Confessed Judgments May Not Be the Gifts to Plaintiffs That They Imagine

From time to time, a contract will have a “confessed judgment” clause in it.  These clauses can be a valuable tool in an agreement.  Take for example, an agreement to lend money.  If my agreement with you to lend you money has a confession of judgment clause, and you don’t pay as required, my ace in the hole is that I get to “confess judgment” against you with a simple court filing.  I have to serve the confessed judgment on you the way a lawsuit would be served, but there’s no need for a trial.  There’s no need for time consuming and expensive discovery.

I win, you lose.  My next steps are to figure out how to collect from you, but the important first step – getting a court judgment against you – is done.

Well, maybe.  The Virginia Supreme Court cautioned us in October that a confessed judgment may not be all it’s cracked up to be.  Defendants on the receiving end of a confessed judgment may still have some tricks up their sleeves.

The Supreme Court’s tutorial on this issue came in Ayers v. Brooke Road, LLC.  Mr. Ayers borrowed money from Union Bank & Trust.  He defaulted and, pursuant to the confession of judgment clauses in the promissory notes, the bank obtained three confessed judgments against Ayers in 2009.

Nine years later, in 2018, the bank assigned (i.e., sold or otherwise gave) its confessed judgments against Ayers to Brooke Road, LLC.  In an attempt to collect, Brooke Road filed its own suit against Ayers in 2019 – ten years after the confessed judgment.

For purposes of this case, that’s when Ayers started to fight.  After being sued by Brooke Road, Ayers filed his own suit claiming the confessed judgments were invalid.  Although Union Bank & Trust had filed a private process server’s affidavit swearing the confessed judgments had been served on Ayers in 2009, as required by law, Ayers said that wasn’t true.  He said he didn’t know anything about the confessed judgments until 2019, that the process server’s return was false, and that he was out of state in Florida at the time he was supposedly served in 2009 in Orange, Virginia.

Brooke Road claimed Ayers had waited too long to make these claims.  Virginia Code 8.01-433 permits a challenge to a confessed judgment to be filed within twenty-one days after the debtor gets notice that the confessed judgment has been entered.  The confessed judgments were obtained in 2009.  Ayers started complaining about service of process in 2019.  Ten years is longer than twenty-one days so, according to Brook Road, Ayers was out of luck.

If that argument didn’t work, Brook Road had a fall-back position.  Even if Ayers’s delay from 2009 to 2019 could be excused, because Ayers said he didn’t know of the confessed judgments, in 2019 Ayers learned of them.  When Ayers learned of the confessed judgments on July 5, 2019, he had 21 days to contest it.  Ayers, though, waited till August 28, 2019.  Once again, Ayers missed the twenty-one day deadline for contesting a confessed judgment.

Except he didn’t.  In fact, Ayers’s twenty-one day clock hadn’t started to run at all.

The Virginia Supreme Court explained that Ayers’s complaint about the confessed judgments was that he didn’t get the notice, way back in 2009, that the law requires.  Without that properly served notice, the 2009 confessed judgments were void ab initio (i.e., latin for “void from the very beginning” and also the sound that plaintiff’s counsel’s stomach makes when he learns his ten year old judgment is worthless.)

Because Ayers plausibly claimed that the 2009 confessed judgments were void from the very beginning, the Supreme Court sent the case back to the trial court.  There, the court will have to try and figure out, sometime in 2022, what actually happened with the process server who was supposed to deliver confessed judgment orders to Mr. Ayers thirteen years earlier.  And, since the old confessed judgments might be void ab initio, the statute of limitations to enforce Brooke Road’s promissory notes might by now have run.  Uh oh.

There are a couple lessons here.

First, if you think there’s going to be a question about the adequacy of service of process in a case, be prepared to document how and when that important task was performed.

Second, if someone owes you money, start chasing that down sooner than later.  Flush out what defenses they might have before a decade has passed, before witnesses’ memories fade, documents get lost, and old process servers become impossible to find.

Third, don’t celebrate your confessed judgment too soon.  Until you’ve been paid, the judgment order you have in hand may not be worth the paper it’s printed on.