Indiana No-Nos: Confessions Of Judgment And Cognovit Notes

An out-of-state client recently asked whether Indiana allows “confessions of judgment.”  Some states permit these, but Indiana is not one of them.

Definition.  Black’s Law Dictionary defines a “confession of judgment,” in part, as:

The act of a debtor [borrower] in permitting judgment to be entered against him by his creditor [lender], for a stipulated sum, by a written statement to that effect . . . without the institution of legal proceedings of any kind . . ..

These essentially allow a judgment to be entered without a lawsuit. 

Cognovit note.  A confession of judgment goes hand in hand with a “cognovit note”.  The Indiana Court of Appeals has cited to the following common law definition of such a note:

[a] legal device by which a debtor [borrower] gives advance consent to a holder’s [lender’s] obtaining a judgment against him or her, without notice or hearing.  A cognovit clause is essentially a confession of judgment included in a note whereby the debtor agrees that, upon default, the holder of the note may obtain judgment without notice or a hearing. . .  The purpose of a cognovit note is to permit the noteholder to obtain judgment without the necessity of disproving defenses which the maker of the note might assert . . .  A party executing a cognovit clause contractually waives the right to notice and hearing. . . .

Jaehnen v. Booker, 800 N.E.2d 31 (Ind. Ct. App. 2004).  Indiana has codified the definition of a cognovit note at Ind. Code § 34-6-2-22.  As you can imagine, cognovit notes and confessions of judgment can be powerful loan enforcement tools for lenders. 

Prohibited.  Cognovit notes and confessions of judgment are prohibited in Indiana.  In fact, a person who knowingly procures one commits a Class B misdemeanor pursuant to I.C. § 34-54-4-1.  The Jaehnen Court suggested there is an “evil” associated with of obtaining judgment against a borrower without service of process or the opportunity to be heard. 

An aside.  The Jaehnen case addressed the issue of whether a party is precluded from enforcing a promissory note merely because it contained a cognovit provision.  The Court noted that the plaintiff did not avail himself of the specific cognovit provision in the note.  He sought payment only after filing a complaint, providing for service of process and allowing the defendant the opportunity to hire an attorney and to be heard.  The Court held that the illegal provision did not destroy the overall negotiability of the note.  In other words, cognovit paragraphs may be deleted by the plaintiff/lender/payee without destroying the right to a judgment on the note in a standard lawsuit. 

Don’t be confused.  Indiana has a statute entitled “Confession of judgment authorized” at I.C. § 34-54-2-1.  However, the authorized confession of judgment is a different animal than what I discuss above.  The statute states:

Any person indebted or against whom a cause of action exists may personally appear in a court of competent jurisdiction, and, with the consent of the creditor or person having the cause of action, confess judgment in the action. 

This confession of judgment is not a unilateral filing by a creditor but rather an event arising within a standard lawsuit following notice and an opportunity to be heard.