[Cite as Sutton Bank v. Progressive Polymers, L.L.C., 2019-Ohio-3239.]


                                    IN THE COURT OF APPEALS

                                 ELEVENTH APPELLATE DISTRICT

                                      PORTAGE COUNTY, OHIO


 SUTTON BANK,                                            :           OPINION

                   Plaintiff-Appellee,                   :
                                                                     CASE NOS. 2018-P-0079
         - vs -                                          :                     2019-P-0001

 PROGRESSIVE POLYMERS, LLC, et al.,                      :

                   Defendants-Appellants.                :


 Civil Appeals from the Portage County Court of Common Pleas.
 Case No. 2018 CV 00723.

 Judgment: Reversed and remanded.


 Michael D. Stultz and Christopher C. Camboni, Meyer & Kerschner, Ltd., 106 East Market
 Street, P.O. Box 400, Tiffin, OH 44883 (For Plaintiff-Appellee).

 Patrick J. Keating and Daniel J. Glass, Buckingham, Doolittle & Burroughs, LLC, 3800
 Embassy Parkway, Suite 300, Akron, OH 44333 (For Defendants-Appellants).



TIMOTHY P. CANNON, J.

        {¶1}      Appellants, Progressive Polymers, LLC and Darin A. Bay, appeal two

judgments of the Portage County Court of Common Pleas, in favor of appellee, Sutton

Bank, on a cognovit promissory note. We reverse and remand.

        {¶2}      The facts leading up to the dispute between the parties are straightforward.

On July 22, 2016, appellants signed a cognovit promissory note (the “Note”) in favor of

Sutton Bank for the principle amount of $500,000.00. Appellants were to make monthly
payments on the Note. The following sections of the Note are pertinent to the present

dispute:

                    Paragraph 1, the definitions section of the Note, states that
             “[t]he pronouns ‘I,’ ‘me,’ and ‘my’ refer to each Borrower signing this
             Note, individually and together * * * ‘You’ and ‘Your’ refer to the
             Lender * * *.”

                     Paragraph 29, the “waiver of jury trial” section, states: “All of
             the parties to this Note knowingly and intentionally, Irrevocably and
             unconditionally, waive any and all right to a trial by jury in any
             litigation arising out of or concerning this Note or any other Loan
             Documents or related obligation. All of these parties acknowledge
             that this section has either been brought to the attention of each
             party’s legal counsel or that each party had the opportunity to do so.”

                   Between Paragraph 29 and Paragraph 30, the following is
             contained in a text box:



             CONFESSION OF JUDGMENT. If I default, I authorize any attorney
             to appear in a court of record and confess judgment against me in
             favor of you. The confession of judgment may be without process
             and for any amount due on this Note including collection costs and
             reasonable attorneys’ fees. This is in addition to other remedies.


                    Paragraph 30, the following warning is printed in bold, capital
             letters:

             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.

      {¶3}   Appellants signed the Note right below the above warning contained in

Paragraph 30. Sutton Bank did not sign the Note. Thereafter, in August 2018, appellants

informed Sutton Bank they would no longer be able to make payments on the Note.

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       {¶4}   A complaint for confession of judgment on the Note was filed by Sutton

Bank on September 13, 2018, and judgment was summarily entered in favor of Sutton

Bank on September 17, 2018. Appellants appealed the judgment (Case No. 2018-P-

0079) and also filed a motion to vacate.

       {¶5}   While the appeal was pending, appellants filed a motion with this court to

remand the matter for a ruling on the motion to vacate, which was granted. On remand,

the trial court denied the motion to vacate, holding that appellants did not have a

meritorious defense to Sutton Bank’s claim under the Note. Appellants filed a second

notice of appeal from the denied motion to vacate (Case No. 2019-P-0001), and the cases

were consolidated.

       {¶6}   Appellants’ timely consolidated appeals before this court raise three

assignments of error.     For clarity and convenience, we combine the first and third

assignments for review.

       {¶7}   Appellants’ first and third assignments of error state:

              [1.] The Trial Court erred in granting cognovit judgment in favor of
              Appellee and against Appellant. Strictly construing the underlying
              promissory note, as is required of Ohio courts when interpreting
              cognovit provisions, the promissory note does not authorize an
              attorney to confess judgment against Appellants.

              [3.] The Trial Court’s Judgment Entry is void from the beginning for
              lack of subject matter jurisdiction because the underlying Note is
              facially insufficient to support a cognovit judgment. Where the Trial
              Court failed to do so, this court possesses and should exercise its
              inherent authority, which is not derived from Civil Rule 60(B), to
              vacate a judgment entered without subject matter jurisdiction.

       {¶8}   The first and third assignments of error relate to appellants’ challenge to the

judgment on direct appeal. Appellants challenge the legal sufficiency of the cognovit

feature in the Note based on the definitions set forth in the contract.



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                ‘A cognovit note is not an ordinary note. It is indeed an extraordinary
                note which authorizes an attorney to confess judgment against the
                person or persons signing it. It is written authority of a debtor and a
                direction by him for the entry of a judgment against him if the
                obligation set forth in the note is not paid when due. Such a judgment
                may be taken by any person or any company holding the note, and
                it cuts off every defense which the maker of the note may otherwise
                have. It likewise cuts off all rights of appeal from any judgment taken
                on it.’

Badalamenti v. Natl. City Bank, 11th Dist. Portage No. 2001-P-0122, 2002-Ohio-4815,

¶15, quoting Jones v. John Hancock Mut. Life Ins. Co., 289 F.Supp. 930, 935 (W.D.Mich.

1968).

         {¶9}   “While legal, cognovit notes are generally disfavored because they deprive

a debtor of notice and the opportunity to answer the complaint prior to the entry of

judgment on the note.” Fifth Third Bank v. Woeste Bros. Properties, Ltd., 12th Dist. Butler

No. CA2010-06-145, 2010-Ohio-5807, ¶10 (citations omitted). “It has long been held that

warrants of attorney to confess judgment are to be strictly construed and court

proceedings based upon such warrants must conform in every essential detail with the

statutory law governing the subject.” Bank One of Eastern Ohio, NA v. Liberty Bell, Inc.,

11th Dist. Trumbull No. 3685, 1987 WL 13067, *2 (June 19, 1987), citing Lathrem v.

Foreman, 168 Ohio St. 186 (1958).

         {¶10} Appellants’ first assignment of error challenges the interpretation of the

contract between appellants and Sutton Bank, which is a matter of law subject to a de

novo standard of review. Kilko v. Lockhart, 11th Dist. Lake No. 2012-L-003, 2012-Ohio-

5026, ¶30, citing Nationwide Mut. Fire Ins. Co. v. Guman Bros. Farm, 73 Ohio St.3d 107,

108 (1995). “A court must interpret a contract so the intent of the parties may be

ascertained and given effect.” Natl. City Bank v. Concorde Controls, Inc., 11th Dist. Lake

No. 2001-L-113, 2002-Ohio-6578, ¶24 (citation omitted). “When a court is construing the

                                               4
meaning of a contract, the intent of the parties to a contract is presumed to reside in the

language they chose to employ in the agreement.” Id. (citation omitted).

       {¶11} “If contractual terms are unambiguous, a court may not fashion a new

contract or interpret contractual terms in a manner not expressed by the clear intent of

the parties.” Id. (citation omitted). “An interpretation will not be given to one part of the

contract which will annul another part of it.” Stalloy Metals, Inc. v. Kennametal, Inc., 11th

Dist. Geauga No. 2012-G-3054, 2012-Ohio-5597, ¶36 (citation omitted). The contract

must be interpreted as a whole, and an interpretation that gives effect to all of the

contract’s provisions is preferred.” Id. (citation omitted).

       {¶12} R.C. 2323.13(D) governs the obligations for forming a warrant for an

attorney to confess judgment on a cognovit promissory note, and it states:

              A warrant of attorney to confess judgment contained in any
              promissory note, bond, security agreement, 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 signatures 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.”

       {¶13} Appellants concede that Sutton Bank included the required statutory

warning language contained in R.C. 2323.13(D) exactly as it appears in the statute. Their

contention is that the definition section of the Note changed the meaning and application

of the statutory language. They contend a literal interpretation of the definitions applied

                                              5
to the warning establishes it was, by definition, Sutton Bank who conceded rights

pursuant to the warning paragraph.

       {¶14} The matter sub judice can be likened to our consideration of the term “hire”

in the matter of Sherock v. Ohio Mun. League Joint Self-Ins. Pool, 11th Dist. Trumbull No.

2003-T-0022, 2004-Ohio-1515. There, the appellant made an argument similar to Sutton

Bank whereby the defined term “hire” had a specific meaning in certain parts of the

agreement and a general meaning in others. We held as follows:

              The ambiguity found by the trial court only exists if two different
              definitions of the term “hire” are applied to the interpretation of the
              Participation Agreement. According to the Municipal League and the
              trial court, “hire” has a precise definition in the context of the “Hired
              Auto” provision, but a general meaning in the context of the “Non–
              Owned Auto” provision. Such an interpretation, however, is
              unnecessary and improper. Where a contract gives precise meaning
              to a particular term, the term should be construed consistently as
              having that meaning throughout the contract, absent some evidence
              of intent to the contrary. * * * Moreover, a trial court exceeds its
              authority when it undertakes to construe language that is
              unambiguous. The Ohio Supreme Court has stated that “the most
              critical rule [of interpretation] is that which stops this court from
              rewriting the contract when the intent of the parties is evident, i.e., if
              the language of the policy’s provisions is clear and unambiguous,
              this court may not ‘resort to construction of that language.’” * * *

              Since the term “hire” is defined within the Participation Agreement,
              we hold that this term is not ambiguous and it was unnecessary for
              the trial court to construe the Participation Agreement.

Id. at ¶13-14 (internal citations and footnote omitted).

       {¶15} Interpreting the contract as a whole and avoiding interpretations that have

the effect of annulling parts of it, the definition section of the Note unambiguously grants

appellants the right to confess judgment against Sutton Bank in the event of a breach.

This is the language chosen by the parties to the contract—namely, Sutton Bank as the

drafter of the Note—despite the default language inserted from the Ohio statute using the



                                              6
pronoun “you” instead of “I” to describe the signer(s). Sutton Bank acknowledges the

borrower must be given the warning set forth in the statute. However, a plain reading of

the definitions chosen by Sutton Bank establishes that there is no statutory warning

directed to the borrower, appellants herein.

       {¶16} Appellants’ first and third assignments of error have merit.

       {¶17} Appellants’ second assignment of error states:

              The Trial Court abused its discretion in denying Appellants 60(B)
              Motion for Relief from the Judgment Entry. Appellants demonstrated
              that they were entitled to Relief from the Judgment Entry pursuant to
              Civil Rule 60(B). Appellants timely filed their Motion for Relief and
              demonstrated the existence of a meritorious defense or claim to
              present if relief was granted.

       {¶18} Because we have determined that a strict construction of the Note did not

authorize an attorney to confess judgment against appellants, their second assignment

of error, related to the denial of their 60(B) motion, is moot.

       {¶19} The order of the Portage County Court of Common Pleas confessing

judgment against Appellants on the cognovit note is hereby reversed, and this matter is

remanded to the trial court for further proceedings on Sutton Bank’s complaint.



THOMAS R. WRIGHT, P.J., concurs,

MARY JANE TRAPP, J., dissents with a Dissenting Opinion.


                                 ____________________


MARY JANE TRAPP, J., dissents with a Dissenting Opinion.

       {¶20} I must respectfully dissent.




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      {¶21} While creative as commercial law arguments go, Progressive Polymers,

LLC’s and Darin A. Bay’s (collectively, the “borrowers”) proposed interpretation of the

cognovit promissory note disregards the clear mandate of the applicable statute, is not

reasonable or consistent with the parties’ intent based on the entire instrument, and

ignores the reality of the commercial banking and lending industry.

      {¶22} The dispute in the case involves Sutton Bank’s (the “lender”) failure to alter

the language of the statutory warning. As the majority correctly notes, “[w]here a contract

gives precise meaning to a particular term, the term should be construed consistently as

having that meaning throughout the contract, absent some evidence of intent to the

contrary.” (Emphasis added.) Sherock v. Ohio Mun. League Joint Self-Ins. Pool, 11th

Dist. Trumbull No. 2003-T-0022, 2004-Ohio-1515, ¶13. In this case, the parties certainly

intended the note’s definitions of “you” and “your” to have different meanings in the

statutory warning.

      {¶23} First, the lender intended to give effect to the note’s warrant of attorney to

confess judgment by using the exact language of the statutory warning. A promissory

note that contains a warrant of attorney is a cognovit note. Huntington Natl. Bank v.

Burda, 10th Dist. Franklin No. 08AP-658, 2009-Ohio-1752, ¶8, citing D.H. Overmyer Co.,

Inc. v. Frick Co., 405 U.S. 174, 176 (1972), fn. 1. A cognovit note allows a holder of the

note to obtain judgment without a trial and without consideration of possible defenses that

the signer of the note might assert. Id. citing D.H. Overmyer at 177.

      {¶24} Since at least 1958, the Supreme Court of Ohio has recognized that

warrants of attorney to confess judgment are to be strictly construed and that court

proceedings based on such warrants must conform in every essential detail with the

statutory law governing the subject. Lathrem v. Foreman, 168 Ohio St. 186 (1958),

                                            8
paragraph one of the syllabus. According to the court, “[c]onfession of judgment is entirely

a statutory measure and must meet the requirements thereof strictly.” Id. at 188, quoting

Keyes v. Peterson, 194 Minn. 361, 364 (1935).

       {¶25} R.C. 2323.13, the statute in Ohio that governs warrants of attorney to

confess judgment, is quite clear and unambiguous and does not allow for variations:

       {¶26} “(D) A warrant of attorney to confess judgment contained in any promissory

note, bond, security agreement, 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 signatures 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:

       {¶27} ‘“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.” (Emphasis added.)

       {¶28} The Ohio General Assembly proscribed the precise warning that must be

given and employed quotation marks around the precise language to underscore the

mandatory nature of each and every word. Courts have recognized the mandatory nature

of this warning. See, e.g., First-Knox Natl. Bank v. Hoffman-Wyatt, 5th Dist. Knox No.

92-CA-09, 1992 WL 331653, *1 (Oct. 22, 1992) (“[T]he legislature meant precisely what

it said in setting out the objective criteria contained in R.C. 2323.13(D)”); PC

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Surveillance.Net, LLC v. Rika Group Corp., 7th Dist. Mahoning No. 11 MA 165, 2012-

Ohio-4569, ¶24 (“[T]he warrants of attorney to confess judgment in the cognovit notes

quote exactly the mandatory statutory warning language[.] * * * This conforms with the

mandatory requirements of R.C. 2323.13(D), and the cognovit judgments * * * are not

void”); Bank One, Youngstown, N.A. v. Salem China Co., 7th Dist. Columbiana No. 89-

C-27, 1990 WL 65377, *1 (May 16, 1990) (holding that the legislature requires “exact

compliance”); Central Trust Co. of Northeastern Ohio, N.A. v. Hutcheson, 5th Dist. Stark

No. CA-7104, 1987 WL 18540 (Oct. 13, 1987), overruled on other grounds by Gardner v.

Kines, 5th Dist. Stark No. CA-8674, 1992 WL 28880, *2 (Jan. 27, 1992) (holding that “no

deviation from the language is permissible”).

       {¶29} In this case, the borrowers expressly granted to the lender a warrant of

attorney to confess judgment upon default. The parties’ intent to enter into a cognovit

promissory note is unambiguous because the warrant of attorney language contained in

the cognovit note before us, which is the critical provision that differentiates a cognovit

note from any other promissory note, does indeed employ the same defined pronouns

set out in the note’s definitional section - “I” referred to the borrower and “you” referred to

the lender.

       {¶30} To give legal effect to this provision, the lender placed the required statutory

warning above the signatures of the borrowers in all caps, bolded, and in larger font. The

borrowers have proposed an interpretation of the statutory warning that exists in a

vacuum, without regard to the intrinsically related confession of judgment provision. Such

an interpretation is at odds with the long-standing principle that “[t]he intention of the

parties must be derived ... from the instrument as a whole, and not from detached or

isolated parts thereof.’” California Fitness I, Inc. v. Lifestyle Family Fitness, Inc., 433

                                              10
Fed.Appx. 329, 337 (6th Cir.2011), quoting Whitt Mach, Inc. v. Essex Ins. Co., 377

Fed.Appx. 492, 496 (6th Cir.2010) (Internal citations omitted.)

       {¶31} Second, only the lender’s proposed interpretation of the note is reasonable

and gives effect to its terms. “[A]n interpretation which gives a reasonable, lawful, and

effective meaning to all the terms is preferred to an interpretation which leaves a part

unreasonable ... or of no effect.” Id. at 342, citing Restatement (Second) of Contracts §

203(a) (1981).

       {¶32} A proper interpretation of the note grants the lender the right to confess

judgment against the borrowers in the event of nonpayment. The statutory warning

contained in the note states as follows:

       {¶33} “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."

       {¶34} The terms “you” and “your” as used in the statutory warning clearly refer to

the borrowers, and “creditor” and “his” clearly refer to the lender:

                    “By signing this note * * *.” Only the borrowers signed the note, not

the lender.

                    “If you do not pay on time * * *.” Only the borrowers are obligated to

make timely payments under the note, not the lender. Further, a cognovit judgment is

limited to default for nonpayment under the terms of the instrument evidencing

                                             11
indebtedness. (Emphasis added.) Henry Cty. Bank v. Stimmels, Inc., 3d Dist. Henry No.

7-12-19, 2013-Ohio-1607, ¶19.

                     “You give up your right to notice and court trial. * * * [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 * * *.” Only the borrowers, not the lender, granted

a warrant of attorney to confess judgment upon default and waived process, which

mandated the inclusion of the statutory warning.

                     “regardless of any claims you may have against the creditor * * *.”

Only the lender, not the borrowers, extended credit under the note and can properly be

referred to as “the creditor.”

       {¶35} The borrowers’ proposed interpretation of the note renders the confession

of judgment and the statutory warning meaningless.

       {¶36} Finally, only the lender’s proposed interpretation is consistent with usage of

trade in the commercial lending industry. Ohio’s Uniform Commercial Code defines a

“usage of trade” as “any practice or method of dealing having such regularity of

observance in a place, vocation, or trade as to justify an expectation that it will be

observed with respect to the transaction in question.” R.C. 1301.303(C). A “usage of

trade in the vocation or trade in which [the parties] are engaged or of which they are or

should be aware is relevant in ascertaining the meaning of the parties’ agreement, may

give particular meaning to specific terms of the agreement, and may supplement or qualify

the terms of the agreement.” R.C. 1301.303(D). As this court has explained, “[i]n order

to qualify as a ‘usage of trade,’ the use of the dispute[d] contractual language must occur

so regularly within a vocation or trade ‘as to justify an expectation that it will be observed

with respect to a particular agreement.’” (Citations omitted.) Dana Partners, L.L.C. v.

                                             12
Koivisto Constructors & Erectors, Inc., 11th Dist. Trumbull No. 2011-T-0029, 2012-Ohio-

6294, ¶27.

      {¶37} According to the U.S. Supreme Court, in a case involving a prior version of

R.C. 2323.13, “[t]he cognovit is the ancient legal device by which the debtor consents in

advance to the holder's obtaining a judgment without notice or hearing, and possibly even

with the appearance, on the debtor’s behalf, of an attorney designated by the holder.”

(Emphasis added.)      D.H. Overmyer, supra, at 176.     It was known as far back as

Blackstone’s time. Id.

      {¶38} In this case, the parties certainly knew the meaning and effect of the

cognovit provisions.

      {¶39} The clear intent of the parties’ transaction was for the lender to loan money

to the borrowers in exchange for a promise to repay the loan on certain terms. If the

borrowers defaulted on payment, the lender was entitled to an immediate judgment. The

note in this case met the strict statutory requirements and should be enforced.

      {¶40} For the foregoing reasons, I respectfully dissent.




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