Confession-of-judgment clauses let creditors circumvent the normal judicial process and obtain a judgment. Promissory notes, guaranties and other contracts may include them. By signing a contract containing such a clause, a debtor agrees to the judgment amount and forfeits his or her right to dispute the claim, without a trial or notice. The creditor can take a judgment quickly and without meeting due process requirements.
Illinois law recognizes confessions of judgments, but question their fairness. Illinois restricts their use, and our courts scrutinize them when challenged. Despite the streamlined process, the confession-of-judgment clause often spawns unintended costs and problems.
The confession-of-judgment clause theoretically streamlines the collection of debts, by letting creditors avoid the costs of court proceedings and collections. Knowing this, the inclusion of such a clause may encourage some creditors to make loans to debtors.
In practice, however, we find that confession-of-judgment clauses often create unintended complications for both parties. First, Illinois Courts do not like them, as they deprive debtors of due process. Second, Illinois law limits their use; §2-1301(c) of the Illinois Code of Civil Procedure governs confession judgments, but prohibits their use in “consumer transactions,” which it defines as the “sale, lease, assignment, loan, or other disposition of an item of goods, a consumer service, or an intangible to an individual for purposes that are primarily personal, family, or household.” Third, courts scrutinize the language of confession-of-judgment clauses, and will invalidate them if they overreach. Fourth, Illinois Supreme Court Rule 276 provides a procedure for debtors to “open” a confession judgment where the debtor raises a valid defense.
The confession of judgment can prove useful to creditors, but they must review the particular circumstances to determine whether a confession of judgment is appropriate. And creditors should take steps upfront to protect the contract’s enforceability, ensuring that debtors know what rights they are signing away.