| name | cognovit-note |
| language | en |
| description | Drafts cognovit promissory notes with confession of judgment provisions, gated by mandatory jurisdictional enforceability research, usury compliance, and statutory disclosure requirements. Advises on alternatives where cognovit clauses are prohibited. Use when drafting cognovit notes, confession of judgment instruments, or loan documents requiring waiver-of-defense provisions. |
Cognovit Promissory Note
Drafts an enforceable cognovit promissory note with confession of judgment provisions. Enforceability varies dramatically by jurisdiction — the jurisdictional gate must be completed before any drafting begins.
Prerequisites
Gather before starting:
- Governing jurisdiction — state where cognovit will be enforced
- Transaction type — consumer vs. commercial (consumer cognovit is prohibited in most jurisdictions)
- Party identification — legal names, entity formation docs, signatory authority
- Loan terms — principal, rate, term, repayment structure, collateral (if any)
- Prior agreements — existing contracts, guarantees, or security interests between parties
Quick Start
- Complete jurisdictional gate (Phase 1) — stop if cognovit is prohibited
- Draft document with all required provisions (Phase 2)
- Run compliance checklist (Phase 3)
- Prepare enforceability memo (Phase 4)
Phase 1: Jurisdictional Gate
Research and document ALL of the following before drafting:
- Statutory authority — current statutes governing confession of judgment
- Consumer vs. commercial — most states prohibit cognovit in consumer transactions entirely
- Execution formalities — witness, notarization, separate acknowledgment requirements
- Warning language — statutory cautionary language with format requirements (bold, caps, font size)
- Attorney requirements — whether confessing attorney must be barred in-state, independent of lender
- Recent case law — appellate decisions on enforceability and procedural fairness
- Ethics opinions — state bar guidance on attorney participation
Key permitting jurisdictions (commercial only):
- Ohio — R.C. § 2323.12 et seq. (warning notice required) [VERIFY]
- Pennsylvania — Pa.R.C.P. 2950 et seq. [VERIFY]
- Illinois — historically permitted; verify current status [VERIFY]
If prohibited or restricted: Stop drafting. Recommend alternatives: personal guarantees, security agreements with collateral, standard acceleration clauses, or confession of judgment obtained post-default by stipulation.
Phase 2: Document Structure
Header and Recitals
- Title: "COGNOVIT PROMISSORY NOTE"
- Distinguish execution date, effective date, and disbursement date if different
- Full party identification (legal names, entity type, formation state, registered agent for entities)
- Business purpose recital
Principal and Interest
- State amount in figures AND words (words control on discrepancy)
- Specify gross proceeds vs. net of fees/points
- For variable rates: index + margin + adjustment frequency + caps/floors
- Calculation method: simple/compound, 360-day vs. 365-day year
- Payment application order: late charges → accrued interest → principal
Usury compliance (mandatory):
- Research governing state's usury ceiling
- Include all fees/charges that may be recharacterized as interest
- Document commercial transaction or threshold exemptions
- Some states impose criminal penalties for usurious lending
Repayment Terms
- Payment amount, due dates, installment count, structure (amortizing / interest-only + balloon)
- Acceptable payment methods, business day convention
- Prepayment terms (must comply with state limits on prepayment penalties)
Confession of Judgment Clause
This is the core provision. Draft must include ALL of the following:
- Grant of authority — borrower irrevocably authorizes any attorney-at-law to appear and confess judgment for unpaid principal + interest + fees + attorney's fees
- Waiver inventory — explicitly list each right waived: notice, hearing, defenses/counterclaims, discovery, appeal (if applicable)
- Trigger — specify whether default is required or immediate upon execution; include cure period if any
- Court designation — specific courts where judgment may be confessed
- Statutory warning language — exact language required by governing jurisdiction in required format (bold/caps/minimum font)
- Separate acknowledgment — if jurisdiction requires borrower to sign separate confirmation
Events of Default
Include at minimum: payment failure (3-5 business day grace), cross-default, voluntary/involuntary bankruptcy (60-90 day dismissal period for involuntary), material misrepresentation, death/dissolution, and collateral-related defaults if secured.
Remedies
- Acceleration at lender's election (preserve workout flexibility)
- Confession of judgment per cognovit clause
- Default interest rate (verify ≤ usury ceiling)
- Late charges structured as liquidated damages, not penalties
- All other legal/equitable remedies, collection costs
Governing Law and Forum
- Choose law of a state where cognovit is enforceable AND with sufficient nexus to transaction
- Exclusive jurisdiction + consent to personal jurisdiction + venue waiver
- Jury trial waiver (conspicuous, separate paragraph, caps/bold)
- Courts may reject choice-of-law with no reasonable relationship to transaction
Execution Formalities
- Signature blocks with printed name, title, date
- Witness and notarization requirements per jurisdiction (notarization advisable even if not required)
- Entity signers: attach authority documentation as exhibit
- Separate cognovit acknowledgment/affidavit if jurisdictionally required
Phase 3: Compliance Checklist
Before finalizing, confirm:
Phase 4: Enforceability Memorandum
Prepare a brief memo documenting:
- Jurisdictional research findings with specific citations
- Enforceability risks and mitigation steps taken
- Recommendations for additional documentation or procedures
- Alternative approaches if enforceability is uncertain
Common Pitfalls
- Never skip the jurisdictional gate — an unenforceable cognovit may void the entire instrument
- Presume consumer cognovit is prohibited unless jurisdiction-specific research confirms otherwise
- Mark all statutory citations [VERIFY] unless confirmed against current authority
- Unrepresented borrowers — some jurisdictions require disclosure or independent counsel recommendation
- Procedural fairness scrutiny is increasing — document that borrower had opportunity to negotiate and obtain counsel
- Do not assume cross-state enforceability — a cognovit judgment may face full faith and credit challenges in another state
