A confession of judgment is enforceable in the states that permit it, and the merchant cash advance contract is usually the document that decides which state's law applies to yours. The instrument lets the funder enter a judgment against the owner without a lawsuit, without notice, without the owner ever standing before a judge. Where it is permitted it is fast, and the speed is the cruelty of it.
Where it is permitted is the whole question. Pennsylvania allows the confession of judgment in commercial contracts, subject to formatting requirements. Ohio allows the cognovit note under strict procedure. New Jersey, Maryland, Delaware, Virginia, and Michigan permit it on conditions. Against that, a wall of prohibition: California has banned it for commercial debt since 1978, and Florida, Indiana, Massachusetts, and Alaska ban it as well, with Indiana making the act of obtaining one a misdemeanor. Texas does not permit it in most circumstances. New York, since its 2019 amendment, bars a confessed judgment against an out-of-state debtor while still allowing one against a business domiciled in New York.
The Ban In Your State May Not Reach
But the home-state ban is where owners are most often mistaken, and I have written about this seam before. An owner in California reads that his state outlawed the device in 1978 and concludes he is safe. He is not, because his contract did not choose California. It chose New York or Pennsylvania, where the confession is permitted, through a choice-of-law clause and a forum-selection clause he signed without reading, and the judgment is entered there and then domesticated against him at home. (A court will sometimes refuse to enforce a foreign clause that offends a strong public policy of the forum, but that is an argument to be made, not a protection to be assumed.) The map of bans means less than the paragraph near the end of the agreement.
An owner called me in November certain that his state had made this impossible. His state had. His contract had chosen a different state, and the judgment was already entered there.
Entered Is Not The Same As Final
A confessed judgment is enforceable, and a confessed judgment is openable. Both sentences are true. The procedure is a petition to open or to strike, filed in the forum that entered the judgment, asserting a meritorious defense or a defect in the warrant of attorney itself: improper service of the confession, an obligation already disputed, a recharacterization argument that turns the underlying merchant cash advance into a usurious loan and the judgment into something built on a void debt. The judgment that arrived before the owner did can be made to leave.
So is a confession of judgment enforceable. Yes, where the forum permits it, and the forum is usually the one the contract picked rather than the one the owner lives in, which is why the home-state ban so often means nothing. The enforceability is real and the petition to open is also real, and an owner who has just discovered a judgment against him in a state he has never visited is not without a move. He starts by reading the clause that sent him there. It is usually near the signature.