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ATLAS CREDIT CORPORATION v. IVAN A. EZRINE (07/02/69)

COURT OF APPEALS OF NEW YORK 1969.NY.42425 <http://www.versuslaw.com>; 250 N.E.2d 474; 25 N.Y.2d 219 decided: July 2, 1969. ATLAS CREDIT CORPORATION, RESPONDENT,v.IVAN A. EZRINE, APPELLANT; ATLAS CREDIT CORPORATION, RESPONDENT, V. SARAH EZRINE, APPELLANT Atlas Credit Corp. v. Ezrine, 31 A.D.2d 532, reversed. Counsel Harold Greenberg for appellants. Peter S. Ness and Walter F. Bottger for respondent. Judges Burke, Bergan and Jasen concur with Judge Breitel; Chief Judge Fuld dissents and votes to affirm in a separate opinion in which Judge Scileppi concurs. Author: Breitel


Atlas Credit Corp. v. Ezrine, 31 A.D.2d 532, reversed.

Judges Burke, Bergan and Jasen concur with Judge Breitel; Chief Judge Fuld dissents and votes to affirm in a separate opinion in which Judge Scileppi concurs.

Author: Breitel

 Plaintiff, Atlas Credit Corporation, sues in these consolidated actions to enforce two Pennsylvania judgments obtained pro confesso under a cognovit or warrant of attorney. Atlas moved for summary judgment on the ground that the judgments were entitled to full faith and credit in New York. The Supreme Court denied the motion, finding that an issue of fact was presented as to plaintiff's authority to enter the cognovit judgments. The Appellate Division, First Department, unanimously reversed in a Per Curiam opinion, holding that the Pennsylvania judgments "are not subject to collateral attack" (31 A.D.2d 532). Defendants have appealed.

The cognovit judgments were entered, without notice, under a warrant of attorney contained in a guarantee agreement which provided that, "in the event of any default hereunder, the undersigned, and each of them hereby empowers any Attorney of any Court of record within the United States of America, or elsewhere to appear for them, and with or without a declaration filed, confess judgment or judgments against them in favor of Atlas * * * waiving all errors, defects and imperfections, whatsoever of a procedural nature, in the entering of said judgments or any process or proceedings relating thereto."

The primary issue is whether a cognovit judgment, entered without notice in a sister State, pursuant to an unlimited warrant of attorney, is a judicial proceeding within the purview of the full faith and credit clause (U. S. Const., art IV, § 1; U. S. Code, tit. 28, § 1738). If such a cognovit comes within the purview of the clause, the second issue is whether such an unlimited warrant of attorney so offends due process as to deprive the rendering State of judicial power to issue a judgment cognizable under the full faith and credit clause.

It is concluded that cognovit judgments are not judicial proceedings within the intendment of the full faith and credit clause, but rather a form of debt instrument given the sanctions of a judgment without the minimal judicial process associated with a judgment. It is further concluded that, in any event, the warrant of attorney, pursuant to which the cognovit judgments were taken, violates due process because of its unlimited authority to enter a judgment anywhere in the world. Since the warrant of attorney was ineffective to give the Pennsylvania court jurisdiction, the cognovit judgments are not entitled to full faith and credit.

Defendants, Ivan Ezrine and Sarah Ezrine, together with others not parties to these actions, executed an agreement guaranteeing the mortgage indebtedness of a Pennsylvania corporation. By express provision Pennsylvania law was made applicable to the guarantee agreement. The facts averred in the affidavits on the motion for summary judgment have been succinctly stated by Mr. Justice Tierney, at Special Term, as follows:

"Upon a claimed default in the mortgage in December, 1963, a judgment was entered against defendant Ivan A. Ezrine for the sum of $690,253.20 under that cognovit in the Court of Common Pleas of Bucks County on December 24, 1963 by an attorney presumably designated by plaintiff under authority of the warrant of attorney, and without service upon, or notice to, the defendant. Upon a further claimed default in the mortgage in June, 1964, a similar cognovit judgment for the sum of $628,084 was entered against defendant Sarah Ezrine (the former's wife) in the Court of Common Pleas of Philadelphia County on June 25, 1964 by another attorney designated by plaintiff under authority of that warrant, and again without service upon, or notice to, the defendant. In referring to the defaults in the underlying mortgage as 'claimed', we merely make note that the facts supporting the averments of default filed with the cognovit on such occasions are, in the words of plaintiff's counsel, 'ascertainable only from evidence not of record.' Under the laws of the Commonwealth of Pennsylvania such judgments were valid. They would be invalid here (see CPLR 3218).

"It appears that in June, 1964, plaintiff instigated summary proceedings to foreclose the security held for the debt guaranteed by defendant guarantors. On July 28, 1964, the Sheriff of Bucks County levied upon certain personal property of one of the guarantors (Kemline Industries, Inc.) and sold that property to plaintiff for $70,001. It further appears that on October 9, 1964, the Sheriff of that county foreclosed certain real estate and machinery of the mortgagor in default and sold this property at public sale to plaintiff for $11,704. Thereafter, on September 29, 1965, the deed for the property was delivered by the Sheriff to an assignee of the vendee (which is alleged to be an affiliate of plaintiff) for an amount not clearly indicated in the papers before the court. Neither of the afore-mentioned levies and sales were on notice to either of the defendants herein.

"Under Pennsylvania law, whenever any real property is sold to the plaintiff in execution proceedings for a price insufficient to satisfy the amount of the judgment, interest and costs, the plaintiff, if he seeks to recover the balance due on such judgment, must petition the court to fix the fair market value of the property within six months from the sale (Pa. Stat., tit. 12, §§ 2621.1, 2621.4). The date when the 'sale' of such real property occurs is (in Pennsylvania) the date of delivery of the Sheriff's deed (see Max Realty Improvement Co. v. Boulevard Center, 398 Pa. 1). Nearly two years after plaintiff 'bid in' at the public sale, but within six months of the Sheriff's delivery of the deed to plaintiff's assignee, a petition was filed by plaintiff in the Bucks County Court of Common Pleas and a hearing was set by the court for March 11, 1966.

"Defendants, being nonresidents of Pennsylvania, were not subject to personal service in accordance with the Pennsylvania statute governing jurisdiction in 'fair value' proceedings (Pa. Stat., tit. 12, § 2621.4, subds. [a], [b]). Accordingly, the court directed service by publication once a week, for two successive weeks, in three Bucks County newspapers, and that copies of the notice, together with a copy of the petition filed, be sent by certified mail to defendants' residence in New York City. It appears that plaintiff effected service in the manner prescribed by the order and that defendants were apprised of the proceeding.

"At the hearing on March 11, 1966, at which defendant Ivan A. Ezrine apparently appeared by attorney, the fair market value of the real properties was fixed at $350,000. There was some dispute, however, as to the amount realized by plaintiff on its assignment of the property. Thereafter, the value determined was credited on March 26 and 29, 1966, against the judgments entered against defendants Ivan A. Ezrine and Sarah Ezrine, respectively. Both reassessed judgments are alleged to remain completely unsatisfied as of the present date so that plaintiff is allegedly owed by defendants Ezrine, jointly and severally, the sum of $237,369.32 with interest from March, 1966.

"On April 5, 1966, defendant Ivan A. Ezrine appeared specially in the Court of Common Pleas of Bucks County and moved to open the judgment entered March 11, 1966. The allegations made therein by said defendant are essentially those interposed by both defendants in opposition to the instant motion. The petition to open the judgment was denied on July 6, 1967 on the grounds that plaintiff's petition to fix fair market value was timely made; that jurisdiction was properly obtained; that said defendant lacked standing to contest the amount of the fair market value alleged in plaintiff's petition; and, in any event, that the $350,000 appraisal was a realistic one."

Cognovit judgments or judgments by confession, not to be confused with the somewhat restricted statutory judgments by confession permitted in most States, including New York, were familiar to the common law. They were of two types. Those entered on the regular cognovit actionem or written confession after the regular commencement of the action; and those entered upon a warrant of attorney to confess judgment without the institution of an action (1 Black, Judgments, § 50; 3 Freeman, Judgments, § 1302; Note, Confessions of Judgment, 102 U. of Pa. L. Rev. 524, 525-526; Hunter, The Warrant of Attorney to Confess Judgment, 8 Ohio St. L.J. 1; 49 C. J. S., Judgments, §§ 134-137).

The cognovit judgments involved in this case were entered on a warrant of attorney without the institution of an action. By the practice at the common law a warrant of attorney may be incorporated in a bond, note, or other instrument evidencing the obligation (Chappel v. Chappel, 12 N. Y. 215, 218). The warrant, which may or may not be conditioned on the obligor's default, empowers any attorney, usually unknown to the obligor, to enter his appearance in a court of record, to waive process, and consent to the entry of judgment against the obligor. This procedure allowing confession in advance of the commencement of an action is used as a security device.

Cognovit judgments entered on warrants of attorney, if valid where rendered, have been held entitled to full faith and credit in the forum State (Teel v. Yost, 128 N. Y. 387; Ann., Warrant of Attorney -- Foreign Judgment, 39 ALR 2d 1232).

However, as early as 1828, judgments entered on warrants of attorney were characterized as "the loosest way of binding a man's property that ever was devised in any civilized country" (Alderman v. Diamet, 7 N. J. L. 197, 198). General dissatisfaction with warrants of attorney and cognovit judgments has prompted severe regulation or prohibition in most of the States. According to a 1961 survey, 23 States, including New York, have placed varying ...


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