We include a Confession of Judgment clause in our commercial promissory notes. Our forms vendor recently started producing an advisory warning about this clause. Should we remove the confession of judgment clauses from our notes?

No, you do not need to remove the confession of judgment language from your commercial promissory notes, provided that it is possible to ascertain the amount of the potential judgments from the face of the notes (without reference to other documents). Confession of judgment clauses are common in commercial loan agreements, but it is important to mention that both Illinois and federal law prohibit the use of confession of judgment provisions in consumer loan agreements.

We agree with the written advisory from your forms vendor, which states that “in Illinois, the extent of liability must be ascertainable from the face of the instrument in which the power to confess a judgment is granted . . . .” Illinois case law has long confirmed this rule. Illinois courts will void confession of judgment clauses when the amount of the judgment cannot be ascertained from the face of the note.

For example, an Illinois court voided a confession of judgment clause because it applied to all notes entered into by the same customer, and the amount of the judgment could not be ascertained without looking to the customer’s other promissory notes. Because the court could not ascertain the amount of judgment without looking to other documents (the other promissory notes), it held that the confession of judgment clause was void.

For resources related to our guidance, please see:

735 ILCS 5/2-1301(c) (“No power to confess judgment shall be required or given after September 24, 1979, in any instrument used in a consumer transaction; any power to confess given in violation hereof is null and void and any judgment entered by a court based on such power shall be unenforceable. ‘Consumer transaction’ as used in this Section means a sale, lease, assignment, loan, or other disposition of an item of goods, a consumer service, or an intangible to an individual for purposes that are primarily personal, family, or household.”)

Regulation AA, 12 CFR 227.13(a) (“It is an unfair act or practice for a bank to enter into a consumer credit obligation that contains, or to enforce in a consumer credit obligation purchased by the bank, any of the following provisions: (a) Confession of judgment. A cognovits or confession of judgment . . . warrant of attorney, or other waiver of the right of notice and the opportunity to be heard in the event of suit or process thereon.”)

Mount Prospect State Bank v. Forestry Recycling Sawmill, 93 Ill.App.3d 448 (1st Dist. 1980) (“[T]he law concerning the power to confess judgment is well established. . . . the extent of liability must be ascertainable from the face of the instrument in which the power to confess a judgment is granted . . . .”)

Grundy County Nat. Bank v. Westfall, 49 Ill.2d 498, 502–503 (“The guaranty which the defendant here signed, and which contained the warrant of attorney, authorized the confession of judgment against her for: ‘any and all indebtedness, liabilities and obligations of every nature and kind of said Debtor to said Bank, and every balance and part thereof, whether now owing or due, or which may hereafter, from time to time, be owing or due, and howsoever heretofore or hereafter created or arising or evidenced * * *.’ The authorization was not for a fixed sum specified or one ascertainable from the instrument itself.”)