Confessions of Judgment. (Legal Jargon).(Brief Article)

As a credit professional working for a supplier or contractor, you commonly receive requests from customers who have no problem with your company's performance but need more time to pay because of cash flow or related financial problems. You may be strongly inclined to work with the customer, both to preserve the commercial relationship and to avoid the time and expense of a lawsuit. However, what if the customer ends up not paying even after having been given more time? You still have to go through the time and expense of a lawsuit. Additionally, the customer, no longer concerned about your goodwill, may assert defenses which, while without merit, will require further time and money to overcome.

Many jurisdictions permit a solution: A "Confession of Judgment." The Confession of Judgment gets its name because the debtor "confesses" an amount due to a creditor before any lawsuit is filed, and the creditor can use it to obtain judgment if the debtor does not perform. You may require the customer to execute the Confession of Judgment in return for the credit extension, and if the customer defaults, you can use the Confession of Judgment to obtain judgment without trial, and cut off all defenses and appeals.

The Confession of Judgment sounds too good to be true. Indeed, since a Confession of Judgment requires the debtor to waive important due process rights, such as trial by jury, or trial at all, many states do not allow them, either at all or for certain types of transactions. Furthermore, even those jurisdictions that do permit Confession of Judgment impose significant procedural and practical hurdles. Nevertheless, when a Confession of Judgment is available, it is a powerful tool in the arsenal of a credit professional.

We suggest you consider the following issues in determining whether to request that the customer execute a Confession of Judgment:

1. Does the jurisdiction allow Confessions of Judgment at all?

Confessions of Judgment do not violate the United States Constitution or federal laws or regulations. Instead, it is up to the individual States whether to permit Confessions of Judgment. A significant number of states do not permit Confessions of Judgment as being against public policy. When the creditor and debtor are located in different states that have differing policies on Confessions of Judgment, legal counsel should be consulted on which state's law applies.

2. Does the jurisdiction permit Confessions of Judgment for the type of transaction involved?