Judgment without a Trial: The risks and rewards of Confession of Judgment

A "Confession of judgment" is an agreement in which one party agrees to let another party enter judgment against him or her in the event of a default. Confession of judgment can only occur in certain transactions and usually is found in commercial leases and commercial promissory notes. Any agreement which allows for confession of judgment must have specific language as provided for in the Pennsylvania Rules of Civil Procedure. Courts require a plaintiff seeking judgment to file an affidavit or aver in the complaint that the judgment is not being entered in a consumer credit transaction. As a result, confessions of judgment can only occur in commercial transactions. When there is a default in an agreement that has the proper confession of judgment provisions the party confessing judgment may proceed to the county courthouse, declare a default and enter judgment immediately. The defaulting party does not receive the benefit of a trial or the additional time that is usually associated with litigation.

The confession of judgment procedure is not unique to Pennsylvania; however it is one of only a small number of jurisdictions in the United States to allow it. Confession of judgment permits a contracting party immediate access to a judgment and seizure and sale of assets of a defaulting party to satisfy the judgment. For that reason commercial lenders and landlords routinely require a confession of judgment clause in their contracts.

Because of the extraordinary power afforded to a creditor under a confession of judgment provision, the courts have over the years expanded the rights of debtors. A debtor may have a judgment opened if a petition to the court is timely filed. The debtor can raise issues of material fact as to the propriety of the entry of the judgment in the first place. If an issue of fact is raised in a debtor's petition, the judgment will be opened and the case will proceed to trial like a traditional lawsuit. A debtor may also petition to strike a judgment in the event there is a defect in either the agreement or in the complaint in confession of judgment.

Borrowers and tenants should be careful about executing documents containing a confession of judgment provision as their rights might be significantly impaired in the event of a default. Commercial lenders and landlords should insist on such provisions being included in their contracts and leases. This is just one reason commercial notes and leases should be reviewed by an attorney prior to being signed. Contact us if you feel we can assist you in this area.

-- J. Ken Butera