Cognovit Promissory Notes - Still Enforceable, But....?
Several recent Ohio Court of Appeals decisions have confirmed that while Ohio will remain among the minority of states that recognize and enforce cognovit provisions in promissory notes (see Ohio Rev. Code section 2323.13), getting back into court on a motion for relief from judgment may be becomining easier. Over time, Ohio courts have been gradually lowering the threshold for obtaining relief from judgment when it comes to opening up a cognovit judgment. However, the individual  facts of the case and the specificity of the judgment debtor's factual allegations supporting the purported meritorious defense remain important.Â
 When a promissory note contains a cognovit provision, also known as "confession of judgment" provisions, a creditor can obtain judgment immediately following the filing of the Complaint without any notice to the erstwhile debtor or opportunity to be heard. All that is necessary is that the creditor file a ministerial answer on behalf of the debtor and present the court with the original of the promissory note containing the appropriate "warrant of attorney" cognovit language and "clear and conspicuous" warning. Creditors obviously appreciate this feature as it can give them a head start on such post-judgment collection activities as bank account garnishment.
 For many years, cognovit judgment debtors were required to demonstrate they in fact did have a "meritorious defense" just as any other party seeking relief form judgment was required to prove. In addition, many courts held the view that the mere existence of cognovit provisions in a promissory note precluded any defense other than payment. (see, e.g. Fifth Third Bank v. Jarrell,  2005 Ohio 1260 (Franklin Cty- 10th App. Dist.).Â
While no less an authority than the United States Supreme Court has upheld the constitutionality of cognovit notes and specifically as used in Ohio (D. H. Overmyer Co., Inc. v. Frick Co., 405 U.S. 174 (1972)), Ohio courts have gradually become more uncomfortable about the lack of due process inherent in the enforcement of cognovit provisions in promissory notes. Some courts have become more willing to entertain potential defenses to cognovit judgments beyond simply payment. In addition, the threshold for obtaining relief from judgment on a cognivit judgment has been modifed so that the judgment debtor need only show that a meritorious defense can be asserted, and need not prove that he or she would prevail upon that defense.
However, while Ohio courts are becoming somewhat more receptive to relief from cognovit judgment, it is not entirely clear what that will mean in practice. Just last week, in Gerold v. Bush,  2007 Ohio 5885, 2007 Ohio App. LEXIS 5171, the Erie County Court of Appeals for the Sixth Appellate District upheld a trial court's grant of relief from judgment where the debtor alleged accord and satisfaction and a failure of consideration without requiring much more from the judgment debtor. Meanwhile, a little more than a month ago, the Knox County Fifth Appellate District Court of Appeals upheld the denial of relief from a cognovit judgment in World Tire Corp. v. Webb, 2007 Ohio 5135, 2007 Ohio App. LEXIS 4517 in which the debtor alleged fraudulent inducement to execute the note because the judgment debtor failed to provide sufficient "operative facts" in its affidavit.  Other Ohio Courts of Appeal also upheld denial of relief from cognovit judgments on the grounds that insufficient "operative facts" had been alleged.
Thus from the creditor's perspective, cognovit promissory notes will remain an important tool. From the judgment debtor's perspective, taking care to be specific about the facts giving rise to a perceived defense seems likely to be particualry important.
UPDATE: To learn more about cognovit notes in Ohio, click here for my post on the basics.
