Although Senate Bill 688 did not receive much attention, this new California law effective January 1, 2023 takes away a creditor’s ability to secure a Confession of Judgment. Specifically, SB 688 amends Code of Civil Procedure section 1132(a) as follows, in pertinent part:
(a) A judgment by confession is unenforceable and may not be entered in any superior court.
The law does not apply retroactively and does not impact those confessions of judgment obtained or entered into before January 1, 2023. But the new law does have significant ramifications for credit professionals and financial executives that have lost a tool in their toolbox for repayment and forbearance agreements.
The law, of course, may have consequences that were not anticipated by bill sponsor, State Senator Bob Wieckowski. Prior to the passage of SB 688, the law permitted a confession of judgment to be entered only if the defendant had signed and filed a written statement authorizing an entry of judgment, and the defendant’s attorney had also signed and filed a certificate stating the attorney has examined the proposed judgment and advised the defendant of the defendant’s waiver of rights and defenses and to utilize the judgment by confession procedure.
Now, creditors seeking to obtain leverage and security in connection with repayment and forbearance agreements may have to consider other procedural maneuvers to secure similar protection. For example, rather than allowing a debtor to confess to a judgment which would be filed and become public record only in the event of a default, creditors may now prefer to file a lawsuit against a debtor and then obtain a “Stipulation for Entry of Judgment” from the debtor which the creditor would file in the event of a default.
Unfortunately for the creditor, there will be additional expense in the form of court filing fees and attorney’s fees required to prepare and draft a lawsuit and the Stipulation for Entry of Judgment. There may also be additional expense involved in obtaining the court’s permission to either put the case on an inactive calendar or dismissing the case subject to the court retaining jurisdiction to enforce the judgment, if necessary, pursuant to Code of Civil Procedure section 664.6.
Unfortunately for the debtor, the lawsuit is public record. Moreover, there is no requirement that the debtor’s attorney review or sign off on a Stipulation for Entry of Judgment like was formerly required with a confession of judgment. In addition, creditors will likely pass on to the debtor any additional attorney’s fees and costs required to file a lawsuit and prepare the Stipulation for Entry of Judgment.
And unfortunately for taxpayers and our judicial system, Senate Bill 688 will cause more civil action filings further taxing our already overburdened judicial system.
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Christopher Ng is an equity partner, executive committee member, and the managing partner of Gibbs Giden. Chris primarily represents companies in a wide range of business, commercial and construction negotiations and disputes. Chris is a member of the State Bar of California and District of Columbia and licensed to practice in all California state and federal courts. Chris is also an educator, active speaker, published author and frequent contributor to local, regional and national legal publications.
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