In this video, you will get answers to these questions:
- Why is a confession of judgment so powerful?
- What is a confession of judgment?
- What are some examples?
- Are you entering into a contract with a person you don’t trust?
Why is a confession of judgment so powerful? That’s a question I’m going to answer today. I’m Aaron Hall, an attorney representing business owners in Minneapolis, Minnesota.
All right. Let’s first start out with what is a confession of judgment. It’s a document where a person confesses or admits or acknowledges that a judgment should be filed against them. You might be thinking, “Why would anyone sign that? Why would someone sign a confession of judgment?” Because you’re essentially admitting that a court should issue a judgment against you. By the way, what is a judgment? A judgment is a sheet of paper issued by a judge that says, “Here is my decree. Here’s my ruling.” It has the full authority of the court on the parties about whom it’s written. So if you confess to a judgment, then a judge can enter a judgment against you. Why would you do this?
Well, here’s the scenario. Imagine that somebody owes you $100,000 and they’re supposed to make monthly payments of $1,000 a month until this is paid off, but then they stop making payments. You go to them and you say, “Hey, you better pay.” And they say, “I’m not going to pay. I don’t have the money. I can’t do it. I’m sorry, I can’t pay.” What do you do? Well, you can start a lawsuit. Now, what if they say, “Oh sorry, sorry, sorry, I’ll pay. Here’s the money. Here’s the money.”
The best practice is to say, “Look, I’ll agree to drop this lawsuit against you, but only if you sign a confession of judgment, because if you miss a few more payments, I don’t want to have to spend the money to hire an attorney and file another lawsuit and go at you again. I want you to sign a confession of judgment, which says, “If I stop making payments in accordance with the promissory note, then you can file the confession of judgment.”
So here’s how that would play out. I have a client. The client is owed $100,000, the person who owes the money stops making payments. So my client comes to me and says, “What do we do?” I draft a demand letter to the opposing party and I say, “Look, you have to pay these the money that’s owed under the contract, and if you don’t, we’re going to sue.” Well, let’s assume they don’t. Okay, now we’re going to sue. We initiate the lawsuit and then they come and say, “Hey, hey, hey, can we make payments? Would you drop the lawsuit, if we make the payments?”
I’m going to say, “Look, we’ll drop the lawsuit, but if you miss payments again in the future, we don’t want to go through this whole deal again. So you need to sign not only a promissory note but a confession of judgment. And the promissory note says, “If you miss another payment by even a minute, we don’t have to sue you. We can simply file the confession of judgment that you’ve already signed with the court. The only issue at that point will be did you pay on time?” It has nothing to do with the merits and other details of the contract. The only question is, was the filing proper because the payment was missed? That is the power of a confession of judgment.
In other words, you can bypass an entire lawsuit, which by the way usually takes over a year and can take $50 to $100, $150, $200,000 in legal fees. Unfortunately, litigation is expensive and time-consuming, and so a powerful way to bypass litigation is to get a confession of judgment in advance, but you can’t use them in necessarily every contract. The only way you can usually do it is if there’s a specific amount that the other party agrees is owed and will be making payments on that. At least that is the most typical way that we see this.
So there you have it. That’s what a confession of judgment is. It’s a powerful tool available to parties who are entering into contracts with someone they don’t trust, because if you’re worried about it not getting paid and then you have to sue, this is at least a way to bypass the lawsuit and significant legal and attorney costs associated with that lawsuit. A confession of judgment, typically it does have to be drafted by an attorney. Perhaps you can find some legal forms online, but the key is making sure that it’s drafted in a way that your court will accept, if you need to file it. This isn’t a contract. This is a confession of judgment that you are writing in anticipation that it will be filed, and it needs to check all the boxes and meet all the criteria to fulfill the requirements of a court, so that the court can issue a judgment and it bypasses the lawsuit.
I’m Aaron Hall. To learn more about this topic, you can click on the link in the description below, that goes to aaronhall.com. If you’d like to get more educational videos like this, you can subscribe to this channel and please see the disclaimer below. Particularly, I do these educational videos to highlight general legal topics, but they’re not a substitute for getting legal counsel in your particular circumstances. Feel free to leave a comment or a question below. Be happy to have a conversation with you, and see if I can help you get a better understanding of these legal topics today.