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Star Finance Corp. v. Mcgee

MARCH 17, 1975.




APPEAL from the Circuit Court of Cook County; the Hon. JOSEPH B. HERMES, Judge, presiding.


The defendant, Sonia McGee, seeks a declaration that the Illinois confession of judgment statute (Ill. Rev. Stat. 1971, ch. 110, par. 50(3)) is unconstitutional. On April 29, 1970, she signed a retail installment contract which was on a printed form supplied by the seller and contained a cognovit clause which provided as follows:

"The undersigned Buyer or Buyers, jointly and severally, hereby authorize irrevocably any Attorney of any Court of Record to appear for the undersigned and each or any of them in such Court, in term time or vacation, after default hereon and to confess a judgment without process in favor of the holder hereof for such amount as may appear unpaid hereon, together with costs of suit and 33% of such amount as attorneys' fees and to release and waive all errors that may intervene and consent to immediate execution thereon. Notwithstanding any provision hereof or of applicable law, holder irrevocably waives and releases all rights to make a judgment confessed hereon a lien on any real property now or hereafter owned by Buyers or in which Buyers may now or hereafter have an interest."

The clause was in smaller type than most of the other provisions of the contract. The defendant signed three times, for an authorization to the seller to obtain credit life and credit disability insurance at prescribed rates, for the contract itself and for a wage assignment. The seller assigned the contract to the plaintiff, Star Finance Corporation, on May 7, 1970.

On September 21, 1970, the plaintiff filed its complaint for confession of judgment setting forth the amount of $460.32 as the principal amount and $76.50 for attorney's fees. Included in the $460.32 due is the entire amount of the finance charges, $111.45, and the entire amount of the insurance premiums, $18.87.

On June 5, 1972, the defendant received substituted service of a summons to confirm the judgment by confession. On July 6, 1972, through her attorney, she moved pursuant to Illinois Supreme Court Rule 276 (Ill. Rev. Stat. 1971, ch. 110A, par. 276) to open the judgment and to set down the case for trial. In her affidavit she stated:

"I have good and meritorious defenses to the claim against me, in that I have paid all the amounts legally owing on the transaction sued upon."

After the plaintiff opposed the motion, it was put on Judge Hermes' contested call. On September 21, 1972, the motion to open was denied. On October 11, 1972, the defendant moved to vacate the judgment on the ground that it "deprives her of the use of her property without due process of law * * *." In her affidavit she alleged as follows:

"I was unaware of the `confession clause' in the contract on which this case is based, and did not understand its meaning, as I am not skilled in legal matters * * *. I lacked power to negotiate with Plaintiff about the `confession clause' in the contract and didn't get anything in particular in return from Plaintiff for that clause."

That motion was denied on October 11, 1972. The defendant appeals from the order of October 11.

Her argument may be summarized: The Illinois confession of judgment statute (Ill. Rev. Stat. 1971, ch. 110, par. 50(3)) is unconstitutional because it does not provide for prejudgment notice and hearing to determine whether a debtor has voluntarily and knowingly waived the right to notice and hearing on the validity of the underlying claim. She relies principally on D.H. Overmyer Co. v. Frick Co., 405 U.S. 174, 31 L.Ed.2d 124, 92 S.Ct. 775, and Swarb v. Lennox, 405 U.S. 191, 31 L.Ed.2d 138, 92 S.Ct. 767.

We do not believe that either case supports the defendant's position here. In Overmyer, judgment was confessed and the debtor's post-judgment motion to vacate, based in part on constitutional grounds, was denied after a hearing in which both sides submitted affidavits. The United States Supreme Court affirmed the judgment, reasoning that the evidence showed two corporate parties of equal bargaining power represented by counsel; that the debtor received "substantial benefits and consideration" in return for the cognovit provisions; and that the debtor voluntarily, intelligently and knowingly waived the right to prejudgment notice and hearing with full awareness of the legal consequences. The court added comments that the cognovit clause was not, per se, unconstitutional and "may well serve a proper and useful purpose in the commercial world and at the same time not be vulnerable to constitutional attack"; that "where the contract is one of adhesion, where there is great disparity in bargaining power, and where the debtor receives nothing for the cognovit provision, other legal consequences may ensue"; and that the debtor was not rendered defenseless because of its execution of the cognovit since the trial court could vacate the judgment on a showing of a valid defense. 405 U.S. 174, 186-188.

In Swarb, the plaintiffs who had signed cognovit notes sued in the Federal Court for a declaration that the Pennsylvania statute covering confessions of judgments was unconstitutional. A majority of a three-judge district court held that the statute was unconstitutional only as to certain members of the plaintiff class; one judge held it unconstitutional as to all; and the plaintiffs appealed. Since the defendants did not cross-appeal, the Supreme Court affirmed that part of the judgment holding the statute unconstitutional as to a limited number of the class but the court pointedly added that the affirmance did not mean that the district court's opinion and judgment were approved as to the aspects and details that were not before the Supreme Court. The court also referred to Overmyer, which it decided the same day, and held that it would not determine what impact Overmyer had on the Pennsylvania system on the basis of the one-sided appeal.

• 1 Before Overmyer and Swarb were decided, the Illinois Supreme Court passed on First National Bank v. Keisman, 47 Ill.2d 364, 265 N.E.2d 662, wherein the defendants urged the court to declare judgments by confession unconstitutional. The court upheld the statute and reasoned precisely as the ...

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