What Is A Confession Of Judgment Clause, And Is It Enforceable In Ohio?
Certain business agreements serve as a way to distribute risk or resolve disputes. One such clause in a contract that you may run across is a so-called confession of judgment clause. Although such clauses are highly beneficial for creditors in numerous ways, they can also have serious implications for the signer of the agreement. In this article, we’ll discuss confession of judgment clauses and how they work under Ohio law.
What is a confession of judgment clause?
A confession of judgment clause, also known as a “cognovit” clause, is a clause that enables a debtor to acknowledge beforehand that if they breach the agreement, then a judgment can be made against them. This sort of judgment does not require a normal litigation process to be carried out for the creditor to receive a court judgment without prior notification to the debtor of the suit or the chance to argue that they aren’t liable. Ohio is among the states that allow the use of cognovit clauses in some commercial situations.
When are cognovit clauses enforceable?
Ohio law provides that a cognovit provision can be valid in a business contract provided that certain conditions are met. This includes requiring certain warning language in the agreement that informs the contract signer what they are agreeing to. The courts also look at whether the cognovit complies with Ohio law.
Most notably, Ohio law does not permit the inclusion of such provisions in consumer transactions. Consumers taking out a loan are never required to waive their rights if they breach the contract.
Risks for business owners
Entering into an agreement involving a confession of judgment clause can pose considerable dangers for the company agreeing to the inclusion of the clause in a business contract. If there is a disagreement regarding the existence of a default, the company may not have much chance to present its case before the judgment is entered.
After the judgment is entered, a creditor can use various means to recover the debt, such as garnishment or execution against the company’s assets. Despite the availability of various legal remedies against an erroneous entry of judgment, challenging it can be complicated.
Business owners should review any contract containing a confession of judgment clause to ensure that they’re protecting themselves from a judgment against them.
Can you challenge a cognovit judgment?
The cognovit judgment is not always final. The court can void the judgment for the creditor’s lack of compliance with Ohio law, the execution of the clause as a matter of law, or any other procedural defect. The timing and knowledge of the law are critical in contesting a judgment.
Since such cases usually involve complex questions of law, it is important to seek advice from an expert attorney promptly.
Talk to a Dayton, OH, General Counsel Business Representation Attorney
Kohl & Cook Law Firm, LLC, represents the interests of Dayton, OH, businesses that need to draft contracts for their company. Call our Columbus business lawyers today to schedule an appointment, and we can begin discussing your next steps right away.
