SUTTON BANK, APPELLANT, v. PROGRESSIVE POLYMERS, L.L.C., ET AL., APPELLEES.
No. 2019-1314
Supreme Court of Ohio
November 3, 2020
2020-Ohio-5101
Submitted July 21, 2020
[Until this оpinion appears in the Ohio Official Reports advance sheets, it may be cited as Sutton Bank v. Progressive Polymers, L.L.C., Slip Opinion No. 2020-Ohio-5101.]
NOTICE
This slip opinion is subject to formal revision before it is published in an advance sheet of the Ohio Official Reports. Readers are requested to promptly notify the Reporter of Decisions, Supreme Court of Ohio, 65 South Front Street, Columbus, Ohio 43215, of any typоgraphical or other formal errors in the opinion, in order that corrections may be made before the opinion is published.
SLIP OPINION NO. 2020-OHIO-5101
SUTTON BANK, APPELLANT, v. PROGRESSIVE POLYMERS, L.L.C., ET AL., APPELLEES.
[Until this opinion appears in the Ohio Official Reports advance sheets, it may be cited as Sutton Bank v. Progressive Polymers, L.L.C., Slip Opinion No. 2020-Ohio-5101.]
Cognovit promissory notes—Courts must give effect to the clear intent of the parties when interpreting cognovit notеs—Judgment reversed.
(No. 2019-1314—Submitted July 21, 2020—Decided November 3, 2020)
APPEAL from the Court of Appeals for Portage County, Nos. 2018-P-0079 and 2019-P-0001, 2019-Ohio-3239.
{¶ 1} This case concerns whether certain inconsistencies in a cognovit promissory note signed by the debtors prevent its enforcement. Because the contract, viewed as a whole, put the debtors on notice of the rights that they were relinquishing by signing the note, the court of appеals erred in holding that the note was defective. We therefore reverse the judgment of the Eleventh District Court of Appeals and reinstate the trial court‘s cognovit judgment entered in favor of the creditor.
I. Background
{¶ 2} On July 22, 2016, appellees, Progressive Polymers, L.L.C., and Darin A. Bay, borrowed $500,000 from appellant, Sutton Bank. To secure the loan, Bay signed a cognovit promissory note as a member of Progrеssive Polymers and in his own behalf. Pursuant to the note, Progressive Polymers and Bay promised to repay Sutton Bank the principal amount of the loan, with interest, in 72 monthly installments. The note included a confession-of-judgment clause that contained a warrant of attorney by which Progressive Polymers and Bay agreed that should they default on the note, an attorney could confess judgment against them.
{¶ 3} The note begins with a section of definitions: ” ‘I‘, ‘me,’ and ‘my,’ refer to each Borrower signing this Note,” Progressive Polymers and Bay, and ” ‘You’ and ‘Your’ refer to the Lender,” Sutton Bank. The pronouns retain this usage through the 30 paragraphs of the note, including in the boxed confession-of-judgment clause between paragraphs 29 and 30. The only portion of the document that does not clearly retain the constructiоn of “you” and “your” as defined and quoted above, is the
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.
{¶ 4} On September 13, 2018, Sutton Bank filed a complaint for a cognovit judgment against Progressive Polymers and Bay in the Portage County Court of Common Pleas alleging default. The complaint sought the remaining balance owed on the principal, plus late fees, accrued interest, pre- and postjudgment interest, court costs, and attorney fees. Pursuant to the warrants of attorney in the note, an attorney chosen by Sutton Bank filed an answer confessing judgment against Progressive Polymers and Bay and in Sutton Bank‘s favor. The trial court ruled in favor of Sutton Bank and issued the cognovit judgment.
{¶ 5} Progressive Polymers and Bаy appealed from the trial court‘s judgment to the Eleventh District Court of Appeals and also filed a
{¶ 6} In their motion, Progressive Polymers and Bay argued that the promissory note was not a valid cognovit note and that therefore the trial court lacked jurisdiction to enter a cognovit judgment in favor of Sutton Bank. The cognovit note was invalid, they argued, because the statutory warning had to be read as being directed to Sutton Bank as the lender, and not to them as the borrowers, since the note specifically defines “you” and “your” as the lender, Sutton Bank. Bay and Progressive Polymers asserted that this interpretation of the warning language was the only legitimate one inasmuch as a cognovit note must be strictly construed against the party seeking its enforcement. Accordingly, Progressive Polymers and Bay maintained that the warning was defective because it failed to put them on notice of the rights that they were waiving by signing the note.
{¶ 7} Sutton Bank countered that while the definition section identified “you” and “your” with the lender, those definitions do not apply in the warning. Instead, the bank argued that courts must give words in a promissory note their defined meaning unless some other meaning is apparent on the face of the document. Sutton Bank maintained that it is was clear from the overall context of the document and the language used in the warning that the word “you,” as contained in the warning, referred to Progressive Polymers and Bay as the signers of the note, notwithstanding the relevant provisions of the definition section.
{¶ 8} The trial court denied the motion to vacate, and Progressive Polymers and Bay appealed from that judgment also. In a split decision, the Eleventh District reversed the judgment of the trial court, vacated the cognovit judgment in favor of Sutton Bank, and remanded the cause to the trial court for further proceedings on
{¶ 9} The court of appeаls began by acknowledging that because cognovit notes allow judgment to be entered against a party without notice or hearing, they are strictly construed against the party seeking enforcement. The majority further reasoned that the parties’ intent is revealed in their language. Unambiguous and clear terms need no interpretation, and courts must give effect to all contract provisions. After applying these rules, the court concluded:
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 [Progressive Polymers and Bay] 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, Suttоn Bank as the drafter of the Note—despite the default language inserted from the Ohio statute using the 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[s], [Progressive Polymers and Bay].
Id. at ¶ 15. Accordingly, the majority held that the note did not meet the strict requirements of
{¶ 10} The dissent reached the opposite conclusion. It noted that Progressive Polymers and Bay‘s argument, while “creative,” was unreasonable in light of the following facts: the note used the precise warning language required by
{¶ 11} Sutton Bank appealed to this court, and we accepted jurisdiction over the following proposition of law: “Although cognovit clauses are construed strictly against those enforcing them, courts must still follow traditional rules of contractual interpretation when analyzing those clauses.” See 157 Ohio St.3d 1510, 2019-Ohio-5193, 136 N.E.3d 495.
II. Analysis
A. Cognovit Promissory Notes
{¶ 12} A cognovit promissory note is a special type of commercial paper
{¶ 13}
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.”
{¶ 14} In the past, this court has stated that a warrant of attorney is to be strictly construed against the person in whose favor the judgment is given. See Lathrem v. Foreman, 168 Ohio St. 176, 188, 151 N.E.2d 905 (1958), citing Haggard v. Shick, 151 Ohio St. 535, 86 N. E.2d 785 (1949); Peoples Banking Co. v. Brumfield Hay & Grain Co., 172 Ohio St. 545, 548, 179 N.E.2d 53 (1961); Cushman v. Welsh, 19 Ohio St. 536, 539 (1869); Spence v. Emerine, 46 Ohio St. 433, 439, 21 N. E. 866 (1889). We have also said that “court proceedings bаsed on such warrants must conform in every essential detail with the statutory law governing the subject.” Lathrem at paragraph one of the syllabus.
B. Traditional Rules of Interpretation Apply to Cognovit Provisions
{¶ 15} Rules of contract interpretation are tools that we use to give meaning to disputed terms or provisions so that the contract as a whole will reflect the
{¶ 16} We conclude that traditional rules of contract interpretation do apply to cognovit provisions, just as they would to any other provision in any other contract. Rules of interpretation have one purpose—to give meaning to the language of the contract in a way that reflects the intent of the parties. If courts did not use rules of interpretation when interpreting cognovit provisions, those provisions could be open to all manner of interpretations, some of which would naturally be incongruous with the parties’ actual intent.
{¶ 17} The majority and dissenting opinions of the cоurt of appeals did, to some extent, apply traditional rules of contract interpretation in their respective analyses. We agree with Sutton Bank, however, that the majority‘s analysis stopped short of where it should have when it applied the note‘s definition of “you” (referring to the lender, Sutton Bank) to the statutory warning language without considering, as it should have considered, whether thе parties intended this reading.
C. The Note‘s Definition Section Does Not Apply to the Statutory Warning
{¶ 18} Because this case involves an issue of contract interpretation, the outcome depends on whether the parties intended the note‘s definition of “you” to apply to the statutory warning. Sunoco, 129 Ohio St.3d 397, 2011-Ohio-2720, 953 N.E.2d 285, at ¶ 37 (A court‘s primary concern when confronted with an issue of contract intеrpretation is to give effect to the parties’ intentions). Although words and terms within a contract will be given their ordinary meaning, see Alexander at paragraph two of the syllabus, where parties to a contract have given a word a specific meaning by expressly defining it in the contract, that definition will generally override whatever definition might otherwise be established by an examination of the word‘s ordinary meaning or common usage. In re Payne, 450 B.R. 711, 719 (Bankr.S.D.Ohio 2011). Furthermore, when a word is expressly defined, then that word should be given its expressed meaning whenever it is used in the contract. Id. at 719-720. Both rules regarding defined terms stem from the broader principle that where terms in a contract are clear and unambiguous, they should be applied as written. It is clear from the appellate court‘s opinion that the court used these rules to conclude that the dеfinition section of the note must apply to the warning provision. However, what the appellate court failed to understand is that these rules—helpful though they are—are not unbreakable or inviolable. They must yield to the intent of the parties, and when the parties clearly did not intend an express definition to apply, a court cannot force that construction upon them. See In re Adelphia Communications Corp., 368 B.R. 348, 354 (Bankr.S.D.N.Y.2007) (defined terms must still be interpreted in the context of the entire agreement); Beanstalk Group, Inc. v. AM Gen. Corp., 283 F.3d 856, 860 (7th Cir.2002) (“a contract will not be interpreted literally if doing so would produce absurd results in the sense of results that the parties, presumed to be rational persons pursuing rational ends, are very unlikely to have agreed to seek“).
{¶ 19} Focusing on what thе parties would have intended, we are unpersuaded by Progressive Polymers and Bay‘s argument that the note‘s defined terms had the effect of modifying the warning provision such that the warning no longer applied to them. To begin, the very first sentence of the warning says: “BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRIAL.” (Capitalization sic.) The “you” clearly refers to the signers of the note. And because Bay‘s signatures, on behalf of himself and Progressive Polymеrs, are the only ones on the note and appear directly below the warning, the “you” must necessarily refer to Progressive Polymers and Bay, regardless of how “you” is defined elsewhere in the document. If someone had signed the document on behalf of Sutton Bank, there would be ambiguity as to whether “you” referred to Sutton Bank as the lender instead of Progressive Polymers and Bay as the borrowers. But sinсe Sutton Bank did not sign, no ambiguity exists. Likewise, the second sentence of the warning provision also makes clear that “you” refers to Progressive Polymers and Bay. It states: 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 * * *” (Capitalization sic.) Bay and Progressive Polymers do not dispute that they are the only parties to the note that have an obligation to make timely payments. Sutton Bank, as the lender and creditor, has no such obligation. Furthermore, according to the warning‘s plain language, “you” in the second sentence must at least be viewed as referring to a party that is not the creditor because that individual or entity might have claims against the creditor. Again here, Sutton Bank is the creditor. If we adopt the construction that Progressive Polymers and Bay urge us to adopt, this second sentence would be read to mean: “If [Sutton Bаnk] does not pay on time a court judgment may be taken against [Sutton
{¶ 20} Accordingly, we find that the statutorily-required language of the warning provision, coupled with the placement of the signature line, сan leave no doubt that the notice was directed to the makers of the note: Progressive Polymers and Bay. Indeed, it is telling that neither Bay nor Progressive Polymers argues, or has ever argued, ignorance as to the type of document that they were signing. Nor have they claimed ignorance about waiving their due process rights by signing it. Instead, their arguments against upholding the cognovit judgment rest on the fаct that technically, if the definition of “you” in the note is applied to the “you” in the warning provision, the warning provision put Sutton Bank, and not them, on notice of rights that Sutton Bank was waiving even though Progressive Polymers and Bay, not Sutton Bank, were the signatories. This is an unnatural and strained reading of the warning provision, and the parties did not intend such a result.
III. Conclusion
{¶ 21} For the foregoing reasons, we hold that although cognovit clauses are construed strictly against those seeking to enforce them, courts must still give effect to the clear intent of the parties when interpreting them. We therefore reverse the judgment of the Eleventh District Court of Appeals and reinstate the trial court‘s cognovit judgment in favor of Sutton Bank.
Judgment reversed.
O‘CONNOR, C.J., and KENNEDY, FRENCH, FISCHER, DEWINE, and DONNELLY, JJ., concur.
Meyer Kerschner, Ltd., Michael D. Stultz, and Douglas A. Stephan, for appellаnt.
Buckingham, Doolittle & Burroughs, L.L.C., Patrick J. Keating, and Daniel J. Glass, for appellee.
Ice Miller, L.L.P., and Steven D. Forry, urging reversal for amicus curiae Ohio Credit Union League.
Vorys, Sater, Seymour and Pease, L.L.P., John J. Kulewicz, Jeffrey E. Smith, and Scott A. Herkamp; and Jeffrey D. Quayle, urging reversal for amicus curiae Ohio Bankers League.
Porter, Wright, Morris & Arthur, L.L.P., H. Grant Stephenson, and L. Bradfield Hughes, urging reversal for amicus curiae Community Bankers Association of Ohio.