2020 Ohio 5101
Ohio2020Background
- Progressive Polymers, L.L.C. and Darin A. Bay borrowed $500,000 from Sutton Bank and executed a promissory note containing a warrant of attorney (a cognovit clause) and a definitions section identifying “I/me/my” as the borrowers and “you/your” as the lender.
- Immediately above the borrowers’ signature lines the note reproduced the statutory R.C. 2323.13(D) warning in bold caps that by signing the paper the signer gives up the right to notice and a court trial.
- Sutton Bank sued for default, an attorney for the bank confessed judgment under the warrant of attorney, and the trial court entered a cognovit judgment for the bank.
- Progressive Polymers and Bay moved to vacate and appealed, arguing the defined term “you” (which the note defined as the lender) made the statutory warning read to the bank rather than the borrowers, rendering the warning defective and the cognovit clause invalid.
- The Eleventh District Court of Appeals reversed, holding the note’s definition unambiguously made “you” refer to the lender and therefore the statutory warning did not inform the borrowers; a dissent concluded the warning and placement plainly addressed the borrowers.
- The Ohio Supreme Court held traditional contract-interpretation rules apply to cognovit clauses, concluded the warning (by its language and placement) clearly warned the borrowers, reversed the court of appeals, and reinstated the trial-court cognovit judgment.
Issues
| Issue | Plaintiff's Argument (Sutton Bank) | Defendant's Argument (Progressive Polymers/Bay) | Held |
|---|---|---|---|
| Whether traditional contract-interpretation rules apply to cognovit provisions | Contract-law rules govern and courts must give effect to parties’ intent when interpreting cognovit clauses | Cognovit clauses must be strictly construed against the enforcing party, so statutory requirements should be read narrowly for the creditor’s benefit | Held: Traditional interpretive rules apply first; secondary strict-construction rule only if ambiguity remains |
| Whether the note’s defined term “you” (as the lender) voids the R.C. 2323.13(D) warning by directing it to the bank rather than the signers | The warning’s text and placement show “you” refers to the signers (borrowers) despite the definitions elsewhere; the parties did not intend the absurd result urged by the borrowers | The definition section unambiguously defined “you” as the lender, so the statutory warning did not warn the borrowers and the cognovit clause is invalid | Held: Court rejected the defendants’ reading; the warning and signature placement make clear it applied to the borrowers, so the cognovit clause is valid and judgment was reinstated |
Key Cases Cited
- D.H. Overmyer Co., Inc. v. Frick Co., 405 U.S. 174 (1972) (describing cognovit notes and warrants of attorney)
- Lathrem v. Foreman, 168 Ohio St. 176 (1958) (warrants of attorney strictly construed against party in whose favor judgment is given)
- Haggard v. Shick, 151 Ohio St. 535 (1949) (same principle regarding strict construction)
- Alexander v. Buckeye Pipe Line Co., 53 Ohio St.2d 241 (1978) (common words given ordinary meaning unless absurdity or contrary evidence appears)
- Sunoco, Inc. (R&M) v. Toledo Edison Co., 129 Ohio St.3d 397 (2011) (primary rule: give effect to parties’ intent as expressed in written agreement)
- Foster Wheeler Enviresponse v. Franklin Cty. Convention Facilities Auth., 78 Ohio St.3d 353 (1997) (technical terms receive technical meaning unless parties express different intent)