Cognovit Note

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

1. Complete jurisdictional gate (Phase 1) — stop if cognovit is prohibited
2. Draft document with all required provisions (Phase 2)
3. Run compliance checklist (Phase 3)
4. 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:

1. Grant of authority — borrower irrevocably authorizes any attorney-at-law to appear and confess judgment for unpaid principal + interest + fees + attorney's fees
2. Waiver inventory — explicitly list each right waived: notice, hearing, defenses/counterclaims, discovery, appeal (if applicable)
3. Trigger — specify whether default is required or immediate upon execution; include cure period if any
4. Court designation — specific courts where judgment may be confessed
5. Statutory warning language — exact language required by governing jurisdiction in required format (bold/caps/minimum font)
6. 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:

• Cognovit provision complies with all statutory requirements of governing jurisdiction
• All required warning/disclosure language included in correct format
• Execution formalities (witnesses, notarization, acknowledgments) addressed
• Interest rate + all charges ≤ usury ceiling
• Default provisions structured as liquidated damages
• Cross-references and defined terms consistent throughout
• All referenced exhibits attached
• Signatory authority verified for entity borrowers
• Consumer protection statutes reviewed (if any consumer nexus)
• Choice of law has sufficient transactional nexus

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