Key Takeaways

  • A confession of judgment allows a creditor to obtain a court judgment without traditional litigation.
  • It requires the debtor to waive their right to a trial or defense and admit liability in advance.
  • COJs are banned or restricted in many states due to potential for abuse.
  • Common uses include business loans, leases, and settlement agreements.
  • Enforcement and duration limits vary, such as New York’s three-year enforcement window.
  • Some agreements may involve a warrant of attorney, enabling attorneys to enter judgment without notice to the debtor.
  • Courts may scrutinize COJs for issues of voluntariness and informed consent.A confession of judgment is a means to bypass typical court proceedings when settling a dispute. It is used to evade a prolonged legal undertaking. A confession of judgment is a written contract that's signed by the defendant. In signing the contract, the defendant takes responsibility and agrees to the sum of compensation. Signing the agreement means that the defendant loses any rights to disagree with the claim at a later stage.

A Confession of Judgment

In addition, it is possible to reach the same results of a confession of judgment if a borrower signs a cognovit note. This note should be signed when the debt is first created. A cognovit note should state the amount owed to the lender by the debtor and that the debtor is willing to involve a court authority to settle any conflict.

If a debtor fails to fulfill their obligations, the cognovit note can be shown to the court in order to reach a judgment. In this case, it is not necessary to inform the debtor of the legal proceedings. Lots of people have taken issue with this, as it doesn't give the defendant an opportunity to present a strong defense.

How a Confession of Judgment Works

A confession of judgment is typically a clause in a contract where the borrower agrees in advance to let the creditor enter a judgment against them without trial. It is often included in promissory notes, commercial leases, and loan agreements. This clause is usually enforceable only if the debtor knowingly, voluntarily, and intelligently waives their rights.

For example, the clause might state that the borrower authorizes any attorney to appear in court on their behalf and confess judgment for the amount due, including unpaid principal, interest, attorney fees, and court costs.

Confessions of Judgment in New York

In New York, a confession of judgment (COJ) is a process in which an individual can acquire a judgment without having to go before the courts.

A confession of judgment is a contract, or affidavit, by the person disclosing judgment.

A COJ can be made by either an individual or an entity, such as an LLC.

The COJ can be made for any current or future debts or to protect the plaintiff against unforeseeable accountability.

Generally, a COJ can be used to reinforce a settlement contract, in which a creditor has allowed a debtor to pay back the sum over a period of time according to a repayment scheme.

If a debtor does not repay the debt according to the terms, the COJ can be used as a judgment. As soon as a COJ is entered, it is applied in the same way as any judgment.

Using a Confession of Judgment

In the case of an unforeseeable liability, a COJ can be utilized to secure a personal warranty.

For instance, a company may offer goods or services as credit to another company. And if the company is not happy with the creditworthiness (perhaps because the company had poor credit or a new business that lacks credit history), the company selling the goods or offering the services can ask for a personal warranty from either one or more of the buyer's top executives.

In order to bypass the necessity of a lawsuit to apply the personal warranty, the seller of goods or supplier of services might ask for a COJ to support the personal warranty of the guarantor.

If the client/buyer acts according to the agreed-upon terms, there is no need to use the warranty or COJ. Nevertheless, if the client/buyer does not act according to the terms, the seller might request for the use of the COJ. In doing so, they bypass the requirement of a court judgment to decide culpability.

Common Clauses in Confession of Judgment Agreements

Confession of judgment provisions often include specific language to maximize enforceability. A typical clause might be titled "Warrant of Attorney/Confession of Judgment" and grant the creditor’s attorney the authority to:

  • Appear in court on the debtor's behalf.
  • Waive issuance and service of process.
  • Confess judgment for unpaid amounts and fees.

These clauses must often be clearly labeled, and courts may strike them down if they are hidden in fine print or if the debtor can demonstrate lack of informed consent.

COJ Judgments

As soon as a judgment is made using a COJ, it can be administered in the same way as any other judgment. It can also be domesticated in other US states as an NY judgment. It's worth noting that if the accountability is due to last for over three years (i.e., a repayment plan over five years), the plaintiff should think about acquiring a new confession of judgment before the first one runs out. The first one will only be enforceable for three years.

States That Restrict or Prohibit COJs

Confession of judgment clauses are controversial and not enforceable in all states. Many states ban their use in consumer contracts, and some prohibit them entirely. For instance:

  • Banned States: California, Texas, and Michigan do not permit confessions of judgment in most circumstances.
  • Restricted Use: States like Pennsylvania and Ohio allow COJs but impose strict requirements, such as the use of bold type and separate signing.

Always verify state-specific laws before including a COJ in a contract, as courts can invalidate them if improperly executed or procedurally flawed.

Multiple Appellants

A COJ can be acquired against more than one joint borrower for a shared debt that is due or that will owe in the future.

Comparable to a judgment that is made in a joint capacity and against multiple appellants (i.e., in a situation where each appellant is accountable for the whole sum, but the plaintiff is only able to recuperate up to the sum stated in the judgment), a COJ can be acquired against several joint appellants.

Legal Risks and Criticisms of COJs

Although confessions of judgment can streamline debt recovery, they carry significant legal risks:

  • Due Process Concerns: Debtors lose their right to present a defense or receive notice before judgment.
  • Potential for Abuse: Unscrupulous creditors may misuse the process, especially if the debtor is unaware of the clause’s consequences.
  • Judicial Scrutiny: Courts may refuse to enforce COJs if there is evidence of coercion, confusion, or unequal bargaining power.

Due to these concerns, businesses and individuals should consult with legal counsel before signing or enforcing a confession of judgment. If mishandled, a COJ may be challenged and vacated in court.

Frequently Asked Questions

1. Is a confession of judgment legal in all states? No, many states prohibit or limit their use, especially in consumer contracts. Always check local laws.

2. What happens after a confession of judgment is signed? If the debtor defaults, the creditor can file the confession in court to obtain a judgment without a trial.

3. Can I challenge a confession of judgment after signing it? In limited circumstances, yes. Courts may set it aside if it was signed under duress or without proper understanding.

4. Is a confession of judgment the same as a default judgment? No. A default judgment requires a lawsuit and the defendant’s failure to respond, while a COJ allows judgment without litigation.

5. Can a confession of judgment be included in a consumer contract? Generally no. Most states prohibit COJs in consumer agreements due to protections against unfair legal practices.

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