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