The Elimination of Judgment by Confession

Following in the footsteps of Massachusetts and Florida, California recently updated California Code of Civil Procedure section 1132 which renders judgments by confession unenforceable and inadmissible in any superior court, effective January 1, 2023.  The bar is not retroactive, so judgments by confession obtained or entered before January 1, 2023 are still valid. Moving forward, consider the following.

What is a Judgment By Confession?

A judgment by confession, also known as a confession of judgment or "cognovit" clause, is a mechanism by which a debtor agrees that a creditor may summarily obtain a legal judgment against that debtor and enforce it in the event of the debtor's breach of contract or default.  In other words, it is a private admission by a debtor that they are liable for a debt without the need for a trial, and consequently, agree to forfeit very important rights.  Most importantly, parties agreeing to such clauses are waiving rights such as the right to notice of the judgment and the right to assert defenses against the creditor or third party's claims.  Historically, without any judicial involvement, these types of out-of-court judgments would be enforceable.

Generally, judgments by confession have been highly controversial and often abused as the ability to obtain an enforceable judgment against a party without engaging in the legal process naturally invokes questions of due process, unequal bargaining rights, and a lack of an actual meeting of the minds as to the contract.  Nationally, states such as Massachusetts and Florida have banned judgments by confession altogether, while other states, such as New York, Indiana, and Virginia have placed specific limits or requirements on such clauses.

Traditionally, California permitted judgments by confession subject to certain limitations, such as requiring an independent attorney to examine the proposal and advise the defendant on the waiver of rights and defenses.  As of January 1, 2023 however, California has flipped the script on judgments by confession and they will no longer be enforceable.

What Does This Mean For You?

With judgments by confession no longer valid in California, creditors and third parties will be forced to use more traditional methods to enforce contracts.  To that end, form agreements with judgment by confession language should be updated and we advise consulting with your counsel on this topic immediately.  While this is good news for many debtors, it has removed some leverage and bargaining power for creditors.

How Newmeyer Dillion Can Help

If your organization is interested in learning more about how this may affect drafting your contracts and litigation in the pursuit of debtors, please contact Dutch Schotemeyer or Drew Jorgenson at Newmeyer Dillion for more information.  We can be reached via phone at 949 854 7000 or by email Dutch.Schotemeyer@ndlf.com and Drew.Jorgenson@ndlf.com.