[176 NJSuper Page 431] 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. ...