So, what is a Cognovit Note? It's a special type of promissory note that waives the makers rights to a trial, hearing, and notice. It waives these rights at the time the note is signed.
Cognovit Notes in Business and Commercial Transactions
Cognovit Notes are excellent in business and commercial transactions when you want to secure payment from another party. In most situations, there is a Holder and a Maker of the Note. The Holder is entitled to receive payment, while the Maker is the person obligated to pay.
A Cognovit Note sounds just like a Promissory Note - That's right it is very similar to a Promissory Note, but it's the Warrant of Attorney to Confess Judgment that makes it special. The Note itself includes special language that as stated above waives your rights, but more importantly, it allows any licensed attorney to appear on your behalf and acknowledge that they received a copy of the Note. And then they can agree on your behalf and without your knowledge that you owe the money. We've had it happen to several clients and one of the first things that they tell us is that we don't even know what that Attorney is.
Cognovit Notes and Consumer Transactions
Because of this waiver of rights and Confession of Judgment, it is only allowed to be used in Business Transactions and not Consumer transactions. Ohio Revised Code Section 2323.13(E) states, “A warrant of attorney to confess judgment contained in any instrument executed on or after January 1, 1974, arising out of a consumer loan or consumer transaction, is invalid and the court shall have no jurisdiction to render a judgment based upon such a warrant.”
The Ohio Supreme Court in Patton v. Diemer, 35 Ohio State 3rd 68, 70 (1998), observed that the statute provides the following definition of a “consumer loan”: “Consumer Loan” means a loan to a natural person and the debt incurred is primarily for a personal, family, educational or household purpose. The term, “Consumer Loan”, includes the creation of debt by the lender’s payment of or agreement to pay money to the debtor or to a third party for the account of the debtor; the creation of a debt by a credit to an account with the lender upon which the debtor is entitled to draw; and the forbearance of debt arising from a consumer loan.
Recently we had someone try and enforce a Cognovit Note in a bailbondsman situation.