In The Henry County Bank v. Stimmels, Inc., et al., 3rd Dist. No. 7-12-19, 2013-Ohio-1607 (Apr. 22, 2013) the Third Appellate District Court rendered a decision that will dismay commercial creditor’s rights attorneys in Ohio in holding that a warrant of attorney to confession judgment R.C. §2323.13 may only be used if the debtor was in default of payment, even where the debt had been accelerated.

The Henry County Bank obtained a cognovit judgment against the defendants, claiming as events of default the defendants’ failures to pay taxes when due and to maintain a stated indebtedness to tangible net worth ratio. After receiving notice of the judgment, the defendants filed a motion under Civil Rule 60(B) to vacate the cognovit judgment. The defendants supported their motion with an affidavit stating that they were not in default of payment, and here is the key: despite having accelerated the debt, the bank stipulated that the defendants were not in default of payment.

The trial court denied the defendants’ motion for relief after a hearing and supplemental briefs, and the defendants filed an appeal. Their sole assignment of error was that the trial court erred in granting judgment on the note without the bank asserting or proving that the defendants failed to pay on time, arguing that a warrant of attorney to confess judgment under R.C. §2323.13 could be used in a payment default situation.

Noting that "cognovit judgments are generally disfavored in the law" {¶8} and that R.C. §2323.13 is to "be strictly construed" {18}, the appellate court distinguished between a confession of judgment under R.C. §2323.12 and R.C. §2323.13.  Section 2323.12 provides in part that a "person may personally appear. . . and, with the assent of the creditor, or person having such cause of action, confess judgment; whereupon judgment shall be entered accordingly." The court characterized this as "a confession of the judgment by the debtor him or herself. . .", and distinguished a confession of judgment without notice as provided for under R.C. §2323.13, and rejected the bank’s argument that the two sections should be read together.

The appellate court relied on the language of the statutory warning of R.C. §2323.13 to conclude that a judgment under R.C. §2323.13 may only be granted for a payment default. That language provides in part admonishes "If you do not pay on time, a court judgment may be taken against you. . . " 

Notably the bank did accelerate the debt in its complaint, but then it seemingly contradicted itself by later stipulating that the debtors were not in payment default. The appellate court did not discuss the acceleration or the impact of the stipulation, so practitioners are left to wonder what impact those facts had on the decision.  The practice pointer that arises from this case is that a creditor should always accelerate a debt if grounds exist to do so; that way, there is a nonpayment under R.C. §2323.13 and the creditor should not waiver from the position that a debtor’s failure to pay an accelerated debt is "nonpayment" under R.C. §2323.13.