Legal Issues by State
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Originally posted here. Illinois law recognizes the draconian nature of a confession judgment, and Illinois law limits their use. Any strategy for attacking the confession judgment described above begins with a discussion about those limits. A. Statutory Limits on Confession Judgments A confession judgment debtor’s lawyer must read 735 ILCS 5/2-1301(c), which requires the creditor… Read More »
Contingent Obligations As Usury Under Texas Law Posted on May 29, 2014, here Penalties for a Usurious Commercial Transaction In Texas, merely contracting for a usurious interest rate is sufficient for a borrower to assert a claim for usury. Tex. Fin. Code Ann. § 305.001(a-1) (West 2013); Bernie’s Custom Coach of Texas, Inc. v. Small… Read More »
§3500. Rates of legal and conventional interest; usury A. Interest is either legal or conventional. B. Legal interest is fixed at the following rates, to wit: (1) At the rate fixed in R.S. 13:4202 on all sums which are the object of a judicial demand, whence this is called judicial interest; and (2) On sums… Read More »
Originally posted here. Mar 29, 2018 In our prior Clients & Friends Memo “Who’s My Lender?” published on March 14, 2018, we analyzed two actions brought against marketplace lenders, one against Kabbage Inc. (“Kabbage”) in federal court in Massachusetts1 and the other against Avant in federal court in Colorado.2 In that memo, we noted that the Massachusetts… Read More »
Originally posted here. 1. What is usury? Usury involves lending money as excessive or unreasonably high rates. Charging excessive loan terms can be criminal usury in Colorado. This practice may also be known as “loan-sharking” or “predatory lending.” “Any person who knowingly charges, takes, or receives any money or other property as a loan finance charge where… Read More »
Universal Citation: CO Rev Stat § 18-15-104 (2016) (1) Any person who knowingly charges, takes, or receives any money or other property as a loan finance charge where the charge exceeds an annual percentage rate of forty-five percent or the equivalent for a longer or shorter period commits the crime of criminal usury, which is a… Read More »
Originally posted here. STATE OF MICHIGAN BILL SCHUETTE, ATTORNEY GENERAL USURY: Payment of interest with future revenues or profits. A financing agreement in which the borrower agrees to repay the principal with interest and a percentage of future revenues or profits will not violate usury laws so long as the lender’s profit is contingent, and… Read More »
Originally posted here. The current economic downturn has led to increased public scrutiny of lending practices. Michigan usury laws offer important protection to borrowers by capping the interest rate that lenders can charge. Whether one is a lender or a borrower, it is important to become familiar with the basic law and its many exceptions.… Read More »
The amount of interest a creditor may charge is limited by state laws, but there’s a big catch: consumers often agree to pay a higher interest rate by agreeing to the terms offered, thus waiting any statutory limits. Additionally, most state laws limiting interest rates have exceptions. In Tennessee, for instance, the legal amount of interest… Read More »
As background, a confession of judgment is a contract provision (or a stand-alone contract) in which one party agrees on the front-end of a transaction to let the other party enter a judgment against him if the deal goes bad. You agree, in advance and before any default or dispute arises, that the other party… Read More »
AN ACT to amend Tennessee Code Annotated, Title 45, Chapter 5, relative to lending. BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF TENNESSEE: SECTION 1. Tennessee Code Annotated, Section 45-5-102, is amended by adding the following as a new subdivision: ( ) “Amount financed” means the amount financed as disclosed under the… Read More »
COJs Void in FL, but Foreign Judgments are Enforced Section 55.05 provides: All powers of attorney for confessing or suffering judgment to pass by default or otherwise, and all general releases of error, heretofore made or to be made hereafter by any person whatsoever within or without this state, before such action brought, shall be… Read More »
Originally published here Domestication of Foreign Judgments in NY & NJ Under New York law, the procedure for domesticating an out-of-state judgment is very straightforward when the judgment was obtained on the merits. The process is slightly more involved, however, when the judgment was obtained by default, as domestication of the latter requires the filing of a “Motion… Read More »
Originally published here The Texas Uniform Enforcement of Foreign Judgments Act provides for the recognition of judgments from other territories, states and federal courts in the United States. Such a judgment has the same effect and is subject to the same procedures as a judgment rendered in the state of Texas once properly filed. The… Read More »
Originally published here The federal Constitution provides that a judgment from a sister state (of the United States) is entitled to the same “full faith and credit” in every court within the United States as it has by law or usage in the court of the sister state. Thus, a sister state judgment rendered by a… Read More »
Originally published here INTEREST AND USURY; LENDING PRACTICES 687.01 Rate of interest in absence of contract. 687.02 “Usurious contracts” defined. 687.03 “Unlawful rates of interest” defined; proviso. 687.0303 “Line of credit” defined. 687.0304 Credit agreements. 687.031 Construction, ss. 687.02 and 687.03. 687.04 Penalty for usury; not to apply in certain situations. 687.05 Provisions for payment of attorney’s fees. 687.06 Attorney’s fee in enforcing nonusurious contracts;… Read More »
Confessed Judgments are governed by Maryland Rules 2-611 (in Circuit Court) and 3-611 (in District Court). A Confessed Judgment is not applicable to consumer loans or transactions. A confessed judgment clause allows a creditor’s attorney to file an affidavit with the lawsuit and effectively confess, on behalf of the debtor, that the judgment is owed. … Read More »
Originally published here As a creditor, there is perhaps no greater tool than a valid confession of judgment clause within your written agreement with a customer. Imagine a customer fails to make payment on its commercial credit account. Now you must decide whether or not to hire an attorney and initiate a lawsuit. However, the… Read More »
Original link here. 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,… Read More »
Originally published here Confession of judgment is permitted in the State of Texas. Under Rule 314 of the Texas Rule of Civil Procedure, any person against whom a cause of action exist may, without process, appear in person or by attorney, and confess judgment in open Court. The person must file a petition, under oath,… Read More »
Originally published here The specific requirements for COJ in NY are specified in Civil Procedure Law & Rules (CPLR) 3218. The requirements are as follows: Notarized Affidavit of Defendant. Plaintiff must have an original notarized “wet ink” COJ affidavit from the defendant. It must be a notarized affidavit that has been notarized by a notary public… Read More »
Originally published here In the typical litigation scenario, the aggrieved party, Plaintiff, sues the party they believe has caused the harm, the Defendant. A judgment is the final determination of the rights of the parties in an action or proceeding. Assuming that the parties are not in disagreement that a sum is due but the defendant… Read More »
Original Article here. Many people wrongfully believe they can charge whatever amount of interest the market with bear. Unfortunately, that is not generally the case. In most circumstances, a non-exempt lender is restricted to collecting ten percent (10%) per year on a loan, even if the borrower begs and pleads to pay a higher rate… Read More »
Originally published in 2014 by Joel Glick, here. The mention of usury often brings to mind predatory payday lenders and loan sharks. However, the practice of charging an excessive rate of interest often occurs in traditional financial transactions as well. Frequently, it is an unintended consequence of either or both parties failing to understand the… Read More »
Originally posted here.
Illinois law recognizes the draconian nature of a confession judgment, and Illinois law limits their use. Any strategy for attacking the confession judgment described above begins with a discussion about those limits.
A. Statutory Limits on Confession Judgments
A confession judgment debtor’s lawyer must read 735 ILCS 5/2-1301(c), which requires the creditor to file a confession judgment suit only in counties where (1) the instrument containing the warrant of attorney was executed, (2) at least one defendant resides, or (3) any of the defendants own property. The statute also bars their use in consumer transactions.
B. Voidness Considerations
If the confession judgment satisfies §2-1301(c), the debtor’s lawyer must determine its validity or voidness. The debtor’s lawyer should pull the Clerk’s file and scrutinize the pleadings. This section discusses different strategies to attack the confession judgment as void.
Oakland Nat. Bank v. Tomei, 215 Ill.App.3d 638, 640 (4th Dist. 1991) (“Judgments by confession are viewed circumspectly; … The policy underlying this rule of strict construction against the party in whose favor the power operates is based on the severity of the summary proceeding itself. The party granting such authority deprives himself of all defenses and delay of execution and places his cause in the hands of a hostile defender”)
1. Voidness for Lack of Personal Jurisdiction
The author usually defends confession judgments by attacking them as void for want of personal jurisdiction. Start with the obvious: A court cannot enter a valid money judgment without first obtaining in personam jurisdiction over the judgment debtor.4 5
A confession-of-judgment case uses a contract to bend the rules. “A confession-of-judgment clause usually authorizes the appointment of an attorney for a defaulting debtor to appear for the debtor in an action for an amount owed due, to waive personal jurisdiction and service, and to consent to a judgment against the debtor.”6 This is called a warrant of attorney.
The following checklist should help:
a) Did the lender forget to include a confession-of-judgment?
A “confession-of-judgment” clause may authorize the confession of judgment, but the process requires an additional step: Once the creditor files suit, an appointed attorney must actually appear for the debtor, waive personal jurisdiction and service, and confess a judgment against the debtor. The attorney-in-fact typically does this by including signing a document entitled “confession” or “confession-of-judgment,” which the complaint attaches.
If the creditor fails to submit a signed “confession-of-judgment,” the debtor’s lawyer should attack the judgment as void for lack of personal jurisdiction unless the Clerk’s file shows service of process. The argument is simple: No appearance equals no personal jurisdiction.7
b) Is the total amount of the indebtedness calculable without extrinsic evidence?
The leading Illinois confession judgment case is Grundy County Nat. Bank v. Westfall,8 wherein our Supreme Court held:
Judgments by confession are circumspectly viewed. The power to confess a judgment must be clearly given and strictly pursued, and a departure from the authority conferred will render the confessed judgment void. The extent of the liability undertaken must be ascertainable from the face of the instrument in which the warrant is granted. A judgment by confession must be for a fixed and definite sum, and not in confession of a fact that can only be established by testimony
State Bank of Lake Zurich v. Thill, 113 Ill.2d 294, 308 (1986); Nelson v. Keene Corp., 283 Ill.App.3d 7, 11 (1st Dist. 1996)
C.T.A.S.S. & U. Federal Credit Union v. Johnson, 383 Ill.App.3d 909, 912 (1st Dist. 2008) 9 ILL. PRAC., Illinois Civil Trial Procedure § 37:3 (2010); Sears Bank & Trust Co. v. Scott, 29 Ill.App.3d 1002, 1009 (1st Dist. 1975)
Goldberg v. Schroeder, 10 Ill.App.2d 186, 191 (1st Dist. 1956) (“… jurisdiction of the person of the defendant is acquired by the entry of his appearance under authority granted in the warrant of attorney”) (emphasis added)
49 Ill.2d 498, 501 (1971)
outside of the written documents, required by the statute to be filed in order to enter up a judgment by confession. Freeman on Judgments, sec. 1321, states: “A warrant must state the amount for which judgment is authorized or state facts from which the amount can be definitely ascertained, and where it merely authorizes judgment for such sum as may be found to be due between the parties in their future dealings, it is void for uncertainty.”9
Based upon this passage, we typically argue that the Court cannot calculate the debtor’s entire liability from the face of the instruments containing the power.
The author believes the foregoing confession judgment is void because the trial Court needs extrinsic evidence to calculate the full extent of the debt and guaranty. For ease of reference, this article separates the problems into sections:
(1) The Grundy County “classic” – the overreaching guaranty
Grundy County invalidated a confession judgment based upon a guaranty where:
… the instrument guaranteed full and prompt payment by the defendant to plaintiff of ‘any and all indebtedness, liabilities and obligations of every nature and kind of said Debtor to said Bank, and every balance and part thereof, whether now owing or due, or which may hereafter, from time to time, be owing or due, and howsoever heretofore or hereafter created or arising or evidenced to the extent of ***.’ In the blank space ‘$50,000’ had been written so that at the time the judgment was entered it read ‘to the extent of $50,000.’
The guaranty’s scope – including future debts not then ascertainable – defeated its warrant of attorney because the Court needed extrinsic evidence to determine the nature and amount of the subsequent debts. The Supreme Court invalidated the confession judgment, holding that “[t]he authorization was not for a fixed sum specified or one ascertainable from the instrument itself.”
Mount Prospect expanded on Grundy County’s rationale as follows:
However, none of the instruments indicates the amount of the loan that was guaranteed. In fact, the instruments state that each guarantor could be liable for the full amount of any and all loans made by Bank to Sawmill up to the guarantor’s maximum liability. Thus, it is evident from the instruments that an initial loan could be completely paid off, other loans made, and the guarantors would still be liable for any amounts left unpaid on those other loans. Merely because the instruments state the maximum liability of each guarantor does not
49 Ill.2d at 500-01 (citations omitted); accord, State Nat’l Bank v. Epsteen, 59 Ill.App.3d 233, 234-35 (1st Dist. 1978); Mount Prospect State Bank v. Forestry Recycling Sawmill, 93 Ill.App.3d 448, 455 (1st Dist. 1980)
49 Ill.2d at 501 (emphasis added)
49 Ill.2d at 503 (1971)
render the power to confess judgment valid since at any given time the extent of liability could only be shown by evidence independent from the face of the instruments.
(Emphasis added). As the italicized text reflects, the Court expressed concern about its inability to determine the amount of the indebtedness from the face of the guaranty.
Now compare the language of our guaranty, which defines the “Indebtedness” as:
… all of the principal amount outstanding from time to time and at any one or more times, accrued unpaid interest thereon and all collection costs and legal expenses related thereto permitted by law, attorneys’ fees, arising from any and all debts, liabilities and obligations of every nature or form, now existing or hereafter existing or acquired, that Borrower individually or collectively or interchangeably with others, owes or will owe Lender. “Indebtedness” includes, without limitation, loans, advances, debts, overdraft indebtedness, credit card indebtedness, lease obligations, liabilities and obligations under any interest rate protection agreements or foreign currency exchange agreements or commodity price protection agreements, other obligations, and liabilities of Borrower, and any present or future judgments against Borrower, future advances, loans or transactions that renew, extend, modify, refinance, consolidate or substitute these debts, liabilities and obligations …
(Emphasis added). It covers amounts not due at the time of the loan and substitute future transactions. Our guaranty is indistinguishable from those in Grundy County and Mount Prospect. Proving the amount of the guarantor’s liability requires extrinsic evidence.
(2) The “variable interest” issue
The “indebtedness” in a loan has three parts: (1) principal, (2) interest, and (3) fees allowed by the loan documents. If the Court cannot calculate any single component without extrinsic evidence, the author believes it cannot properly enter a confession judgment.
One common problem in confession judgment cases arises from the use of variable or “floating” interest rates in business loans. A “floating” rate is defined as a “[r]ate of interest that is not fixed but which varies depending upon the existing rate in the money market.”13 Most “floating” rates set the interest rate at some percentage over the Prime Rate or LIBOR. These rates fluctuate. To find the rate on any given date, a party must consult an outside index.
In our case, the note set the interest rate at 1% over Wall Street Journal Prime. Moreover, the “confession-of-judgment” clause in the note reads as follows in relevant part:
Borrower hereby irrevocably authorizes and empowers any attorney-at-law to appear in any court of record and to confess judgment against
93 Ill.App.3d at 456 (1st Dist. 1980)
BLACK’S LAW DICTIONARY at 576 (5th ed. 1979)
Borrower for the unpaid amount of this Note as evidenced by an affidavit signed by an officer of Lender setting forth the amount then due, attorneys’ fees plus costs of suit, and to release all errors, and waive all rights of appeal.
To calculate interest, a bank officer must furnish an affidavit with that calculation, which requires the officer to reference the Wall Street Journal Index.
The author believes the confession-of-judgment provision in our scenario fails for two reasons. First, a bank officer’s affidavit is “testimony outside the instrument containing the warrant of attorney” that Grundy County prohibits, raising a public policy argument. Second, one cannot calculate the interest simply by looking at the note; it requires reference to the Wall Street Journal – which is extrinsic to the note. The debtor should argue that the interest rates during the loan’s term probably did not exist on the date of the loan. The same arguments apply to the guaranty.
Although the “variable interest rate” argument appears untested by any U.S. appellate court, the author has enjoyed some success with it at the trial court level. Some judges apply Grundy County strictly and invalidate confession-of-judgment clauses in variable rate notes. Others hold that the language of the confession-of-judgment clause lets the lender look outside the note to determine the interest rate, and reject the public policy-based argument.
c) Voidness for failure to comply strictly with the power of attorney
As discussed above, the Grundy County Court states:
The power to confess a judgment must be clearly given and strictly pursued, and a departure from the authority conferred will render the confessed judgment void.
If the lender does not comply strictly with the authority conferred, the debtor should argue that the non-compliance invalidates the confession judgment.
In our example, the bank’s lawyer made a huge mistake. The “confession-of-judgment” clauses in the note and guaranty require a bank officer to submit a signed affidavit attesting to the amount due and owing. However, the bank’s lawyer attached an unsigned payoff letter.
The debtors should attack the confession judgment as void for failing to submit the bank officer’s “affidavit” required by the confession-of-judgment clauses. In Illinois, an affidavit is a declaration, on oath, in writing, sworn to by a party before some person who has authority under the law to administer oaths.15 An affidavit must be sworn to, and statements in a writing not sworn to before an authorized person cannot be considered affidavits.
Farmers Ins. Co., our Supreme Court held that “[a]n affidavit that is not sworn is a nullity.
49 Ill. 2d at 501 (1971)
202 Ill.2d 490, 493 (2002), citing Harris v. Lester, 80 Ill. 307, 311 (1875)
Roth at 494; accord, People v. Tlatenchi, 391 Ill.App.3d 705, 714 (1st Dist. 2009)
Roth at 497, citing Hough v. Weber, 202 Ill.App.3d 674, 692 (2nd Dist. 1990)
You may also wonder how the bank’s lawyer could sign a confession-of-judgment on behalf of the developer and guarantor without creating a conflict of interest. The “confession of judgment” clause identifies her as the attorney for the developer and guarantor, and says she is appearing for them. Good question – but it may surprise you that prior Illinois law supported a creditor’s lawyer to sign a confession-of-judgment for the debtor. A 1971 First District case even scoffed at the argument,18 as did a 1982 Federal case.
The author believes the 2010 Rules of Professional Conduct (the “2010 RPCs”) changed the law, and that plaintiffs’ lawyers may no longer confess judgment against defendants in the same case. 2010 RPC 1.7(a)(1) and 1.7(b)(3) address “concurrent conflicts of interest.” 2010 RPC 1.7(a)(1) prohibits a lawyer from representing one client against another in the same case. While 2010 RPC 1.7(b) lists exceptions for situations where the lawyer obtains informed consents from conflicted clients, 2010 RPC 1.7(b)(3) absolutely forbids the concurrent representation of one client against another within the same litigation.
The Comment to 2010 RPC 1.7 includes a section entitled “Prohibited Representations,” 14, 17 and 23 of which provide further guidance, and explain that Illinois lawyers should not disregard the 2010 RPC 1.7(b)(3) ban against concurrent representations of one client against another within the same litigation, and that the client’s consent to such a conflict does not matter. Neither 2010 RPC 1.7 nor its Comment makes an exception for confession-of-judgment cases. Although no Illinois reviewing court has addressed this precise issue, the author recently made this argument successfully at the trial court level.
In our scenario, the bank’s lawyer concurrently signed the complaint for the bank, and the confession-of-judgment as the debtors’ lawyer. Given the plain language of 2010 RPC 1.7 and Comments ##14, 17 and 23, the debtors should move to disqualify her. If the bank responds with older cases, the debtors should reply that 2010 RPC 1.7 vitiated the older contrary law. If the bank characterizes the actions of an “attorney-in-fact” as something other than an attorney action, the debtors should reply that only a lawyer may appear in court for a client; if the bank’s lawyer did not appear for the debtors’ in that capacity, the court never had personal jurisdiction.
If the court disqualifies the bank’s lawyer, the debtors should attack the confession-of-judgment as invalid, and argue that it never gave the Court personal jurisdiction, rendering the judgment void. The bank lawyer’s conflict of interest may also eliminate any right to legal fees for work under that conflict20 and require the Court to vacate the judgment and reduce it.
Gecht v. Suson, 3 Ill.App.3d 183, 188 (1st Dist. 1971)
Citibank, N.A. v. Bearcat Tire, A.G., 550 F.Supp. 148, 150-51 (N.D.Ill. 1982)
Strong v. International Investment Union, 183 Ill. 97, 102 (1899); In re Marriage of Newton, 2011 Il App (1st) 090683, 41; King v. King, 52 Ill.App.3d 749, 753 (4th Dist. 1977)
A large adverse judgment can prove disastrous, and the judgment debtor’s lawyer faces formidable hurdles. Although the underlying obligations are beyond the scope of this article, these strategies may help confession judgment debtors free up frozen assets, and let them defend these cases on the merits more effectively.