The Implications of California’s Departure From Judgments by Confession
July 26, 2023
By Eric S. Pezold and Andrew B. Still
Traditionally, California permitted judgments by confession are subject to certain limitations, such as requiring an independent attorney to examine the proposal and advise the debtor on the waiver of rights and defenses. As of January 1, 2023, however, California updated its Code of Civil Procedure Section 1132 to render judgments by confession unenforceable and inadmissible in any Superior Court. The law does not apply the foregoing provision to a judgment by confession obtained or entered before January 1, 2023.
The new law may have significant ramifications for creditors who lost a valuable tool for repayment and settlement agreements. Now, creditors and third parties may be forced to use traditional methods for contract enforcement. For example, rather than allowing a creditor to obtain a judgment by confession against a debtor in the event of a debtor’s breach of contract or payment default under a settlement agreement, creditors will now be forced to file a lawsuit against a debtor. This approach requires creditors to then obtain a judgment, whether by default or stipulation. This will inevitably lead to additional expenses like filing fees and attorney’s fees associated with preparing and drafting a lawsuit.
While debtors may see the new law as a win, it may also lead to unforeseen implications for them as well. Although creditors will take the brunt of the costs required to file a lawsuit, creditors will likely pass on these additional fees to the debtor. In turn, creditors may be inclined to make a cost and benefit analysis to ensure that the fees associated with litigation do not outweigh the potential recovery from the debtor. The new law forces a debtor to defend itself or otherwise participate in the judicial process. Thus, rather than allowing the debtor and creditor to honor an agreed upon judgment by confession under the preexisting law, the new law forces participation in a costly and time-consuming litigation process, which may be disadvantageous for both parties.
Additionally, the increased civil action filings for breach of contract claims will pile onto the already overburdened judicial system. This can lead to further delays in the judicial process and cause more drawn out civil litigation proceedings.
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