Swarb v. Lennox

PETITIONER:Swarb
RESPONDENT:Lennox
LOCATION:Christian County, Kentucky

DOCKET NO.: 70-6
DECIDED BY: Burger Court (1972-1975)
LOWER COURT:

CITATION: 405 US 191 (1972)
ARGUED: Nov 09, 1971
DECIDED: Feb 24, 1972

ADVOCATES:
David A. Scholl – for appellants, pro hac vice, by special leave of Court
Philip C. Patterson – for appellees
William L. Matz – for Pennsylvania Savings and Loan League, as amicus curiae

Facts of the case

Question

Audio Transcription for Oral Argument – November 09, 1971 in Swarb v. Lennox

Warren E. Burger:

We will hear arguments next in number 6, Swarb against Lennox.

You may proceed Mr. Scholl.

David A. Scholl:

Mr. Chief Justice and may it please the Court.

This is a case instituted by 38 named plaintiffs on behalf of a class of all persons in Pennsylvania who would sign contracts containing confession-of-judgment clauses.

I will refer to the appellants in discussing this case as the consumers since they are all consumers and the appellees as the creditors.

I would also like permission to request that five minutes of my time be reserved for rebuttal.

The Pennsylvania State — we have a Law in Pennsylvania that permitted and in fact, did in the case of these 38 named consumers, the prothonotary who is merely a Court Clerk to ministerially enter judgments against the consumers without their having had any notice nor opportunity to be heard prior to the entry of that judgment.

Now, the reason that, the only thing that authorized the prothonotary to do this other than the State Law was a clause which was contained in the contracts that each of the consumer signed.

This clause, of course is the Confession-of-Judgment Clause and I think that there are two significant characteristics of the Confession-of-Judgment Clause.

First, it is one of the many clauses that it is very in prime fine print in contract.

It is a difficult clause to understand, many attorneys do not understand what the effect of the clause is.

And I think a second important aspect, is that Confession-of-judgment Clauses are contained in almost every contract in Pennsylvania and which credits is extended in any form.

That is to say, loan contracts, retail installment sale contracts, in leases, there is a confession-of-judgment and ejectment, and of course also in mortgage contracts.

Well, you have in footnote 1 on page 12 of your brief, what you say is a typical wording of such a clause?

David A. Scholl:

Yes.

Is there anywhere in the appendix or elsewhere where we could see how it looks in print, if you just referred it to fine print?

David A. Scholl:

Yes, there is Your Honor.

There are 80 exhibits.

Actually, there are 81 exhibits, 80 of the exhibits are contracts, so that —

In the initial records?

David A. Scholl:

Yes, they are the contracts that each of the main plaintiffs signed in the —

They are here in the appendix that would show as that?

David A. Scholl:

Your Honor, there was no appendix in this case, so —

We just have the original one?

David A. Scholl:

As we move that to proceed in the original record.

Alright, thank you.

But this, the wording is how a typical one appears, do I it right on footnote 1 on page 12 of your brief?

David A. Scholl:

That is right Your Honor.

Now, the confession-of-judgment that the prothonotary may enter, may be entered immediately.

After the contract is signed, that is it can be entered even before there is any allegation of fault.

David A. Scholl:

It can be entered the same day that the contract is executed.

It cannot immediately serve as the basis for execution and sale of the consumers’ property.

However, all that, the creditor need to do it at that point to execute and sale the consumers property is to file ex parte in averment that the consumer has defaulted.

Now, what notice does the consumer get to the proceedings that are occurring against him?

Well, after the judgment is entered, he is required to get notice of the entry of the judgment.

However, the property of the consumer can be sold as short as 20 days after the notice of the entry of judgment is given.

Also, if there is a sale of the consumer’s real estate, he is given notice that the writ of execution has been issued against this real estate and also he is given notice of the sale of his property.

However, this is generally by publication although, there must also be notice by mail and that notice by mail may be as little as 10 days before the property is sold.

Warren E. Burger:

In the earlier case, I asked counsel that if he thought it would satisfy due process, creditor by informal notice by communicating actual notice, advised to tell him that he intended to exercise the powers granted under the confession-of-judgment clause.

Do you agree that would satisfy due process?

David A. Scholl:

Well, I think if it would be noticed that the consumer would have an opportunity at a hearing to raise any defenses that he might have before execution in sale could proceed on the confessed judgment, then I think that it would comport with due process.

Of course, that is not what is assured by the Pennsylvania confession-of-judgment statutes and rules.

Warren E. Burger:

In other words, under your statute, even if he had notice and came in, he would not be able to put in any defenses.

Is that your —

David A. Scholl:

That is right, there is really only one procedure by which the consumer can possibly stop the sale of his property and that is by petitioning to open or to strike the judgment.

Now, what happens when someone petitions or opens to strike to judgment?

Thurgood Marshall:

Mr. Scholl, do you mean the consumer gets notice say on Monday of next week, we are going to file confession-of-judgment against you?

David A. Scholl:

No, he does not receive that notice.

He never receives any notice prior to the entry of the confessed judgment.

Thurgood Marshall:

I am asking the hypothetical that Chief Justice gave you?

David A. Scholl:

Oh, I am sorry.

Thurgood Marshall:

And he gets that notice, is it your position that he cannot do anything about it?

David A. Scholl:

The only thing that he can do is to petition to open or to strike the judgment.

Thurgood Marshall:

The judgment has not been issued yet.

David A. Scholl:

Well, the point is that in —

Thurgood Marshall:

(Inaudible) This Monday, he gets the notice which says on next Monday in the common pleas court in Philadelphia, common pleas court in number 267, we are going to apply for confession of judgment against you. You say that there is nothing he can do.

David A. Scholl:

Well, he never gets that notice.

There is no requirement —

Thurgood Marshall:

But if he did get it.

Is there something he could do?

Thurgood Marshall:

You said he could not do anything?

David A. Scholl:

Well, if it is prior to the entry of judgment, he would be able to go in the Court and attempt to enjoin the creditor from obtaining the judgment, that is the only thing I can —

Thurgood Marshall:

That does not fit due process?

David A. Scholl:

Well, the problem is that the Pennsylvania procedures do not provide any entry or any notice prior to the entry of judgment.

And in fact, I know of no instance and certainly that was not the case in any of the named plaintiffs cases in which the notice of the judgment was to be entered was provided to the consumer prior to the entry of judgment.

Thurgood Marshall:

My only point was if you say, it did not have notice.

Then I am saying if he was given a notice, would that be as much due process that you wanted?

That is the only question I ask.

David A. Scholl:

Well, that would be a different case and I think perhaps, in that case, depending on what the notice was and what opportunity the consumer would, have to come in and present his defenses, what you are suggesting may comport with due process of law.

Thurgood Marshall:

Well, if he did have notice, would he be permitted to present breach of warranty defenses for example in Pennsylvania?

David A. Scholl:

Well, the problem that I have is what he could do prior to the entry of judgment.

I think that what Mr. Justice Marshall was suggesting was that person would obtain notice prior to the entry of judgment and I think the only thing that could possibly be done is bringing some kind of an injunction action to prevent the creditor from proceeding.

But what he is saying is he could not afford common pleas court on Monday and say now, I want to tender evidence and defenses of this proposed action.

I want to tender evidence of breach of warranty.

You are telling us he could not be (Inaudible).

David A. Scholl:

That is correct.

He can do it and the prothonotary would enter it anyway.

He would have to start to saying, in your view some original action to get an injunction against there being any proceeding of the judgment notices, is that it?

David A. Scholl:

That is the only procedure I can conceive of.

The prothonotary has no digression, he must enter the judgment.

The state statute says that he must enter the judgment as long as he is presented with the document that contains a confession-of-judgment Clause in it.

Now, as I had mentioned, there is of course, the procedure to petition to open or to strike the judgment.

However, this is simply a procedure that is provided in Pennsylvania as in most jurisdictions to obtain relief from any judgment.

It is a petition that is directed to the Court’s discretion and the Court, it must be shown, the consumer must come forward and show that he has a meritorious defense before the judgment will be open and he even gets an opportunity to come in and have a hearing on his motion.

This of course, would deny him the right to any jury trial to determine whether the defense that he is claiming is a meritorious defense.

Well suppose that the judgment is open? What then happens is there any further proceeding?

David A. Scholl:

Yes, then there is a hearing on the merits, if the judgment is open —

But what is the hearing on the merits? Is that involved with jury trial?

David A. Scholl:

Well, then you could obtain a jury trial after the judgment is open.

And going back to the hypothetical, I suggest.

At that point would he have a jury determination on his defense of breach of warranty?

David A. Scholl:

Yes, he could have a jury determination after the judgment is open but the problem with the Pennsylvania procedure is that he must come forward and show that he has a meritorious defense before a judge —

How does he show that?

David A. Scholl:

Well, he presents whatever evidence he can, usually, he has to proceed by depositions, is another aspect of confession-of-judgment is that the burden of proof switches but also that the costs are increased, where the consumer must come forward and present his defenses through a petition to open a strike rather than proceeding in the normal proceeding, answering a complaint.

(Inaudible) merely by affidavit, he has to take that position, is that it?

David A. Scholl:

The new confession rules do provide that he can take testimony.

But supposing he wanted to rely only on affidavits only?

David A. Scholl:

Well, I suppose he could try it.

He could proceed with only affidavits.

But the problem is of course that he would not have a jury trial at that stage, which determines that he actually has a meritorious defense.

As I understand you, all that he gets is that whether his affidavit of deposition was that the judgment is open for the purposes of the hearing?

David A. Scholl:

That is right Your Honor.

And that maybe a hearing at which, there may be a jury trial.

David A. Scholl:

That is right.

Alright!

David A. Scholl:

Now, the court below recognized that in fact, the opening in striking procedure did change the burden of proof and that it did significantly increase the costs that the consumer would ordinarily have in the complaint answer proceeding.

And the court below further declared that confession-of-judgment, at least for the class on whose behalf it held that the action could be maintained did violate due process of law.

Essentially, the Court held that since the consumer did not have any notice nor any opportunity to be heard prior to the entry of judgment that therefore, he was denied Due Process of law.

However, the Court below did make three exceptions from the ruling that the consumers urge below.

The more the consumers urge that the Pennsylvania confession statutes and rules be declared unconstitutional on their face.

The court below instead declared that, yes, it is unconstitutional for a certain group of people but it is not unconstitutional regarding three specific classes of persons.

Now, the first class which should accept it was all persons wherein $10,000.00 or more annually.

Person earning more than $10,000.00 confessed judgment could be entered, executed and serve as the basis for sale against him.

Secondly, it made an exception for all persons who signed mortgages are actually signed confession clauses as their signed bonds and warrants and notes that contain confession-of-judgment clauses which are company mortgages so that in any mortgage transaction, a person could also validly sign a confession-of-judgment that it would serve its execution and sale of his property.

And the third exception at the Court made, the Court said that well, if at a prior hearing and well it did not set down, how the procedure would be carried out.

It could be showed that the consumer voluntarily, knowingly, and intelligently waive his due process rights, then in that case too, the confessed judgment could be entered and served as basis for execution and sale of the consumers property.

Now incidentally, in this instance, you do not have the forms before it, but are these all of the printed forms?

David A. Scholl:

Which forms are you speaking about?

The one that has the clause at the bottom of page 12, the confession-of-judgment clause.

Are they in a printed form that is what I am trying to get at or what are they?

David A. Scholl:

It is not in a separate printed form, what it is, is a, usually, it is one clause in a contract that contains numerous other clauses, as I think probably the best reference point for, Your Honor, would be the exhibits in this case.

We do not have that is why I am asking you.

They are in original record but we do not have it here.

David A. Scholl:

Oh!

We have the original record here.

David A. Scholl:

I think it is here somewhere.

They are not here on the bench.

I cannot see them before me, that is why I am asking the questions.

David A. Scholl:

Yes, well, it is difficult to —

What it takes to spend — some form of a contract in appliance that he uses, for example is something like that?

David A. Scholl:

Well it is use in practically every contract.

Every contract in Pennsylvania wherein credit is extended in any form, most every contract, retail installment sale contracts, bonds and warranted mortgages, somewhere in there.

Are they printed form?

David A. Scholl:

Yes, they printed form.

In fact —

That is what I am trying to find out.

David A. Scholl:

They are standardized forms.

In fact, some of the exhibits that we have included are simply forms that we got from the local stationery store, and they all contain confession-of-judgment clauses in the body.

Warren E. Burger:

Was there a cross-appeal in this case?

David A. Scholl:

No, there was no cross-appeal.

The only party that is appealed are the consumers.

We are appealing that from the decision failing to declare confession-of-judgment unconstitutional on its face.

There has been no cross-appeal.

Who is Lennox?

Is he a state officer?

David A. Scholl:

Lennox is the — or he was, he is recently been, or I guess he still is officially the Sheriff of Philadelphia County.

Sheriff of Philadelphia.

David A. Scholl:

He is the person who has the duty of executing and selling the property of the consumers.

And Lennox took no cross-appeal?

David A. Scholl:

Lennox took no cross-appeal, that is correct.

David A. Scholl:

Now, I think it is perhaps well to focus on the three exceptions that the Court made and how easily these exceptions might be used as a device of circumvention of the entire fact of the decision below.

For instance, the Court says that in any case, where there is a mortgage and a bond and warrant and note accompanying that mortgage that if the consumers signs that, well, then you can confess judgment against it.

Now, the Court does not restrict however, if the transaction to purchase money mortgage.

Mortgage can in fact, be taken by a creditor in any transaction.

It can be taken in a loan transaction.

A chattel mortgage could be taken in a retail or installment sale transaction.

And in fact, there was much evidence that this is exactly what was happening in Philadelphia County prior to the time that Mr. Justice Brennan issued a stay order which stopped all executions and sales on confessed judgments in Philadelphia County.

The $10,000.00 and over exception has also been circumvented by simply requiring that a borrower filed an affidavit, at the time that he take out a loan or whatever harbor he is retaining credit that he earns $10,000.00 and over a year.

And it is not surprising that the creditor should have the leverage to get the mortgage or to get the affidavit from the consumer.

Because of course, before he was able to get the confession-of-judgment clause, why not just ask the consumer to sign one more paper which in fact, has the same effect.

I think there is also a problem with the other exception that the Court set out, the voluntary knowing and intelligent waiver hearing which is to be held.

The Court below sets no procedure on how this is to take place.

The way they usually were scheduled in Philadelphia County after the decision was by petition and rule to show cause upon the consumer.

Of course, the consumer gets this petition that says, he has to come in and show that he did not knowingly, voluntarily, intelligently waive his rights.

This does not apprise him of actually what the significance of that hearing is going to be.

The consumers never apprised that if it is shown in fact, that he knowingly, voluntarily and intelligently waived his rights that he is not going to have any hearing on the merits of any defenses that he might have.

Also, the Court below focuses in its discussion although, it says knowingly, voluntarily and intelligently on an understanding waiver by the creditor at the time that the contract is signed.

Therefore, we have the anomalous result of somebody who understands the confession-of-judgment clause and perhaps went to a lawyer and asked the lawyer to explain the contract that he is signing before he signed it, he is now accepted from the class.

Because he knows or he understood what confession-of-judgment was at the time that he signed it.

The person who does not know what it is or perhaps is not prudent enough to go to a lawyer, he does not understandingly waive his rights therefore he is protected by the Court’s decision.

(Inaudible) what he is doing right here, right?

David A. Scholl:

Excuse me?

What is unconstitutional about someone who knows what he is doing, waiving his right?

David A. Scholl:

Well, I think that there is a practical problem if somebody showing that somebody actually voluntarily, knowingly, and intelligently waives his rights.

It is like, I will discuss it.

I do not think it is possible but I think one of the problems is —

You mean no one could understand that?

David A. Scholl:

Well, no, what I am focusing on Your Honor is the notice that the consumer gets.

All the consumer gets is notice that he is going to have a hearing and —

Let us assume, we got the kind of a notice that you wanted and understood exactly what kind of a hearing was going to be held, namely that they are going to go into the voluntariness, intelligence of his waiver and that if he waives why he is going to have his judgment against himself.

Let us assume he got all of the notice he wants.

David A. Scholl:

Well, if it can be posited that a person knew exactly what the significance of that hearing was going to be, that would mean, he would not be able to raise any defenses that he might have, or perhaps this exception might make some sense but the Court, as I said in the opinion, when they discussed the waiver hearing speak only of understanding whether the person understood what the clause meant at that time and I think that if we look closer at the Court’s analysis of waiver, we see that the Court did not really focus on the elements of voluntary, knowing, and intelligent in its discussion.

The Court below says, it a matter of fact, — and I think this is where the Court begins to err in its analysis and I think this is what led it to the exceptions.

It says —

Well, you do not claim there and as I understand that a voluntary, knowing, intelligent waiver is un-acceptable constitutionally to dispense with notice of hearing before a judgment.

David A. Scholl:

Well, yes I do Your Honor.

I do object that assertion and the reason that I object to that assertion is that, in a confession-of-judgment clause, what is in fact, being waived is due process itself.

What somebody is waiving is any notice or opportunity to be heard prior to the judgment.

Well, you say that nobody should be committed constitutionally to waive notice of the entry of judgment.

David A. Scholl:

That is right Your Honor.

Alright.

David A. Scholl:

Although, I think that it is well to focus on the elements of voluntary and intelligence to see whether in fact, there could be a voluntary and intelligent waiver also, it is also our position that even if you could show that there was a voluntary and knowing and intelligent waiver that nevertheless such a waiver simply should not be acceptable to this Court.

Then, I just wanted this.

David A. Scholl:

Thank you.

Warren E. Burger:

What you really want is to shift the burden of proof, is it not?

David A. Scholl:

Well, what we want to do is prevent the burden of proof from being shifted ordinarily in an adversary proceeding when one person comes forward and attempts to get the property of another person, he has the burden of showing to the Court by a clear preponderance of the evidence that he is entitled to the other person’s property.

The Pennsylvania due process or confession-of-judgment procedure shifts that burden of proof.

The creditor gets the confessed judgment right in the beginning and the consumer will spend all his time trying to somehow get rid of that judgment that he has against them.

It switches around the entire adversary proceeding and the only way that he can do this is by coming in and showing to the Court in a petition to open or strike that in fact, he by a clear preponderance, the evidence has a meritorious defense.

Mr. Scholl, if you prevail here, do you raise any question as to the validity of closed and past transactions in Pennsylvania.

In other words, I would like a comment from you on the retrospectivity feature, if you should prevail?

David A. Scholl:

Well, I think that is a very difficult question Your Honor and I think it is so difficult that the consumers do not want to urge for anything that is unreasonable.

I do not think, for instance, that we would urge that any judgments that have been entered by expunge or we would not urge that, in any case.

I think that what we would urge is that there be, that there be no more execution in sales on even the judgments that have been entered in the past.

That in the future, there be no more entrance of judgment.

Now, the Land Title Association brief of course raises the issue of retroactivity and I would like to comment on what they say and I think that we actually concur with the Land Title Association’s position which is that any decision on entry should not in any sense be retroactive and that regarding executions in sales that a decision on that be retroactive only since January 26, 1970.

The reason that I choose that date, it is a date that the Land Title Associations indicate that they advise all of their members that they should be careful in the future about insuring titles on confessed judgment.

And I think that was a point at which the hardship factor that may weigh against a fully retroactive decision, sort of changes over and that it is not at that point so important because at that point the Land Title Associations were unnoticed.

That in fact, confession-of-judgment probably or possibly was constitutionally deficient.

I would just like to say a few words about whether the waiver can ever be a voluntary in the confession-of-judgment situation.

David A. Scholl:

I think that perhaps the case before this has highlighted several of actually, the distinctions here. What we are concerned with in this case is a clause that is contained in almost every contract in Pennsylvania and the parties that are negotiating here are not two corporations, they are in fact, the consumer who probably would not even know what confession-of-judgment was.

Much less would be effective it is in a company which uses a standard form and understands of course, perfectly what confession-of-judgment means.

Or the consumer in fact, is put in a position where either has to sign the contract that contains the confession-of-judgment clause or he has to do without credit.

He is put in the situation almost the classic, adhesion contract situation, and —

You are suggesting that the statute might be alright as between corporations and understanding people?

But not with respect with consumer?

David A. Scholl:

Well, what I am suggesting is that there is not a voluntary waiver of the Due Process rights for the consumers.

It may be valid.

There may be a voluntary waiver for some corporations although in Pennsylvania —

In fact, it really is not, you are suggesting that (Inaudible).

David A. Scholl:

Well, I think that we are because there is certainly nothing in the statute that distinguishes persons who voluntarily waive their rights or corporations from individuals.

I think that the statute as it is drawn affects all persons and I think that the Court, the Lower Court could only have come to the conclusion, well, it is alright for corporation but it is not alright for individuals if it could have found that the statute was in fact severable and if the legislature would have intended to retain a statute that said well, a confession-of-judgment is alright for corporations but it is not alright for consumers.

Well, does the judgment below apply to the corporation under (Inaudible)?

David A. Scholl:

No.

In fact, we —

Only the individuals, do you say?

David A. Scholl:

It just applies to individual.

Earning under that — the Court suggests — what was the basis of the $10,000.00?

David A. Scholl:

I think the basis was that we did not present to the Court any consumers that earned over $10,000.00 and they felt that we had failed to meet our burden of proof on that issue.

They also had suggested another argument, they say that well maybe these poor people could not adequately represent the people that earn over $10,000.00 because those people might want to retain confession of judgment because now the confession is gone, it might be harder to get credit.

Well, I think that there is a problem with that reasoning and the problem is that the person that is earning over $10,000.00 as an income which is security prohibited.

Is it your suggestion that anyone who earns $10,000.00 or under has necessary purpose.

David A. Scholl:

Well, that is true too.

There is no determination made as to whether —

It is just that the only proofs you had for the people you are representing were people who earned not more than $10,000.00, is that it?

David A. Scholl:

That is right.

I think where the Court erred in that discussion is assuming that we had to show for every group of income people that in fact, they were in the same boat, so to speak as to the loan.

But under the judgment below, what is the standing of the Pennsylvania statute on its face?

David A. Scholl:

Well, they made no decision on the statute on its face.

The statutes still retained but the Court said it is just as applied to this group of people who earn under $10,000.00 and none more be jurors.

David A. Scholl:

That group of people is now going to be protected from confessed judgments being entered and executed and —

Then what is your quarrel?

What it is?

David A. Scholl:

Well —

You do not represent anybody that makes more than $10,000?

David A. Scholl:

Our quarrel is that, we do not feel that there is any distinction between persons that earn over $10,000 and those that are not.

In fact, had the Court —

That may be another case.

You do not represent — nobody here in that category, is there?

David A. Scholl:

Well, one of the named plaintiffs, I think does earn over $10,000.00 —

That answers to Justice Brennan?

David A. Scholl:

No, I believe there is one person that is appealing that earns over $10,000,00 but I will concede that perhaps, that is another case but I do not think that what the court should do is built in, in its decisions other cases.

Well, in any event, I gather that anyone earning under $10,000.00 is subject to this waiver in face of this?

David A. Scholl:

Yes.

A person can still be extracted —

So none of the people you represent has any protection unless, he can leave that hurdle, is that right?

David A. Scholl:

That is right, as the hearing would not even come up unless the person earns under $10,000.00.

But as I get it.

The person earning under $10,000.00 has no protection.

If in fact, it is establish that he waive these?

David A. Scholl:

That is right.

Is that right?

David A. Scholl:

That is right.

That your understanding and intelligent, voluntarily or —

David A. Scholl:

Right.

That hearing takes place and —

Before whom does the hearing take place?

David A. Scholl:

Well, the Court does not say that, how that hearing used to take place; the way it has been taking place is by petition and rule in Philadelphia County which I do not think is an adequate substitute.

But if the creditor who wants his judgment as the person who earns under less than $10,000.00 is the one who has to initiate?

Initiate it.

David A. Scholl:

He has to do something to have that hearing.

Before he can go forward on his judgment.

David A. Scholl:

That is right.

I thought that satisfied you from your previous argument?

David A. Scholl:

No, in fact, in answer to Mr. Justice’s White particularly on that point, we would urge that in fact, what is in question here is a waiver of the entirety of Due Process.

It is a waiver of any notice and opportunity to be heard prior to the entry of judgment and prior to something which can lead to the taking away of a person’s property on that such a waiver is simply invalid on its face because it is a waiver of Due Process and that is something that this Court simply cannot permit to take place under our form of government.

You mean no matter how intelligent and voluntary, but not it is?

David A. Scholl:

That is right.

Warren E. Burger:

Your time is up Mr. Scholl but if you would just answer one question for me.

Where did the — briefly if you will. Where did the Court of Appeals get the $10,000.00 figure?

David A. Scholl:

It seems that where they got it was from one piece of evidence that we introduced a study taken by Dr. David Caplovitz of the Columbia University Bureau of Applied Social Research in New York.

David Caplovitz had studied the attitudes of persons who he termed default debtors, in a study taken in several cities, one of which was Philadelphia.

And one of the findings that Dr. Caplovitz made was a demography of the persons that he had studied and he found that only 4% of these persons earned over $10,000.00 annually.

Now, I think initially that the reason that this finding came about was because of the way he conducted a study and I do not think it indicates anything differently about persons under, earning $10,000.00.

Warren E. Burger:

Thank you that answers my question.

Counsel Patterson.

Philip C. Patterson:

Thank you Your Honor.

I represent the Middle Atlantic Finance Association and 15 members of companies, who were the intervening defendants in this action.

And in view of shortness of my time because Mr. Matz here will take 10 minutes after me, I will not ask for rebuttal.

Now, the first question that I would like to cover is the question of whether or not a deferred hearing following judgment violates Due Process when every opportunity is given to the defendant to present every defense he has and the main contentions that are presented by the plaintiffs in that regard are not that there is anything inherently wrongful with having a deferred hearing of this sort.

But they are contending that it is permissible only when there are some overriding governmental interests.

And I would merely like to point out that the cases decided by this Court on that subject, rebut that argument because for example that the Coffin case which is cited in our briefs, which was a suit by the liquidator of an insolvent bank against its stockholders is certainly not a suit on behalf of the government, it is just an ordinary lawsuit between a bank and stockholders, and that case specifically held that even though execution was an assessment, which is like a judgment and also an execution were issued before any hearing has been held and even though a lien was acquired upon the stockholders stock.

Nevertheless, because the stockholder had a procedural opportunity under the Georgia procedure to present all defenses, because he get on the hearing before he was actually deprived of that property that that complied with Due Process.

There are many other cases to that affect.

For example, there is one case not cited in the briefs, Bank of Colombia versus Oakley decided in 1890 and 17 United States 233.

Now, that case held likewise and there also there was a lien and I will not burden Your Honors with the description either accept the state that there was a statute that provided that anytime a note was payable at the bank, the bank could go ahead and issue execution and acquire a lien and but then there would still be a right to a hearing afterwards.

There is no cross-appeal here, is it?

Philip C. Patterson:

There is no cross-appeal however —

In the Court below as I understand it, that held that there has not been a legal waiver on the part of any of these people.

Philip C. Patterson:

That is correct Your Honor.

Is that right?

Philip C. Patterson:

That is correct.

So, where is your case of controversy here?

Philip C. Patterson:

The controversy is as follows, the Court below found made a finding of unconstitutionality only as to loans by our clients to consumers with incomes of $10,000.00 or under —

But there is nobody here over $10,000.00 and there is no cross appeal?

Philip C. Patterson:

The plaintiffs here are appealing and asking the Court to extend this decision to people with income over $10,000.00.

That does not make it necessarily a case of controversy.

Philip C. Patterson:

Well, because the plaintiffs are trying to, plainly represent people and consumers with incomes over $10,000.00 and because we represent lenders, who are lending money to people with over $10,000.00 it is our position that we are entitled to argue all constitutional questions for that reason and that is another point.

Including that the Court was wrong on people under $10,000.00?

Philip C. Patterson:

Except well, including that the principles that were laid down by the Court with respect to people under $10,000.00 are wrong as applied to people with incomes over $10,000.00 and one other point is and that is that this question of waiver has been thrown in to the case somewhat belatedly by the plaintiffs, if you look at the jurisdictional statements, that did not mention that, they just, mentioned that $10,000.00 matter and the mortgage matter but, we are perfectly willing to exceed to that certain expansion.

Now the main —

May I, I just do not understand this.

If you were to prevail people over $10,000.00, that is you are having been brought here by the other side who prevailed as the people who get earning under $10,000.00, are you suggesting that what we have to do is reverse this judgment, if they won below even if they are the appellants?

And you did not cross-appeal?

Philip C. Patterson:

That Your Honor is a very difficult question.

I think the present.

The important thing that is going to come out of this case is the precedent that will apply to the future and in applying —

Warren E. Burger:

As to which class?

The over 10 or under 10?

Philip C. Patterson:

The over 10.

Warren E. Burger:

Should not we have had some opportunity to reach that question better than we have now.

Philip C. Patterson:

We have stated in all of our papers in this Court and even in our motion to dismiss, we made a plan that were arguing all constitutional matters, because of the fact that this appeal has been made as to the people with over $10,000.00 and the precedent that is laid down on loan to consumers over $10,000.00 will as a practical matter govern all transactions, even under 10.

Thurgood Marshall:

Do you want an (Inaudible) opinion?

Philip C. Patterson:

No, Your Honor, because there is a case in controversy as to consumers with incomes of over than $10,000.00.

Thurgood Marshall:

And who is presenting that point?

Philip C. Patterson:

We are presenting that point (Voice overlap)

The appellees bring it up.

Philip C. Patterson:

They have brought it up and we are controverting their arguments.

But by not taking a cross-appeal, does it not follow that you are not quarreling with that part of the, with the three-judge Court’s decision that held this Pennsylvania procedure, constitutionally invalid?

Philip C. Patterson:

Well, actually we do.

That people under $10,000.00 except, except when secured by mortgages or except when it could be shown that they did this knowingly and intelligently?

Do you have problem with that?

Philip C. Patterson:

But the matter is what happened and we quarreled with it lately, but what happened is the fact that our clients ran out of money and advised us that they could not afford to pay for an appeal —

All your clients run out of money?

Philip C. Patterson:

We wrote and asked to withdraw at least so stated.

We wrote and asked to withdraw that the Court wrote and stated that we could withdraw.

Thurgood Marshall:

(Inaudible) money from the Pennsylvania’s same loan league?

Philip C. Patterson:

Your Honor, if we have, if we had realized that we were going to stay in the case, we would have filed an appeal.

It is very unfortunate we did not, but, luckily we can still as I see it raise all these questions as far as the loans by our clients to consumers with incomes over $10,000.00 and Mr. Matz here can certainly raise as far as mortgage loans to creditors.

(Inaudible)

Philip C. Patterson:

May I continue, Your Honor?

(Inaudible)

Philip C. Patterson:

Now, the most important controversy that appears between ourselves and the plaintiffs is the plaintiff’s contention that the burden of proof changed, that the expense changed, and that the notice was not sufficient as between proceedings to open a confessed judgment on the one hand in an assumpsit actions brought on summons and complaint.

That is absolutely not correct, first of all as far as the burden of proof is concerned, what the plaintiffs has done is to quote to the Court language from the Pennsylvania Supreme Court that applies to cases that do not involve promissory notes, they have nothing to do with this case because this case involves entirely judgments entered in promissory notes and mortgage bonds that Mr. Matz will handle.

Now, the Uniform Commercial Code which we have sought in our briefs, Section 33071.

It has been adopted since the?

Philip C. Patterson:

That is correct Your Honor.

Section 330721 states that the moment, a note is put in –-

(Inaudible)

Philip C. Patterson:

As to all defenses other than that of forgery, the burden of going forward with the others and the burden of proof is on the defendant in assumpsit action.

And that of course, it is the same way on the petition to open.

The official comment makes it plain and this is not just a matter of the burden of going forward in the evidence.

The comment makes it plain that this is matter of a burden of proof, then on top of that, the cases have held the Uniform Commercial Code makes it plain that Section 33071, that as to forgery the burden of proof is on the plaintiff in an assumpsit action as a presumption of genuineness at the moment, some evidence is put in as to forgery then the plaintiff has the burden of proof, then there is defense Yank versus Isenberg which is cited in the briefs and that case specifically held that in a confession proceeding, the plaintiff not the defendant has the burden to proof as to forgery, so, there is not one difference in burden of proof between a confession case and an assumpsit case.

That is the first point.

Now, the second point is that as to the expense factor, there is not one shred of evidence in the record to the effect that the overall expense of assumpsit action is any less than the overall expense of a proceeding to open judgment.

There are no studies, no surveys, no overall, no comparisons of overall figures.

I need say no more than that.

Warren E. Burger:

Mr. Patterson, if you are out of reserve using only 10 minutes, I think you are now beginning to impinge on Mr. Matz’s time.

Are you taking 20 or 10 for yourself?

Philip C. Patterson:

I am taking 20.

Warren E. Burger:

Oh 20, excuse me I thought it was the reverse.

Philip C. Patterson:

Oh I see! Mr. Matz will take 10.

Now, then on the question of notice, the question of notice is thoroughly examined in the rules.

It is a very technical matter and at least 20 days and generally many more days between the notice of entry of judgment and the notice of execution in the time when the time, the sale can be scheduled.

In the case of an assumpsit action, there are 20 days until a default judgment can be entered and then on the very day or next day, execution can issue –so, there really is any difference of burden there.

What answer — the procedure now when a judgment is then entered by confession, a notice goes to the —

Philip C. Patterson:

The Pennsylvania rule say that within 20 days after the notice is entered by confession, a notice of the entry of the judgment and also a notice of execution, when execution is issued have to be sent to the debtor.

Well, what I am trying to get at is, the debtor gets that notice, how many days before his property may be put for sale?

Philip C. Patterson:

Well, first of all, sale, the next step is that the notice of execution has to issue.

That issue is when?

Philip C. Patterson:

That can issue anytime within 20 days.

Well, can it issue simultaneously with the notice to the debtor?

Philip C. Patterson:

It is my understanding that it can, if it does not issue with in 20 days then it can still issue but after that —

Well, how soon may the property be put up for sale from the date of the sending of the notice of the entry of the judgment?

Philip C. Patterson:

Well, in no event can it be put up, more sooner than 20 days after the sending of the notice of the execution.

The next point is —

But if that goes on to the day that the judgment has entered that it had 20 days from the entry of the judgment —

Philip C. Patterson:

Yes, but there are further restrictions, another restriction is that sales only takes place once a month.

So, it is a very rare case.

Does differ by county and states?

Philip C. Patterson:

Well, Philadelphia County, I understand that it takes place once a month.

I do not know about the other counties.

Then the second point is, that Pennsylvania rule say that, when it is real estate, there has to be advertising, weekly advertising for three successive weeks and it has to be first — and it has to be at least 21 days before the sale, and in case of personally, personally it is six days.

So, with all these, all these —

These executions are out of Court, they are not judicial foreclosures?

Philip C. Patterson:

These are rather Court.

In to your notice of execution in the case of personally what do you do?

Do you give the (Inaudible) of execution to a sheriff and he goes to seize the properties or what?

Philip C. Patterson:

That is correct Your Honor.

Then it is sold without any further Court Order or anything?

Philip C. Patterson:

That is correct Your Honor.

And, what tweaks the notice of execution with respect to personally?

There is at least 20 days before the sale?

Philip C. Patterson:

Their hand bills have to be posted and they schedule, the timetable is a little shorter there and hand bills have to be posted and they have to be posted at least six days ahead of time, in several days —

What I intend to notice is the execution to the debt, until then you cannot cease the property at least.

Philip C. Patterson:

It cannot be ceased for 20 more days, but, then after that —

Alright, alright.

But you sent in the notice of execution.

He has 20 days before the property can be seized by the sheriff?

Philip C. Patterson:

Before it can be sold.

What about the seizure?

Philip C. Patterson:

I am not certain about that Your Honor.

I will ask Mr. Matz to cover that point.

Well, if we are talking about personal property and un-mortgaged personal property and you simply get a lien on it by having a debt, is that right?

Philip C. Patterson:

You do not get a lien on personal property by having the judgment, there is some very misleading, in fact (Voice overlap)

Alright, alright well then you do not get a lien but you have the right to seize it and sale it, is that right?

Philip C. Patterson:

You can not sale until you seize it.

That is right and how soon could you seize it after you get notice of execution?

Philip C. Patterson:

Well, you cannot sell it until 20 days, I do not want to know —

20 days, I want to sell it.

Philip C. Patterson:

Yes, I do not know whether you can seize it before 20 days or not.

But now, there is a motion meanwhile within the 20 days made to strike the judgment, what happens to all these procedures and execution and sale?

Philip C. Patterson:

Well then, also it is customary to ask for stay and the Pennsylvania Rule state, they authorized the court to grant a staid and execution.

But it is not automatically staid?

Philip C. Patterson:

It is not automatically staid–

Well, I know but it is not automatically staid —

Philip C. Patterson:

No.

It is possible then notwithstanding there is a pending motion to strike the judgment, it is possible I gather, if Court does not grant a staid, whatever reason it denies it, that the property may be sold in execution?

Philip C. Patterson:

Well, as possible as it might be consistently with the fact that the states are always granted.

Well, one other thing though, I take it none of this happens if you proceed in assumpsit, if the creditor proceeds simply in assumpsit under debt against the debtor then there has to be notice in defense and trial and everything else, and his judgment is never or his property is never imperiled until after a judgment following a jury trial or something they can do it, is that right?

Philip C. Patterson:

Well, Your Honor.

Yes except if assuming, in 99 instances out of the hundred on these promissory notes, there is no defense and so if an honest answer is filed, then an immediate judgment would be taken other than out of a defaulter.

Well, well I appreciate that but nevertheless; until he had notice, an opportunity to define no judgment entered upon which it can be executed.

Philip C. Patterson:

Yes, Your Honor.

That is the difference between the confession that occurs and the confession though than the ordinary —

Philip C. Patterson:

Well, well that is correct Your Honor.

Mr. Patterson, is the duty of the Attorney General of the Pennsylvania to defend the constitutionality of the law that acted by the legislature of that state?

Philip C. Patterson:

It was always my understanding that it was and the Commonwealth of Pennsylvania through the Attorney General appeared and did defend the constitutionally of this law in the proceedings below.

But here they take a dice so to speak?

Philip C. Patterson:

Then there was a change of administration and (Voice overlap)

They joined the appellants and say that the Court, that the only error in the Court to say the decision was that it did not go that far enough in holding this law unconstitutional —

Philip C. Patterson:

Two attorneys Your Honor who were actually counsel of record for the plaintiffs happen to go up to the Attorney General’s office and then immediately after that pleading start coming down with their names corresponds with their names and since then they have been more discreet and I have used other names and that is the situation —

But we do not have an adversary proceeding here in this Court, do we?

There was no cross-appeal, there is nobody here asserting that the District Court was wrong in going so far as it did, is it correct?

Philip C. Patterson:

We are asserting that the District Court’s decision was — first of all we are defending the District Court’s decision insofar as an attack is being made on the proposition that a knowing intelligent and understanding waiver is invalid.

That is as far as you have been told though, there having been no cross-appeal, all you can do is defend the District Court’s decision which held prothonotary, these laws constitutionally invalid?

Philip C. Patterson:

Well, it is our contentions that since the plaintiffs are trying to extend the judgment of the Court below too, all consumer to all loans by our clients to consumers with incomes over $10,000.00 that insofar as we are representing our clients as to that aspect of the case that we can, we can go in all questions of constitutionality.

The next point that I would like to make —

Warren E. Burger:

You are covering the microphone counsel.

Philip C. Patterson:

Oh I am sorry.

That next part of that I would like to make is the fact that the plaintiffs contend that the inadequate notice —

Warren E. Burger:

I think we will recess for lunch and your time is up Mr. Patterson.

Mr. Matz, you may proceed whenever you are ready, you have 10 minutes.

William L. Matz:

Mr. Chief Justice and may it please the Court.

I appear here on behalf of the Pennsylvania Savings and Loan League which is an organization of Savings and Loans in Pennsylvania all of which are mutual trust institutions.

They lend their money for the purpose of purchasing homes by their members and they appear in a different guise as amicus curiae below for the Insured Savings and Loan Group of the Philadelphia area and in that position, we presented the position of the mortgagee.

And we are appearing here again to present the position of the mortgagee, the person who takes a bonded mortgage to secure a loan for the purchase of real estate.

Philip C. Patterson:

You will assume, indicate why the three-judge court accepted that?

William L. Matz:

I hope to sir, yes.

They did not say anything —

William L. Matz:

They did sir, it is in the opinion.

Is that enough?

William L. Matz:

No, I intend to go further sir.

I hope.

First, I should like to make it clear that the matter before this Court is an interpretation of the rules of the Pennsylvania Supreme Court promulgated on the provisions in the constitution and that is the issue here, not in the statute.

The Court below exempted bonds and mortgages in real estate transactions and I think for the following reasons.

First and foremost, the plaintiff offered no evidence whatsoever dealing with bonds and mortgages.

There was not one bit of evidence in the record by the plaintiff or by anyone which indicated that in any way bonds and mortgages were in the same category as the defendants they had named in the action which were a group of finance companies.

Now, if Your Honor will read the complaint, you will find that the entire direction of the complaint is to the conduct of certain finance companies.

Warren E. Burger:

What is the difference as a matter of legal doctrine laying aside the question of parties?

William L. Matz:

The Court below made that distinction, that there was no evidence and the Court said in determining the class to be covered by this action, only those persons against whom there were evidence should be included in the class unless there were some good reason for including them which was not given and this Court said, the plaintiff had given no evidence with reference to this and indicated that no reason why the mortgage bond class should be included in the class.

Now, in my —

(Inaudible)

William L. Matz:

Sorry?

You are not main defendants nor any of your —

William L. Matz:

No sir.

And you were in as amicus?

William L. Matz:

That is correct sir.

And amicus here?

William L. Matz:

That is correct sir.

That is correct.

I should like to point out — the difference between a mortgage bond transaction and a financing transaction for a small loan company, for one, the mortgage bond transaction arises out of the purchase of a home.

Secondly, it has been established below that in almost every case where a home was purchase, the purchaser was represented by either an attorney or by a license realtor, so, the purchaser did have representation at the time of closing.

Thirdly, at the time of closing the purchaser receives a statement on the regulations, under the Truth in Lending Act, which clearly indicates to the purchaser at that time that he is executed a document which has within it a confession of judgment.

Fourthly, the mortgage, the lending institutions that we represent have nothing to do with the sale of real estate or any other product, they only have one purpose to lend money for the purchase of homes and therefore, they are not involved in questions of breach of warranty or anything like that.

They only lend money to members of the association for the purpose of buying a home.

Now, with reference to the actual foreclosure procedures, which I think was talked about before, when a foreclosure proceeding is begun on real estate, the bond is entered a record that is not really a new lien, because that bond is part of the same transaction for which a mortgage was executed and which is already a lien on the property and has been a lien on the property from the moment the loan was made.

So, that the entry of a bond creates no new obligation by the borrower it is merely a different procedure for executing against the real estate there are no two obligations, there is only one and it is the same obligation whether it is a bond or the mortgage payment of one discharge or the other.

When the sheriff —

I take that it has been foreclosed without it. You do not need this provision to foreclose it?

William L. Matz:

The bond provision?

Yes. (Voice Overlap)

William L. Matz:

We could foreclose on the mortgage but that would be a wrong proceeding, you would have several defects sir.

For one thing it is more expensive.

For another thing it takes much longer to do.

Thirdly, in today’s market with real estate dropping a hiatus of several months in foreclosure can be very serious in the position of the lender.

And as I pointed out this is purely a procedural question, whether we proceed on the bond or we proceed on the mortgage.

We think it is better for the lender to proceed on the bond.

We think it is better for the borrower too because if we have a market where we can realize on our security more quickly, we could lend a larger margin under this lower interest rate.

Now, we pointed out below, that the Philadelphia area has the lowest mortgage interest rate in the United States and I am not saying here that this is the only reason but I am certainly saying this is one of the reasons.

But only bond foreclosure you do it outside the Court?

William L. Matz:

All foreclosures are done outside the Court Your Honor whether it is in a bond or on the mortgage.

On the mortgage?

William L. Matz:

That is correct.

And do not have to appear in Court unless an answer was actually was filed, right?

That is correct.

William L. Matz:

Now, I wanted to point out that on a petition to open judgments, our experience has been that the Court invariably grants that petition, one of this file, for even the most flimsy of reasons and that petition carries with it a stay of proceedings, so, that if a defendant who has at least 20 days —

But not right.

Do they have proceedings of right?

William L. Matz:

I have never seen one that did not carry it sir.

I do not think that the right, the rules state specifically but, I have never in my practice seen a petition to open judgment allowed without the stay of proceedings, and I have never seen one refused.

The stay is granted pending determination on whether the judgment will be reopen?

William L. Matz:

That is correct sir.

But the reopening is not a formality?

William L. Matz:

The opening is not automatic sir.

(Inaudible)

William L. Matz:

No, but the burden of proof on that is exactly the same as if it would have not been in complaint in assumpsit, there is no difference, exactly the same.

The defendant on an execution on a real estate gets at least 20 days notice of the sale and usually considerably more.

The minimum time he receives is 20 days which is exactly the same time that a defendant in a suit on a complaint has to file on that sir.

He has exactly the same time, 20 days in which to do something.

William L. Matz:

If he does not do it in the 20 or more days he has available, there may be a sale.

During the period from the date of execution to the date of sale there is no interference with the debtor’s right of possession or the use of the property.

He remains a possession, uses it as he did before with no interference in any way in his rights.

Mr. Matz, do you know whether that is the same with personally?

William L. Matz:

That may or may not be sir. It depends on the circumstances, if the sheriff merely makes a levy it is the same.

If the sheriff is directed to take the personally, under custody it may be different.

This would depend on a particular levy in that particular case.

In real estate it is certainly so.

Now, I pointed out before that the matter before this Court was a construction of the rules of our Supreme Court and I should like to point out that at no time has our Supreme Court been asked to rule on the validity of the same rules which it has promoted and it might be advisable to refer this back and therefore for our Courts to rule on these matters which have been presently never been ruled upon.

I think, I have tried to point out why the mortgage situation differs in large measure from the finance company situation and from the other situation under these matters which I think induce the Court below to making the exception of the situations where a savings, a loan or other lending institution lends money for the purchase of a home or for improvements to a home and we think this is an entirely different type of case from that one where lending is made for other purposes.

Thank you.

Warren E. Burger:

Thank you Mr. Matz.

I think your time is up counsel.

The case is submitted.