Confession of judgment is a legal term that refers to a type of contract (or a clause with such a provision) in which a party agrees to let the other party enter a judgment against them. Such contracts are highly controversial and may be invalidated as a violation of due process by courts, since the obligor is essentially contracting away his right to raise any legitimate defenses.
United States
Confessions of judgment are permitted in many states. New Jersey and Pennsylvania permit them, among others. Some states, including Michigan, require they be specially labelled or have other procedural requirements. However, according to testimony before an Alaska State Legislature committee, "Confession of Judgment is illegal in Alaska, it's illegal in Pennsylvania in consumer transactions, but not in commercial transactions." A Law Review article distinguishes three groups of state laws, one group comprising seventeen states that make void any agreement to confess judgment entered into before commencement of a suit.
A typical confession of judgment reads, "The undersigned irrevocably authorizes any attorney to appear in any court of competent jurisdiction and confess a judgment without process in favor of the creditor for such amount as may then appear unpaid hereon, and to consent to immediate execution upon such judgment."
Such clauses should be distinguished from liquidated damages clauses, which do not result in binding judgments against the obligor.
A confession of judgment may also be called a cognovit note.
Risks
In the example: "The undersigned irrevocably authorizes any attorney to appear in any court of competent jurisdiction and confess a judgment without process in favor of the creditor for such amount as may then appear unpaid hereon, and to consent to immediate execution upon such judgment.", there is an unlimited risk if the amounts, such as "amount as may then appear unpaid", are not exactly defined or capped in the contract, as collection, processing, contract or administrative fees can be set to any arbitrary amount.
Additionally, no conditions are set for "authorization" such as a breach of terms, a late payment or a default in payment, and collection can occur without notice. The first the "undersigned" will know anything is awry is that assets have already been seized, cash funds already withdrawn or bank accounts sequestered.
This may not be legal in many states, but if a judgment is passed in a state where it is legal, then the judgment can be applied in any US state or country that honor US court judgments such as Puerto Rico.
The Confession of Judgment waives all legal rights to due process in the court system.
Recent jurisprudence
The United States Supreme Court issued two rulings in 1972 relating to confessions of judgment. It held that:
:* confession of judgment procedures do not violate due process if the waiver of constitutional rights made by a confession of judgment is voluntary, knowing, and intelligently made.
:* confessions must be reviewed on a case-by-case basis; where the contract is one of adhesion, where there is great disparity of bargaining power, and where the debtor receives nothing for the confession, the waiver of rights may not be valid.
Relying on Overmyer, the California Supreme Court ruled in 1978 that the confession of judgment procedure, as constituted in that State, was constitutionally invalid, ruling: