Chicago Business Litigation Lawyer Blog
There was no lawsuit that you knew about, no summons, and no hearing. Yet a judgment for the full balance of a commercial note is on file, with your name on it, because a clause in the note you signed years ago authorized someone to appear for you and admit the debt. It feels like it cannot be legal.
In a commercial transaction, it usually can be. Illinois still permits a confession of judgment on a business debt, and a clause authorizing one is enforceable within limits. But the judgment is not beyond challenge. A borrower or guarantor with a real defense can ask the court to open it, and Illinois sets out how. The path rewards speed and a sworn, specific response.
Is a confession of judgment legal in Illinois?
For a business debt, generally yes. Section 2-1301(c) of the Code of Civil Procedure provides that “any person for a debt bona fide due may confess judgment by himself or herself or attorney duly authorized, without process.” 735 ILCS 5/2-1301(c). “Without process” means what it says. The judgment can be entered before the borrower hears anything about it.
When is the clause or the judgment invalid?
The statute imposes two limits worth checking first. A power to confess judgment given after September 24, 1979, in an instrument used in a consumer transaction “is null and void and any judgment entered by a court based on such power shall be unenforceable.” Id. A consumer transaction is a sale, lease, assignment, loan, or other disposition of goods, a consumer service, or an intangible to an individual for purposes that are primarily personal, family, or household. Id. So the purpose of the loan matters. The same section also limits where the judgment may be entered: the county in which the note was executed, a county where a defendant resides, or a county where a defendant owns property. A judgment entered elsewhere “has no force or validity, anything in the power to confess to the contrary notwithstanding.” Id.
Those are questions to run down at once, along with the note itself. Does the clause authorize what was done? Is the amount confessed the amount the note allows? Was the debt actually “bona fide due” on the date of entry, or did the holder move before any default?
How do you open a confessed judgment?
Illinois Supreme Court Rule 276 supplies the procedure. The motion “shall be supported by affidavit in the manner provided by Rule 191 for summary judgments, and shall be accompanied by a verified answer which defendant proposes to file.” Ill. S. Ct. R. 276. If the motion and affidavit disclose a prima facie defense on the merits to all or part of the claim, the court sets the motion for hearing, and the holder may file counteraffidavits. Id. If at the hearing it appears that the defendant has a defense on the merits and “has been diligent in presenting his motion to open the judgment,” the court shall open the judgment as to whatever part a good defense has been shown, and the case proceeds to trial on the pleadings. Id.
That standard is more favorable than the one a defendant faces in many other post-judgment settings. The defendant is not asked at this stage to win the case, only to show a defense on the merits, supported by sworn facts, and diligence. As one appellate panel summarized the rule, if the motion and affidavit disclose a prima facie defense on the merits, the trial court should sustain the motion and the case should proceed to trial on the merits. Malone v. Marks, 55 Ill. App. 3d 846, 848-49 (3d Dist. 1977). The same court treated a filing labeled a motion to vacate as a motion to open under the rule, and it did not treat the failure to file a verified answer as fatal where the substance of the rule was met. Id. at 849. That is a rescue, not a plan. File the verified answer.
The decision still lies in the trial court’s sound legal discretion, and a reviewing court will not disturb it absent an abuse of that discretion. Schultz v. Gignac, 94 Ill. App. 3d 399, 401 (1st Dist. 1981). The record you make in the trial court is likely the one that counts.
What kinds of defenses can matter?
The rule asks for a defense on the merits, and the facts of the deal will determine what is available. Depending on the facts, that may include payment or partial payment, a miscalculated balance, failure of consideration, a modification or forbearance agreement the holder ignored, or the release of a guarantor by the terms of the guaranty itself. A guarantor should read the guaranty separately from the note, because it may say something different about what was promised and for how long. A partial defense counts too. Rule 276 allows a judgment to be opened as to the part for which a good defense has been shown.
Does opening the judgment change anything else?
It can change the shape of the case. Under the rule, if an order opening the judgment is entered, the defendant may assert any counterclaim, and the plaintiff may amend the complaint to assert other claims. Ill. S. Ct. R. 276. A borrower with claims of its own should consider them from the start, and should also understand that the holder may bring more to the table.
Three steps matter as soon as you learn of the judgment. First, get the file and the original instruments, and note the date of entry and the date you first learned of it, because diligence will be measured from what you knew and when. Second, build a sworn, specific account of the defense with the payment records and correspondence behind it, since conclusions in an affidavit will not carry the motion. Third, watch for collection activity and do not assume that filing anything has stopped it. Ask for that relief expressly if you need it.
A confession clause trades away the usual order of things: judgment first, questions later. But the questions still get asked if the person on the other end of the paper asks them quickly and under oath.
If a judgment by confession has been entered against you or your company, or a lender has threatened one, we can review the note, the guaranty, and your options. Call DiTommaso Lubin, P.C. at 630-333-0333 for a free consultation, or contact us online.
Big-firm firepower, with the partners on your case
Peter S. Lubin and James V. DiTommaso are Chicago business litigation lawyers who try cases throughout Illinois. Peter is a graduate of the University of Chicago Law School, where he has taught trial practice for decades, and he has been recognized as an Illinois Super Lawyer. He has served as lead counsel in more than one hundred class actions and has handled more than one hundred shareholder, LLC, derivative, breach of fiduciary duty, and fraud matters, on both the plaintiff and the defense side. Crain’s Chicago Business credited him with the largest class action settlement of the year for a $40 million recovery in Erikson v. Ameritech, and the firm has been named DuPage County Law Firm of the Year. The firm and its lawyers have represented clients such as McDonald’s, Motorola, and Experian, and have litigated against companies including AT&T and General Motors. James DiTommaso, a graduate of Chicago-Kent College of Law with a certificate in business law, has served with the Illinois Appellate Court and has argued a case before the Illinois Supreme Court. He litigates these disputes in the Illinois trial and appellate courts and in the federal courts. When you hire this firm, the lawyers whose names are on the door are the ones who handle your case.
This post is for general information and is not legal advice.