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CASE BRIEF: The SBA Guarantor did not waive the 6-year Statute of Limitations Defense when he signed a confession of judgment

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CASE BRIEF: The SBA Guarantor did not waive the 6-year Statute of Limitations Defense when he signed a confession of judgment


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CASE NAME:  United States on behalf of Small Business Administration v. Richardson

CITATION:  889 F.2d 37 (3d Circuit, Pa. 1989)

FACTS: Louis Richardson and his wife, Loretta Massey, were principal owners of a court reporting service known as Rapid Reporting, Inc. On September 14, 1977, Rapid Reporting obtained a small business loan from Girard Trust Bank for $ 32,500.00. Richardson signed a note for the loan, which contained a confession of judgment clause providing:

The undersigned hereby authorizes and empowers any attorney or clerk of any Court of record in the United States or elsewhere to appear for and, with or without declaration filed, confess judgment against the undersigned in favor of the holder assignee or successor of holder of the Note, at any term, for the full or total amount of this Note, together with all indebtedness provided for therein, with costs of suit and attorney's commission of fifteen percent for collection; and the Undersigned expressly releases all errors, waives all stay of execution, rights of inquisition and extension upon any levy upon real estate and all exemption of property from levy and sale upon any execution hereon; and the Undersigned expressly agrees to condemnation and expressly relinquishes all rights to benefits or exemptions under any and all exemption laws now in force or which hereafter may be enacted.

The SBA guaranteed ninety percent of the loan. Richardson also guaranteed the loan under a " Guaranty." In the Guaranty, Richardson signed a confession of judgment clause, similar to the provision contained in the note.

Richardson made monthly payments on the loan from October 1977 through March 1980. After Richardson failed to make further payments, Girard Bank demanded payment of the remaining principal and interest. Subsequently, the Bank assigned its interest in the note and guaranty to the Small Business Administration. By letter dated August 12, 1980, the SBA demanded from Richardson immediate payment of the loan balance, $18,950.00, plus accrued interest. Although Richardson paid nothing, the SBA was able to recover part of the debt over the next few years from the sale of business equipment and real estate pledged as collateral for the loan.

By letter dated November 19, 1987, the SBA again contacted Richardson and demanded payment for the outstanding balance, $19,960.40, plus accrued interest. Failing to receive a response, the SBA filed a lawsuit on May 24, 1988 in the United States District Court to enter a confession of judgment in the amount of $38,315.44. The clerk of the court entered judgment for the SBA for that amount plus interest. 

On July 19, 1988, Richardson filed with the district court a motion to open the confessed judgment. He also filed a motion requesting that the court stay execution of the confessed judgment pending disposition of the concurrent motion. The district court granted the stay, and ordered that the SBA provide Richardson with a complete accounting to determine if assets sufficient to satisfy the debt were made available to the SBA after the loan default. After the SBA provided the accounting, the district court lifted the stay on execution of the judgment. In a later order clarifying that there were no defects in the confession of judgment procedure, the district court stated that the statute of limitations was not "applicable in this case, because, by the clear wording of the confession clause, [Richardson] has waived these defenses." Richardson subsequently filed the appeal. 

BRIEF OVERVIEW:  The borrower, in obtaining a small business loan guaranteed by the Small Business Administration, signed a confession of judgment that provided that the SBA or its representatives could obtain judgment against the borrower "at any time" and that the borrower waived his defenses from such a judgment. Eight years after the borrower's default on the loan, the SBA brought action against the borrower and obtained a judgment. The borrower filed a motion to open the confessed judgment, and the district court held that the six-year statute of limitations in 28 United States Code § 2415(a) (1987) was not applicable, because the borrower had waived his defenses. On appeal, the borrower asserted that the defense of the statute of limitations could never be waived in advance. The court found that the phrase "at any time" was not specific enough to put the reader on notice of its consequences at the inception of the transactions and did not mention statutes of limitations at all. In reversing and remanding to the district court, the court instructed it to consider the date the statute of limitations commenced and whether it was tolled for any period of time.

OUTCOME:  The court reversed and remanded to the district court for consideration of the defense of the statute of limitations, including the date the statute commenced and whether it was tolled for any period of time. It held that there was no clear waiver of the statute of limitations in the confession of judgment signed by the borrower with respect to the SBA Note and/or SBA Guaranty.

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