Legal Definitions - confessed judgment

A confessed judgment is a court order or ruling that is entered by a court based on a prior agreement, known as a confession of judgment. This agreement is typically a clause within a loan, lease, or other contract where one party (the debtor or obligor) agrees in advance to allow the other party (the creditor or obligee) to obtain a judgment against them in court without the need for a full trial, should a specific default or breach of contract occur.

Essentially, a confession of judgment is a pre-authorized consent to a judgment. The confessed judgment is the actual legal outcome: the court's official recognition of the debt or obligation, which then allows the creditor to proceed with collection actions (like seizing assets or garnishing wages) much more quickly than if they had to file a traditional lawsuit and go through a lengthy litigation process. This mechanism is often used in commercial transactions or specific types of loans, particularly in jurisdictions where it is legally permitted, as a way for creditors to reduce risk and expedite debt recovery.

• Example 1: Business Equipment Loan

  A construction company takes out a significant loan from a financial institution to purchase new heavy machinery. As part of the loan agreement, the company signs a confession of judgment clause. This clause states that if the company defaults on its loan payments, the financial institution can present this agreement directly to the court to obtain a judgment for the outstanding debt without having to initiate a full lawsuit and court proceedings.

  How it illustrates the term: If the construction company fails to make its scheduled loan payments, the financial institution can use the pre-signed confession of judgment clause to secure a confessed judgment from the court. This judgment legally confirms the debt owed and allows the financial institution to immediately pursue collection actions, such as repossessing the machinery or seizing other business assets, without the typical delays associated with a contested legal battle.

• Example 2: Commercial Real Estate Lease

  A retail store signs a long-term lease for a storefront in a busy shopping center. The landlord includes a confession of judgment provision in the lease agreement. This provision specifies that if the retail store fails to pay rent for a certain number of months, the landlord can obtain a judgment for the unpaid rent and possession of the premises without a traditional eviction lawsuit.

  How it illustrates the term: Should the retail store fall significantly behind on its rent obligations, the landlord can utilize the confession of judgment clause to obtain a confessed judgment from the court. This judgment would legally establish the amount of unpaid rent and grant the landlord the right to reclaim the property and pursue collection of the debt much more efficiently than if they had to go through a standard eviction and debt collection lawsuit.

• Example 3: Personal Guarantee for a Startup Loan

  An individual provides a personal guarantee for a startup company's business loan from a private lender. As part of this guarantee, the individual signs a document containing a confession of judgment. This agreement stipulates that if the startup defaults on its loan and the individual, as guarantor, fails to repay the debt, the lender can obtain a judgment directly against the individual without a full trial.

  How it illustrates the term: If the startup fails and the individual guarantor does not fulfill their obligation to repay the loan, the private lender can present the signed confession of judgment to the court. The court would then issue a confessed judgment against the individual, making them personally liable for the debt and allowing the lender to pursue collection directly from the individual's personal assets without the need for a lengthy and costly lawsuit to establish liability.