What Happens After a Confession of Judgment?

If you signed a commercial loan or a commercial lease for your business, it probably had a confession of judgment clause. You will probably find the clause in most commercial loan and commercial lease agreements, and the clause basically stands the concept of due process on its head. The clause allows the lender’s or landlord’s lawyer to appear for you, without even telling you, and confess judgment against you for a particular sum of money, or for possession of the premises if it is a lease. Think about that. The first document the lender hands you is the document saying a judgment has already been entered against you. Game over? Not necessarily.

Courts are not big fans of confessions of judgment because they deprive the defendant of their constitutional right to due process. Simply stated, the clause deprives you of your day in court. As such, the court will carefully review a confession of judgment clause to ensure all of the i’s were dotted and the t’s were crossed. Of course, if all of the rules were indeed followed, then the two parties may indeed agree to waive notice and a hearing before judgment is entered. That is why the key to what happens after a confession of judgment is in the details.

Read the contract. Courts don’t just consider the language of the confession of judgment clause itself, but also where it is and how it’s printed. To begin with, the clause has to be conspicuous. It can’t be hidden away somewhere in the middle of the other provisions; it has to be pulled out of the middle of the other provisions so that it’s conspicuous. Courts want to see a clause that’s printed in bold and all caps, and under its own conspicuous heading. If the clause in your contract is tucked away at all, it may not be valid, regardless of when you signed it, so ask an attorney to review it.

Second, read the documents your lender or landlord filed. Rule 2952 of the Rules of Civil Procedure in Pennsylvania requires the complaint to contain certain information, and if any of that is missing, the court will not enforce the confession of judgment. At the bare minimum, the complaint needs to include the names and last known addresses of all of the parties, a copy of the document that allows the confession of judgment (known as the warrant of attorney), a statement that judgment has not been entered in another jurisdiction, a statement that the judgment is not being entered against someone in a consumer credit transaction, a statement that there has been a default and a demand has been made as the warrant requires, a breakdown of the amount that’s owed, and the proper signatures and verification. The complaint also must satisfy Pennsylvania’s new power of attorney act, described below. There are more factors and technical requirements than those, but it gives you an idea of how much needs to be right for the lender or landlord.

A recent decision in Philadelphia demonstrates how this can happen, and it is a cautionary tale for anyone who has a commercial lease. The Court had to determine the enforceability of a confession of judgment clause in a commercial lease. The Court determined that the confession was hidden and obscure and in fine print and therefore was not conspicuous. There was a second problem. The lease had been amended, but the amendment did not actually restate the confession of judgment clause. It only incorporated the terms of the original lease. Incorporating the terms by reference is enough to bring in most of the terms, but not a confession of judgment clause. The court held that the tenant’s signature on the amendment was not directly connected to the warrant of attorney, because the warrant was in the original lease, not the amendment, and it struck the judgment. Makes sense. If the clause is not actually in the amendment, how can the signature be a knowing waiver? This is not a groundbreaking case in its own right, but it is an important reminder that every confession of judgment is going to be closely examined.

One more thing to consider in Pennsylvania. The state’s power of attorney statute was also revised, and the warrant of attorney now has to contain the necessary agent disclaimer language so that it does not run afoul of Section 5601.3(b) of the new act. That subsection provides that the agent must act for the benefit of the principal. Entering judgment against the person you are supposedly acting for is clearly not for that person’s benefit.

Do Not Give Up

So what if a judgment has been confessed against you? Do not give up. A confessed judgment deprives you of your day in court, and that is exactly why courts are so suspicious of these judgments. Review the loan agreement or lease, and any amendments, and examine the clause. Is it highlighted, in bold and all caps, with its own heading, or is it buried in fine print? Is it actually in the document you signed, or just referenced? Then review what was filed against you and see how it matches up. If the clause is hidden at all, or if the paperwork missed a step, the judgment may not be valid. Get a lawyer to review it.