Several years ago, we represented a business client who wanted to secure payment from a tenant in a commercial real estate transaction. Our client had entered into a lease agreement with a less than credible tenant. When we put all the paperwork together we had the tenant sign a Cognovit Note in addition to our regular paperwork.
What is a Cognovit Note?
The Cognovit Note is a special type of promissory note. With all promissory notes, one party agrees to another a specific amount. And the Note acts as written proof of the agreement to make payment. So in the event of default by the maker, the holder of the note (person entitled to receive payment) can sue the maker for breach of contract to recover the money owed. In other words, the holder of the note has to file a lawsuit, wait the alloted time, approximately 28 days, and possibly have a trial before they can get a court order to receive payment.
But with a Cognovit Note, the maker waives his or her rights to have the holder jump through all the legal hoops and allows the holder to proceed right to a judgment. So, you can see how this can be very effective and it was in our client's case.
About 4 months into the lease term, our client stopped receiving payment from the tenant and he immediately contacted us to move forward. We went to court and asked for the Confession of Judgment in the amount that was owed. The Judge looked at me and said "I haven't seen one of these in over 25 years. I didn't know people still used these." After the Judge said that, he signed the Judgment. This was very critical for my client because we didn't have to wait to get the tenant out of the property nor did we have to wait to collect on the judgment.
Within about 3 weeks, the tenant was calling us to see if he could make payment on the judgment so that he could continue running his business.