Georgia Businesses Hit With an MCA Confession of Judgment

No summons, no hearing, no warning

The ordinary story of a merchant cash advance dispute involves a complaint, a deadline and a defense. This is the other story: a Georgia business finds out it has lost a case it never knew existed, because the judgment came first and there was no case.

The instrument is a confession of judgment, and it was signed at the start, in the same stack of paper as the agreement itself.

What New York actually requires of one

CPLR § 3218 governs. A judgment by confession may be entered without an action, for money due or to become due, upon an affidavit executed by the defendant. That affidavit must:

• state the sum for which judgment may be entered, and authorise its entry;
• state the county where the defendant resides; and
• if the judgment is for money due, state concisely the facts out of which the debt arose and show that the sum confessed is justly due.

Note what is doing the work. The affidavit is the proceeding. There is no opposing paper, no appearance, and no occasion on which anyone tests the funder's figure before it becomes a judgment.

The sentence about where it may be filed

Subdivision (b) is the part worth reading slowly. Within three years after the affidavit is executed it may be filed — but only with the clerk of the county where the defendant's affidavit stated that the defendant resided when it was executed, or where the defendant resided at the time of filing. The clerk then enters judgment in the supreme court for the sum confessed.

That is a restriction on location tied to the defendant's residence, not the creditor's convenience and not the contract's choice of forum. For a Georgia business and a Georgia owner, it raises an obvious question about any New York county that appears on the paperwork.

This page does not answer that question, and will not. What follows from a filing in a particular county, on a particular affidavit, in a particular case, is a conclusion about a record — and it is the kind of conclusion that should come from a lawyer who has read the record rather than from a sentence written in advance for everybody.

What it does mean is that the county on the judgment is one of the first things worth checking, and that it is checkable.

Undoing one is a motion with grounds

CPLR Rule 5015 allows the court that rendered a judgment to relieve a party from it, on motion, upon specified grounds. Which ground is available, and what time limit attaches to it, depends on the facts — so the useful first step is assembling the documents rather than choosing a theory.

The affidavit itself, the agreement it sat inside, the judgment as entered and the county it was entered in are the four pieces.

Meanwhile, the judgment is already working

CPLR § 5222 lets a restraining notice be issued by the clerk or by the judgment creditor's attorney as an officer of the court, and served on any person holding property in which the judgment debtor has an interest. A bank is such a person.

That is why the sequence so often runs bank first, owner second. Nothing in the mechanism requires anyone to tell you before it tells them.

What to do first, from Georgia

1. Get the judgment, the county and the index number. From the bank in writing, or from the county clerk directly.
2. Find your copy of the original agreement and look for an affidavit or a document headed confession of judgment among the pages.
3. Check what county it names, and what it says about residence. That is the comparison that matters.
4. Do not move money while this is being worked out. It adds a second problem without solving the first.

A confession of judgment covers the instrument in more detail, a restrained account covers what it does to a bank, and how an MCA lawsuit is defended covers the ordinary route when a funder sues instead.