Nearly every promissory note for a commercial banking loan, or a commercial real estate loan, to an Ohio borrower includes a “warrant of attorney” authorizing an attorney to confess a judgment against the borrower without prior notice to the borrower. The warrant of attorney is similar to a power of attorney. A written guaranty of a commercial banking loan or a commercial real estate loan, signed by a resident of Ohio or an entity organized under the laws of Ohio, also usually contains a warrant of attorney.
The warrant of attorney, sometimes called a confession of judgment provision or a cognovit provision, when combined with the cognovit warning required by Ohio Revised Code Section 2323.13(D), allows a lender to quickly obtain a judgment against the borrower or a guarantor without the need to fully litigate an action on the note or the guaranty.
The Warrant of Attorney
The typical warrant of attorney language in a promissory note or a guaranty may be similar to the following:
“Confession of Judgment. The Borrower authorizes any attorney-at-law to appear for Borrower in any court of record in the State of Ohio, or in any other state or territory of the United States of America, after this Note becomes due, and waive the issuing and service of process and confess judgment against Borrower in favor of Lender for the amount then appearing due, together with costs of suit, and thereupon to waive all errors and all rights of appeal and stays of execution. In lieu of presenting the original of this Note to the Court, the attorney confessing judgment against Borrower may present to the Court a copy of this Note, with the accuracy of that copy attested in an affidavit signed by an officer of Lender. If any judgment under the foregoing warrant of attorney is vacated for any reason, Lender may thereafter use the foregoing warrant of attorney to obtain additional judgments on this Note against Borrower. Borrower agrees that Lender’s attorney may confess judgment under the foregoing warrant of attorney, with Lender and Borrower waiving any conflict of interest. Borrower further agrees that the attorney confessing judgment under the foregoing warrant of attorney may receive a reasonable attorney’s fee from Lender, which reasonable attorney’s fee will constitute an advance under this Note and for which Borrower must reimburse Lender.”
After obtaining a cognovit judgment, the lender can direct the Clerk of Courts to file a certificate of judgment, thereby giving the lender a judgment lien on the real property of the “judgment debtor” (whether borrower or guarantor) located in the County where the certificate of judgment is filed.
Some pre-printed Ohio form mortgages also include a warrant of attorney to confess judgment against the mortgagor, and include the required cognovit warning. Few reported Ohio cases, however, have adjudicated, or even discussed, the use of a warrant of attorney in a contract other than a promissory note or a guaranty. In Century Natl. Bank v. Hines, 4th Dist. No. 11CA28, 2012-Ohio-4041 Aug. 28, 2012), however, the Ohio Fourth District Court of Appeals upheld a cognovit judgment, entered by the Athens County, Ohio, Court of Common Pleas, based on a warrant of attorney to confess judgment contained in a mortgage. This article will discuss the Hines case and whether the use of a warrant of attorney in a mortgage is supported by Ohio law.
As a starting point, Section 2323.13(D) of the Ohio Revised Code provides some guidance as to the enforceability of a warrant of attorney in certain types of non-consumer contracts:
“(D) A warrant of attorney to confess judgment contained in any promissory note, bond, securityagreement, lease, contract, or other evidence of indebtedness executed on or after January 1, 1974, is invalid and the courts are without authority to render a judgment based upon such a warrant unless there appears on the instrument evidencing the indebtedness, directly above or below the space or spaces provided for the signature of the makers, or other person authorizing the confession, in such type size or distinctive marking that it appears more clearly and conspicuously than anything else on the document:
‘Warning – By signing this paper you give up your right to notice and court trial. If you do not pay on time a court judgment may be taken against you without your prior knowledge and the powers of a court can be used to collect from you regardless of any claims you may have against the creditor whether for returned goods, faulty goods, failure on his part to comply with the agreement, or any other cause.’”
Section 2323.13(D), including the “Warning,” permits the inclusion of a warrant of attorney to confess judgment in “evidence of indebtedness” instruments, specifically promissory notes, bonds, security agreements, leases, and contracts. Depending on the terms and conditions in the specific instrument, Section 2323.13(D) allows (a) the payee of a promissory note to obtain a cognovit judgment for the unpaid balance of the promissory note when due, (b) a bondholder to obtain a cognovit judgment for the face amount of the bond at maturity, (c) a landlord to obtain a cognovit judgment for unpaid rent when due, and (d) the seller under a contract to obtain a cognovit judgment for the unpaid purchase price.
Less obvious is the scope of a warrant of attorney to confess judgment in a security agreement or a mortgage. Can a mortgage holder enforce a warrant of attorney to obtain a cognovit judgment ordering the foreclosure of the mortgage? Or does a warrant of attorney contained in a mortgage only allow for a cognovit judgment for the indebtedness evidenced by the mortgage? That indebtedness could include the mortgage holder’s payment of real estate taxes or property and casualty insurance premiums that the mortgagor failed to pay, in breach of covenants in the mortgage.
The language in the statutory Warning, namely, “If you do not pay on time a court judgment may be taken against you” could be construed narrowly to limit a cognovit judgment to one for money damages caused by the mortgagor’s default on the mortgage, or the language could be read broadly to mean that the debtor’s failure to pay, as a breach of the subject agreement, could lead to a cognovit judgment against the mortgagor for whatever remedies are specified in the mortgage, including a judgment foreclosing the mortgage.
In addition to the method of confessing a judgment through a warrant of attorney, the Ohio Revised Code also provides for a direct confession of judgment by an obligor. Section 2323.12 states, in pertinent part, that
“A personindebted, or against whom a cause of action exists, may personally appear in a court of competent jurisdiction, and, with the assent of the creditor, or person having such cause of action, confess judgment; whereupon judgment shall be entered accordingly.” (emphasis added)
Under Section 2323.12, a person owing money to a creditor, or a person against whom a cause of action exists, for example, a personal injury or property damage claim, may personally confess a judgment.
While the language in Section 2323.13, authorizing an attorney to confess a judgment, appears to restrict the confessed judgment to one for an indebtedness, Section 2323.12 is more open-ended and appears to permit relief beyond a judgment for money. An obligor confessing a judgment under Section 2323.12, and the creditor or other person in whose favor the cause of action exists, usually sign an “Agreed Judgment Entry” specifying the amount of the judgment or the action to be taken by the obligor.
The Hines Opinion
In Century Natl. Bank v. Hines, 4th Dist. No. 11CA28, 2012-Ohio-4041 Aug. 28, 2012), Century National Bank filed suit to foreclose five mortgages, each encumbering an investment property, executed by Pamela Hines to secure her indebtedness to Century National Bank under five cognovit promissory notes. Only one of the five mortgages contained a warranty of attorney to confess judgment. Unfortunately, the warrant of attorney in that mortgage is not quoted in the Hines opinion.
At the trial level, the Court of Common Pleas granted a cognovit judgment in favor of Century National Bank and against Hines on the promissory note secured by the mortgage containing the warrant of attorney. The Court of Common Pleas also rendered a cognovit judgment decree of foreclosure on all five mortgages, even though only one of those mortgages contained a warrant of attorney.
The Ohio Fourth District Court of Appeals reversed the cognovit judgments on the four mortgages without a warrant of attorney, holding that Century National Bank could not utilize the warrant of attorney in the promissory notes to obtain a cognovit judgment on the corresponding mortgage.
The Court of Appeals did, however, affirm the Court of Common Pleas’ cognovit judgment on the mortgage containing a warrant of attorney. The Court of Appeals based that affirmance on the right of the parties to freely contract as they saw fit, and stated that Hines cited no authority that prohibits the insertion of a confession of judgment clause in a mortgage on investment property.
In an earlier case, Century Natl. Bank v. Gwinn, 4th Dist. No. 11CA20, 2012-Ohio-768, the Ohio Fourth District Court of Appeals had reversed a judgment entered by the Athens County Court of Common Pleas, in which the Court of Common Pleas entered a judgment in foreclosure based solely on a confession of judgment in the cognovit note secured by the mortgage. The Gwinn Court held that the promissory note and the mortgage were separate instruments, and that the confession of judgment in the promissory note did not apply to the mortgage. The Hines court distinguished Gwinn on the basis that the foreclosed mortgage in Hines contained a warrant of attorney, while the mortgage in Gwinn did not.
Cases decided by the Ohio Fourth District Court of Appeals, unless reversed by the Ohio Supreme Court, have precedential authority in all state courts sitting in Adams, Athens, Gallia, Highland, Hocking, Jackson, Lawrence, Meigs, Pickaway, Pike, Ross, Scioto, Vinton, and Washington Counties.
Given the references in Section 2323.13 of the Ohio Revised Code to the “evidence of indebtedness” rather than an “evidence of obligations,” and the reference in the statutory Warning to the judgment creditor’s ability to “collect from” the debtor following the entry of a cognovit judgment, it appears that the confession of judgment/cognovit judgment procedure in Ohio is intended solely for a claim to obtain money damages. Otherwise, the mandatory Warning would probably include language warning the signer of the warrant of attorney that the creditor could enforce “obligations” specified in the subject instrument following the entry of the judgment.
Even if a court grants a cognovit judgment based on a warrant of attorney in a mortgage, if other persons have an interest in the property, such as a mechanic’s lien, a judgment lien, or another mortgage, those other persons must receive notice of the foreclosure action and be given the opportunity to assert those interests in the foreclosure case before the property can be sold at a judicial foreclosure sale.
This author was unable to find another judicial decision that cited either the Hines decision or the Gwinn decision, or that discussed the enforceability of a confession of judgment provision in an Ohio mortgage. So, the bottom line is that the Hines decision is binding in Ohio’s Fourth Appellate District, and persuasive authority in Ohio’s other eleven appellate districts. If a Court of Appeals in one of those other districts rules that a confession of judgment provision in a mortgage is unenforceable, the Ohio Supreme Court, if presented with the issue, will decide the conflict between the Courts of Appeal.
Donald E. Miehls, Esq.
Walter | Haverfield LLP
This overview is intended as general information only. Please note that this information is not legal advice. The reader should consult an attorney with knowledge in this area of the law to determine how the information applies to any specific situation.
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