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Midland Funding, L.L.C. v. Giambanco

422 N.J. Super. 301, 28 A.3d 831 (App. Div. 2011)

GARNISHMENT; NOTES — The inclusion in a credit agreement of a provision waiving statutorily required notices is not void against public policy as long as the debtor’s waiver is knowing and informed.

A debtor defaulted on a credit card obligation. It then settled the matter with the creditor, but when it breached the settlement terms, the creditor sued. The parties once again settled the matter with a consent order, which they signed and submitted to the court for signature and filing. The order provided that, upon the debtor’s further default, the creditor would be entitled to a wage execution without further notice to the debtor. The creditor would only be required to submit a certification to the court stating that a default had occurred.

The lower court struck out the provisions of the consent order that permitted the issuance of the wage garnishment without notice, but entered the consent order as modified. The creditor filed a motion to vacate the consent order and sought to have the deleted provision re-inserted into the consent order. The lower court denied the motion, holding that it was against public policy to allow a wage garnishment without notice to a debtor. It reasoned that the court rule relating to wage garnishments requires notice to a debtor so that the debtor knows: (a) that an application for wage garnishment was made; (b) the amount to be deducted from wages; and (c) the process by which a debtor can oppose it prior to wages first being garnished.” Here, the lower court found that the proposed consent order would prevent the debtor from receiving vital information regarding her ability to oppose it before her wages would be garnished. Further, it reasoned that an application for garnishment without notice left no room for error and could result in a debtor’s wages being wrongfully reduced if a payment was misplaced or lost before the debtor could even contest it. Hence, the lower court found that the creditor would not be prejudiced by complying with the notice requirements.

The creditor appealed, and the Appellate Division reversed, holding that the inclusion of a provision waiving statutorily required notices is not void against public policy as long as the debtor’s waiver is knowing and informed. It also held that if a consent order is submitted to the court, and it does not contain sufficient information to satisfy the notice requirements, then in order to ensure that a debtor’s waiver is both knowing and informed, the receiving court could reject the proposed consent order. However, a court may not, as the lower court did, merely strike the offending provisions of the order leaving the rest intact. Rather, a court may suggest to the parties that they accept the court’s proposed changes, and if they do not, the matter should be restored to its pre-trial status.

The Court noted that N.J.S.A. 2A:17-50(a) provides that wage executions are made on notice to the debtor, unless otherwise ordered by the court. Court Rule 4:59-1(d) also provides for wage executions on notice to the debtor. However, there is a well-settled principle that parties may waive statutory and constitutional rights by agreement if the waiving party’s consent is knowing and informed. The problem with this particular consent order, in the Court’s view, was that in the absence of a more detailed consent order, it is unclear that the debtor had agreed to waive the notice requirements with full knowledge and understanding of the consequences of that waiver. Therefore, it agreed with the lower court that the consent order, as submitted, was deficient. However, the Court found that once the lower court deemed the consent order insufficient, it only had two options: (a) to reject the consent order; or (b) if the parties would not agree to the court’s requested changes, to return the matter to pre-trial status.

The Court also disagreed with the lower court’s finding that the creditor was not prejudiced by the exclusion of the notice wavier provisions. It noted that the creditor’s inclusion of the waiver of notice provision was likely intended to reduce the additional litigation costs it would incur if the debtor breached the settlement agreement, as was her history. The lower court’s deletion of that waiver provision removed that benefit. According to the Court, it is not a court’s function to make a better contract for the parties than they made for themselves, nor is it the court’s function to alter an agreement to benefit one party to the detriment of the other. In this case, the lower court’s striking of the waiver of notice provisions, without the creditor’s consent, changed the terms of the deal and took away an apparent benefit to the creditor in order to give the benefit of notice to the debtor.

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