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Promises to pay are easy to make and notoriously expensive to enforce. Even a straightforward claim can be trapped in months—or years—of litigation before reaching judgment. This E-Letter from the litigation attorneys at Fahey Schultz Burzych Rhodes PLC explores how confessions of judgment offer a faster, lawful path to ensure the expedient enforcement of promises.

In nearly every business relationship, everything ultimately comes down to one thing: a promise to pay. Maybe it’s a customer who’s been extended terms for goods or services, or a client who’s agreed to pay over time. Whatever the arrangement, the deal depends on that promise being kept. And as most business owners have learned the hard way, even the best-intentioned promises can fall through.

That’s why so many businesses look for ways to protect themselves. They might ask for partial payment up front, require a personal guarantee, or request a detailed financial disclosure to get a clearer picture of a counterparty’s ability to pay. All of these reflect a simple truth: a promise to pay, standing alone, can be fragile.

Still, many obligations remain unsecured. In those situations, a creditor’s rights upon nonpayment may be limited to filing a lawsuit and attempting to reduce the unpaid obligation to a judgment.

Even when liability is straightforward, that process can be slow and expensive. Litigation frequently takes months, and sometimes years, to reach a final judgment. Along the way, parties incur attorney fees, court costs, and opportunity costs that are often completely disproportionate to the amount in dispute. And unless the parties have negotiated otherwise, the American Rule generally applies to attorney’s fees—meaning each side bears its own regardless of who is right. Haliw v City of Sterling Heights, 471 Mich 700, 707-708; 691 NW2d 753 (2005).

That structure can create a perverse incentive. A debtor who knows that enforcement will be costly and time-consuming may be emboldened to delay or resist payment, while a creditor—even one with a clear entitlement—may be forced to decide whether enforcement is worth the expense. In practical terms, the absence of security can turn a valid claim into one not worth pursuing.

This E-letter explores a practical, lawful way to address the problem of unsecured payment obligations—how parties can transform a simple promise to pay into something more reliable, without the delay and cost of traditional litigation.

Under certain circumstances, parties can agree that a promise to pay will be reinforced not through traditional collateral, but through a procedural mechanism that streamlines enforcement if payment is not made. Historically called a cognovit and now more commonly known as a confession of judgment, this tool does not secure the loan with property; rather, it secures the creditor’s ability to obtain a judgment quickly and efficiently should the promise be broken.

A confession of judgment is a written instrument by which a debtor authorizes an attorney, in advance, to appear on the debtor’s behalf and confess judgment in favor of the creditor upon default. When properly executed and filed, it permits the creditor to obtain a court judgment without prior notice to the debtor and without traditional litigation. The practical effect is significant. Rather than spending months or years litigating to establish liability, a creditor may proceed directly to judgment and post-judgment remedies, dramatically reducing delay and enforcement costs.

At first blush, this arrangement may sound unfair. After all, it involves the advance waiver of notice and a pre-judgment hearing—protections typically associated with due process. However, that concern was addressed at the highest level in 1972 when the United States Supreme Court upheld the constitutionality of confessions of judgment, recognizing that due process rights may be knowingly, voluntarily, and intelligently waived in a commercial setting. In doing so, the Court traced the device’s long history and famously described it as “the loosest way of binding a man’s property that ever was devised in any civilized country,” while nevertheless concluding that such waivers are enforceable when fairly negotiated. D.H. Overmyer Co. Inc. of Ohio v. Frick Co., 405 U.S. 174, 177 (1972).

Michigan is among the relatively few states that continue to permit confessions of judgment. They are governed by MCL 600.2906, which authorizes a court to enter judgment upon a plea of confession—even when no lawsuit is pending—so long as strict statutory requirements are satisfied. Those requirements include:

• The debtor’s authority to confess judgment must be contained in a separate and distinct written instrument, apart from the contract or obligation being secured;
• The instrument must clearly authorize an attorney to confess judgment on the debtor’s behalf;
• The authority must be filed with the court at the time the judgment is entered.

Michigan courts strictly construe these requirements, but they have consistently recognized confessions of judgment as a valid and powerful tool for enforcing payment obligations when used in appropriate, negotiated commercial contexts. Trombly v Parsons, 10 Mich 272 (1862); USA Jet Airlines v Schick, 247 Mich App 393; 638 NW2d 112 (2001).

Whether you are a creditor considering how to reinforce payment obligations at the outset of a transaction, or seeking to obtain a judgment based on an already executed confession of judgment, the litigation attorneys at Fahey Schultz Burzych Rhodes PLC are available to assist in evaluating available options and navigating the applicable statutory requirements.

By David Szymanski

This publication is intended for educational purposes only. This communication highlights specific areas of law and is not legal advice. The reader should consult an attorney to determine how the information applies to any specific situation.