Confession of Judgment
Last week, in Cole v Davis, the Illinois Appellate Court found a confession of judgment clause containing a varying rate valid. Arising from a defaulted loan for $100,000.00, Bank One N.A. filed a confession of judgment for $153,453.00. The debtor challenged the confession of judgment provision found in the note, arguing it was invalid due to the interest rate varying with the Bank’s prime rate; said rate was not written on the agreement, but it crossed referenced to the posted prime. On the other hand, the Bank argued the clause was valid under Article III of the Uniform Commercial Code. In reaching their decision, the Appellate Court followed known precedent and disagreed with the debtor’s argument that having to use evidence outside of the agreement to determine the amount of liability should invalidate the challenged provision, or that the provision was against public policy.
In past cases, Illinois courts have only held confession of judgment clauses invalid where the principal amount was indefinite and needed evidence outside of the agreement to determine the amount owed. In this case, however, the Appellate Court believed Bank One’s loan note primarily evidenced itself, and while there was need to bring in outside evidence it was only needed to arrive to an exact amount owed. It further explained it did not violate the public policy reason for which said judgments have been held invalid in the past as the provision in this case was not fraudulent or subversive of justice.