• Confession of Judgment Clauses Are the Fast-Track to Enforceability
  • December 17, 2012 | Author: Andrew C. Voorhees
  • Law Firm: Weltman, Weinberg & Reis Co., L.P.A. - Cleveland Office
  • Generally, when a party defaults upon a contract, you can be assured of a lengthy and costly battle in court to enforce your rights. However, a minority of states permit contractual mechanisms to bypass the litigation process and obtain a quick judgment. These contractual mechanisms are called confession of judgment clauses and, if properly utilized, can assist you in enforcing contractual obligations quickly.

    Confession of judgment clauses traditionally appear in commercial agreements known as “cognovits notes”. They favor the lessor or lender in that it allows them to obtain a judgment against a party in default without a protracted litigation process, including notice. The confession of judgment clause contained in the commercial contract serves an important function by immediately allowing a party to enforce its rights under the contract without opposition.

    While due process arguments against confession of judgment clauses have limited their widespread use, there are some states that allow them. One such state is Ohio, and a review of Ohio law can help explain this process. Ohio Revised Code § 2323.12 allows for Judgments by Confession and states:

    A person indebted, or against whom a cause of action exists, may personally appear in a court of competent jurisdiction, and, with the assent of the creditor, or person having such cause of action, confess judgment; whereupon judgment shall be entered accordingly. The debt or cause of action shall be briefly stated in the judgment, or in a writing to be filed as pleadings in other actions.

    Such judgment shall authorize the same proceedings for its enforcement as judgments rendered in actions regularly brought and prosecuted. The confession shall operate as a release of errors.

    Before a Judgment by Confession can be held to be valid and enforceable, there must be compliance with strict statutory requirements. Ohio Revised Code § 2323.13 outlines these requirements. As for the clause itself, Ohio law requires that the following language, called a warrant of attorney, appear in the contract or instrument:

    Warning -- By signing this paper you give up your right to notice and court trial. If you do not pay on time a court judgment may be taken against you without your prior knowledge and the powers of a court can be used to collect from you regardless of any claims you may have against the creditor whether for returned goods, faulty goods, failure on his part to comply with the agreement, or any other cause.

    Ohio Revised Code § 2323.12(D).

    Not only must the warrant language appear, but the statutory language must appear “above or below the space or spaces provided for the signature of the makers, in such type or size or distinctive marking that it appears more clearly and conspicuously than anything else on the document.” (Id.) This is to avoid contracts where the warrant of attorney is buried within boilerplate or other fine print.

    One of the most important aspects of a Judgment by Confession is that they are generally invalid for consumer transactions. In Ohio, a Judgment by Confession is invalid if the underlying transaction was for “personal, family, or household use.” Ohio Revised Code § 2323.13(E). For example, contracts for the purchase of your private residence or vehicle cannot contain valid confession of judgment clauses. However, commercial transactions not used for personal, family or household use will generally be valid and enforceable.

    Once a default of a cognovit note occurs, it still must be properly presented to the court before it becomes enforceable. In Ohio, an attorney that seeks a confession of judgment must produce a compliant warrant of attorney. See Ohio Revised Code § 2323.13(A). Also, you must ensure that the warrant of attorney is presented in the proper jurisdiction, which is where the maker of the contract resides or signed the contract. (Id.)

    Also important is the original signed contract bearing the warrant of attorney. Ohio Revised Code § 2323.13(A) does permit the filing of a photographic copy of an original cognovit note in order to establish the warrant of attorney. Fogg v. Friesner (1988), 55 Ohio App. 3d 139, 562 N.E.2d 937. However, many courts require that the original signed contract bearing the warrant of attorney be presented to the court before any judgment will be rendered. Huntington Nat'l Bank v. 199 S. Fifth St. Co. (2011), LLC, 2011 Ohio 3707.

    While only available in select jurisdictions, a confession of judgment clause in your signed agreement can be a quick and cost-efficient way to ensure your ability to enforce a defaulted agreement. In order to properly utilize this mechanism, it is important to review and comply with both the statutory requirements and any local jurisdictional requirements before incorporating such a clause in your agreements. If permitted by law and compliance with requirements are present, you can avoid the most burdensome aspects of litigation.