the record with sufficient clarity to require or justify their decision."); C.I.O. v. McAdory, 325 U.S. 472, 475, 65 S. Ct. 1395, 89 L. Ed. 1741 (1945).

 Furthermore, the record does not support a determination that this action may be maintained as a class action on behalf of individual natural persons with incomes of over $10,000. signing documents containing confession of judgment clauses. As pointed out above, only 4% of the debtors in the Caplovitz study earned more than $10,000. There has been no showing that these plaintiffs are representative parties who fairly and adequately protect the interest of persons signing confession of judgment notes who have incomes of over $10,000. See F.R. Civ. P. 23(a)(4). It is conceded that the holding required by this record may make it more difficult for those affected by this decision to secure credit and there is no necessity of extending such possible consequences to persons not fairly represented in the action. For these reasons the court makes the determination required by F.R. Civ. P. 23 (c)(1) that this action may be maintained on behalf of those individual natural persons signing confession of judgment clauses in leases and consumer financing transactions who are residents of Pennsylvania having incomes of less than 10,000. a year. F.R. Civ. P. 23(c) (4) provides that a class action may be brought or maintained as to particular issues. The evidence in this case has been directed to the signing of agreements in lease and consumer credit transactions -- see footnote 16 above. This record supports the grant of relief in situations where confession of judgment clauses have been signed in such situations.

 Intervening defendants contend that there is no substantial basis in the record for a finding that the individual judgment debtors in the class represented by plaintiffs do not understand that the confession of judgment clauses authorize a judgment to be entered against them before default, without notice, constituting a lien on their real and personal property, and that such judgment is subject to execution with only 20 days' notice. We find that the testimony of Miss Mims that she could not understand the meaning of the clause is credible. The language would not be clear to many persons who had not completed high school (67% of the subjects of the Caplovitz study -- p. 181). Mr. Veney found that the individuals complaining to him expressed "disbelief" and "shock" when the meaning of the clause was explained to them (N.T. 88). Legal writers commenting on the clause have repeatedly stated in recent years *fn19" that the low income consumer neither anticipates such clauses in consumer contracts nor understands such clauses. See Cutler Corp. v. Latshaw, supra, 97 A. 2d at 238 ("a device not ordinarily expected by a homeowner in a simple agreement for alterations and repairs"); Abolition of the Confession of Judgment Note in Retail Installment Sales Contracts in Pennsylvania, 73 Dick. L. Rev. 115, 116, *fn20" 118 *fn21" (1968); Shuchman, Consumer Credit by Adhesion Contracts, 35 Temple L.Q. 125, 134 (1962). *fn22"

 In Wuchter v. Pizzutti, 276 U.S. 13, 48 S. Ct. 259, 72 L. Ed. 446 (1928), the Court held that a state procedure for assuming jurisdiction of a nonresident motorist participating in an accident in the state must contain a reasonable provision for probable communication to such defendant of actual notice that the action had been instituted, even though his use of the highways constituted an agreement to be sued in such state, using this language at page 19, 48 S. Ct. at page 261:


"A provision of law * * * that leaves open * * * a clear opportunity for the commission of fraud or injustice is not a reasonable provision, and * * * would [deprive] * * * a defendant of his property without due process of law."

 The Supreme Court of the United States has consistently stated that there is no presumption that a person acquiesces in the waiver of his constitutional rights. See Ohio Bell Te. Co. v. Public Utilities Comm., 301 U.S. 292, 307, 57 S. Ct. 724, 81 L. Ed. 1093 (1937); *fn23" Brookhart v. Janis, 384 U.S. 1, 4, 86 S. Ct. 1245, 1247, 16 L. Ed. 2d 314 (1966). In the latter case, the Court said:


"There is a presumption against the waiver of constitutional rights, see, e.g., Glasser v. United States, 315 U.S. 60, 70-71, 62 S. Ct. 457, 464-465, 86 L. Ed. 680, and for a waiver to be effective it must be clearly established that there was 'an intentional relinquishment or abandonment of a known right or privilege.' Johnson v. Zerbst, 304 U.S. 458, 464, 58 S. Ct. 1019, 82 L. Ed. 1461.


"In deciding the federal question of waiver raised here we must, of course, look to the facts which allegedly support the waiver."

 After a careful examination of the record, we find that there was no intentional waiver of a known right by members of the above class in executing the confession of judgment clauses. The evidence indicates that the debtors did not fully understand the rights which they were relinquishing by signing these notes, that is, the right to have notice and an opportunity to be heard prior to judgment, the right to have the burden of proving default rest upon the creditor before their property could possibly be exposed to execution, and, finally, the right to avoid the additional expense of attorney's fees and costs incident to opening or striking off a confessed judgment under the above-described Pennsylvania procedure.

 Since the procedure used for entry of confessed judgments on the abovementioned notes is based on the concept of a waiver of notice without adequate understanding by the debtor, it violates the due process clause of the Fourteenth Amendment. It is not our function to dictate to a state exactly what constitutes understanding waiver of notice in each particular case and what proof of such notice would comply with the abovementioned decisions. *fn24" Where the debtor is an attorney, all that may be necessary to prove that he understood the meaning and consequences of such a clause in a consumer financing note is an affidavit of such a debtor's profession. On the other hand, more proof may be required of non-high school graduates since the phraseology of the clauses in the notes offered in evidence is most difficult for laymen to understand. We do not believe that the 20-day notice provision prior to execution of a confessed judgment under Pennsylvania Procedural Rule 2958(b), as recently revised, grants sufficient time to permit a debtor with limited resources to secure an attorney to undertake the above-described procedures for opening or striking off a confessed judgment.

 For the foregoing reasons, we hold that no judgment by confession may be entered by defendants on a lease or note given in a consumer or a consumer financing transaction against individual natural Pennsylvania residents whose income is less than $10,000. a year, where such documents provide substantially that the Prothonotary or any attorney may confess judgment for the amount due under the document, plus attorney's fees and costs. The class in favor of whom the judgment and permanent injunction shall issue will consist of all individual natural persons whose income is less than $10,000. per year who are residents of Pennsylvania and who have signed leases and notes given in a consumer or consumer financing transaction, which leases and notes provide that the Prothonotary, Clerk, or any attorney may confess judgment for the amount due under the note or lease plus attorney's fees and costs. See Philadelphia Electric Co. v. Anaconda American Brass Co., 43 F.R.D. 452 (E.D. Pa. 1968); School Dist. of Philadelphia v. Harper & Row Publishers, Inc., 267 F. Supp. 1001 (E.D. Pa. 1967).

 We hold that this decision shall have prospective application to judgments sought to be entered on clauses signed before and after the date of the final order in this case against members of the above class by confession after November 1, 1970, or the expiration of the next session of the Pennsylvania General Assembly if the 1970 session has permanently adjourned by that date. *fn25" See McSparran v. Weist, 402 F.2d 867, 877 (3rd Cir. 1968); Schaefer, The Control of "Sunbursts": Techniques of Prospective Overruling, 42 N.Y.U.L. Rev. 631, 637-39 (1967). The temporary restraining order, which will terminate November 1, 1970, or at the expiration of the next session of the Pennsylvania General Assembly if the 1970 session has permanently adjourned by that date, will be modified to prevent the entry of judgments by confession against the above class based on the above-described documents which are signed after the date of the final order, to be submitted in accordance with this opinion.

 In addition to the prospective relief granted by this decision to those with incomes under $10,000. who have signed consumer credit transaction documents and leases with confession of judgment clauses, those members of the above-described class protected by the terms of the temporary restraining order issued in this case, as amended from time to time (see footnote 2 above), are entitled, prior to execution on confessed judgments entered prior to the date specified above, to the opportunity of a hearing on such claims conducted in accordance with the procedural guarantees *fn26" of the due process clause. *fn27" See Schaefer, The Control of "Sunbursts": Techniques of Prospective Overruling, 42 N.Y.U.L. Rev. 631, 637-39 (1967). For example, at such hearings the burden of proving default, execution of the obligation, the amount due, and other elements necessary to execution will be on the creditor, but if such burden is sustained the judgment will be subject to the execution on the basis that it continues to be effective from the date of its entry.

 Counsel may submit a decree in accordance with the foregoing opinion. *fn28"

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