Assuming that the parties are not in disagreement that a sum is due but the defendant is unable to pay but is willing to enter into an agreement which has the same effect as a judgment, there are two methods to achieve that. If a case has already been filed, a Stipulation for Judgment is entered in the Court which can provide for immediate entry of judgment or can provide for entry if certain conditions, such as a payment plan, are not met.

But what if no cause of action has been brought and no lawsuit has been filed in any court? What remedy is available to the Plaintiff who wishes to settle but wants to be able to enforce a judgment immediately but without the cost of filing suit and going to trial should defendant continue to fail to make payments?

In certain cases, the Plaintiff may seek money from the Defendant by entering a confession of judgment in court when no action for money due has been filed.  A confession of judgment is a private admission by the Defendant to liability for a debt without having a trial.  It is essentially a contract (or a clause with such a provision) in which the Defendant agrees to let the Plaintiff enter a judgment against him or her. It may only be used when no action has been commenced in court.

The courts have held that such a process constitutes the defendant waiving vital Constitutional rights, such as the right to due process, thus have imposed strict requirements in order to have the confession of judgment enforceable. This article shall discuss those procedures and the benefits of seeking a confession of judgment.

Basic Procedure:

A confession of judgment is a written statement, signed and verified by the defendant under oath.  It must be accompanied by an independent attorney’s declaration.  The papers are submitted to the clerk of the court for entry; the court then places its imprimatur on it.  It may be entered in any court having jurisdiction for the amount involved. [CCP §1132(a)]  The judge then signs a judgment which specifies the principal due, interest accrued, and costs incurred.

Once executed, a confession of judgment may be kept by the plaintiff and not utilized or filed with the court if certain specified payments are made and then returned to the defendant, unfiled, once all payments are completed. Those payments should be specified in writing so that there is no later contest as to what was required.

Note the requirement of an independent attorney signing the confession. This is imposed since the defendant is waiving his or her right to trial by jury, to cross examine witnesses, etc. The courts in California do not allow such waiver without advice of counsel.  Counsel for the plaintiff cannot be that counsel, even if the defendant signs a waiver of conflict of interest.

But what if the defendant has no attorney? This is a likelihood in situations where no action has been brought in court and the defendant is often without funds. Can a confession of judgment still be entered?

The answer is no.  A confession of judgment is invalid unless accompanied by an independent attorney’s declaration (as required per CCP 1132(b)).

Assuming the confession is properly executed as above, it is an immediate judgment once filed in the courts, allowing a plaintiff to use all the tools for collection of judgment available as if a full trial had occurred, including writs of execution, attachment of wages and assets, abstracts of judgment affecting title, etc.

 

Constitutional Issues:

The due process clause of the U.S. Constitution, amendment XIV, safeguards each person’s right to notice and the opportunity to be heard in court.  Generally, judgment may not be rendered against a defendant who has not been duly accorded these rights.

In a confession of judgment, the defendant confesses judgment in favor of the plaintiff for a specified amount, and authorizes entry of judgment against him or herself for that sum and often for accrued interest and attorneys fees incurred by the creditor. It may contain other facts as applicable to the specific situation.

The attorney’s declaration states that the attorney has examined the proposed judgment and has advised the defendant with respect to the waiver of rights and defenses under the confession of judgment procedure, and has advised the defendant to utilize this procedure.

Because a confession of judgment is used only when no action has been filed in court, it is seen as inconsistent with due process rights.  This is why it must be accompanied by the attorney’s declaration. The declaration supports the defendant’s statement that the confession of judgment is given voluntarily, knowingly and intelligently after receiving independent legal advice.

In fact, the Supreme Court of California held that a confession of judgment entered without an attorney’s declaration was unconstitutional. [Isbell v. County of Sonoma (1978) 21 Cal. 3d 61, 75]

California’s Code of Civil Procedure sets forth the law governing confession of judgment procedures at §§ 1132 – 1134.  Specifically, §1132(b) states:

1132. (b) A judgment by confession shall be entered only if an attorney independently representing the defendant signs a certificate that the attorney has examined the proposed judgment and has advised the defendant with respect to the waiver of rights and defenses under the confession of judgment procedure and has advised the defendant to utilize the confession of judgment procedure. The certificate shall be filed with the filing of the statement required by Section 1133.

Even when it conforms to the procedures set forth in above, a confession of judgment is considered an extreme procedure.  While some states, California included, allow this procedure, others require that it be specially labeled or contingent upon other circumstances.  Still others hold it illegal, making void any agreement to confess judgment that is entered into prior to commencement of an action.

Within California, a confession of judgment is available as a creditor’s remedy. In these bankruptcy or other creditor/debtor circumstances, it is also known as a “cognovit judgment.”

Further, a confessed judgment is invalid if the certificate or declaration is signed only by the defendant, even if he or she is an attorney. [Efstratis v. First Northern Bank of Dixon (1997) 59 Cal. App. 4th 667, 674]

A confessed judgment is also invalid if signed by an attorney who has represented both plaintiff and defendant in the past.  Such conflicts of interest may, in other situations, be put aside by written waiver.  With confessed judgments, however, even if the defendant acknowledges the potential conflict, the confession of judgment will be considered invalid. [Wax v. Infante (1982) 148 Cal. App. 3d 138, 140]

Why Use the Confession of Judgment?:

Despite the restrictions on using a confession of judgment, it is an attractive remedy to many creditors or other persons who may find themselves being owed money.  Having a fully executed confession of judgment ready to file, if necessary, is a faster route to collection because the judgment has already been obtained.  All that remains is to enter it into the legal system.

Otherwise, the usual route is for the creditor to file a complaint, after which it can take months or longer to reach judgment, whether by stipulation or by trial.  The cost and delay of discovery and trial is eliminated in full. Or, as one client put it, “This is going directly to GO and collecting the two hundred dollars,” referring to Monopoly, of course.

Since collection efforts are often a race for finite funds in which numerous other creditors are seeking to attach the same assets, having a confession of judgment is an extremely valuable tool. Another creditor may find itself six months to two years away from a judgment that someone holding a confession can have entered in a month or so. That allows writs of execution to be available long before other creditors even finish discovery.

It is also a very good test to see if promises to pay are truthful. If a debtor truly plans to abide by the payment plan proposed, he or she should have no problem agreeing to a confession of judgment. If all payments are made, it is never filed, never made public, and there is no harm to the debtor at all.  And if payments falter, the creditor gets the benefit of immediate ability to obtain a judgment. Any debtor refusing must be carefully scrutinized by the creditor since there can be little good cause for the refusal if the debt is admitted.

Often the cost of obtaining independent counsel is mentioned by the debtor as prohibitive. In reality, for less than five hundred dollars most attorneys will sign off. The cost of even filing an Answer in a court of law will match or exceed that. Clearly, the money is well spent-IF the debtor intends to pay.

Advance Agreements in Consumer Contracts Prohibited:

Naturally, parties entering into contracts for sums  of money might want to require the obligor (or party who may owe money) to sign a confession of judgment in advance as a term of the contract in advance of performance under the contract.  Remember, the confessed judgment is merely kept on hand, ready to be filed if the obligor defaults on their debt.

However, the Federal Trade Commission established the Credit Practices Trade Regulation Rule which prohibits, in part, consumer contracts from containing these provisions.  While the FTC is clear that confessed judgments may not be obtained in this form, it has also stated that the Rule is not intended in any way to interfere with a creditor’s right to repossess secured property.  The Rule acts only to uphold due process rights.

Conclusion:

Some use confessions of judgment often, thinking that the savings in attorneys fees to collect is well worth the advance costs of having the document prepared and approved. Other clients feel that they are tools only to be used in extreme cases in which large sums of money are past due and the debtor is begging for better terms or more time to pay.

Given the backlog in the courts and the expense and delay inherent in going to trial, a confession of judgment is clearly an efficient and appropriate method.

Assuming that the debtor refuses the confession, the creditor may file suit, serve it, and should the debtor, faced with attorney fees and costs, change his or her mind, a stipulation for judgment may be entered which has less due process requirements since the debtor is already in a court of law and thus had access to the various tools required by the Constitution.

But one thing is clear: if you are a creditor, delay works only to the benefit of other creditors. Whatever tool you intend to use, it should be used promptly. And if you are a debtor, you must fully understand the power you give to the creditor once you execute the confession of judgment.