COURT OF APPEALS OF OHIO, EIGHTH DISTRICT COUNTY OF CUYAHOGA NOS. 67385, 68588 : JOHN DODICK : : : JOURNAL ENTRY Plaintiff-Appellee : : and -vs- : : OPINION ANNA MARIE DODICK : : : Defendant-Appellant : : : DATE OF ANNOUNCEMENT OF DECISION: JANUARY 25, 1996 CHARACTER OF PROCEEDING: Civil appeal from Common Pleas Court Case No. CV-269894 JUDGMENT: Reversed, Remanded and Vacated. DATE OF JOURNALIZATION: __________________________ APPEARANCES: For Plaintiff-Appellee: For Defendant-Appellant: BRETT M. SABROFF, ESQ. EDWIN V. HARGATE, ESQ. 24200 Chagrin Boulevard 18519 Underwood Avenue Suite 348 Cleveland, ohio 44119 Beachwood, Ohio 44122 - 2 - KARPINSKI, J.: Plaintiff-appellee ("husband") and defendant-appellant ("wife") ended their marriage in a divorce journalized on July 23, 1994. Part of the divorce journal entry concerned the ownership of real estate located at 953 East 237th Street, Euclid, Ohio. The husband and wife were only "beneficial owners" of this real estate, the deed being titled in the name of her father, Peter Ropas. At the time of the divorce the parties agreed that husband's beneficial rights to the property would be transferred to wife and she would sign an installment cognovit note to secure payment for part of the encumbrance on the property. The divorce agreement clarified there were "two encumbrances on said real estate": (1) a $33,000 encumbrance owed to husband and (2) a $16,000 encumbrance to Peter Ropas, the titled owner. Wife paid husband $5,000 and signed a cognovit note to secure payment to husband for his remaining encumbrance of $28,000 on the property. This installment cognovit note extended credit to wife by enabling her to pay for one of the remaining encumbrances over time at the rate of $2,000 for 14 years. The note contained a standard warrant of attorney provi- sion. It was further agreed that wife would be the residential parent and that husband would pay child support through the Child Support Enforcement Agency. Both parties filed motions to show cause why the other party should not be held in contempt for failure to make certain - 3 - payments. In response to these motions the domestic relations court adopted the Referee's Report with the following findings: (1) husband was in contempt for failing to make his child support payments, which, because he had not made a single child support payment for over two and one-half years, was now in arrears in the amount of $4,970.72; and (2) wife was unable to make her payments on the cognovit note because she failed to receive any child support payments for two and one-half years, and for this reason was not in contempt for failure to keep up payments. Additionally, wife has alleged in her appellate briefs that she is now current in her payments under the note. Husband has not filed a responsive brief to refute this point. On May 4, 1994, (1) husband filed a complaint upon the cognovit note, (2) an answer confessing judgment against her was filed by warrant of attorney on behalf of wife, and (3) the trial court entered judgment against wife in the amount of the note, $28,000.00. On June 3, 1994, she filed a motion for relief from judgment, arguing that the money owed to husband arose from a consumer transaction and, therefore, that the trial court did not have jurisdiction to enter judgment by warrant of attorney. She filed a notice of appeal to this court and then moved this court to remand the matter to allow the trial court to rule on the motion for relief from judgment. This court granted wife's motion. On remand, the court, granting the motion for relief from judgment in part and denying the motion in part, reduced the - 4 - amount owed on the note from $28,000.00 to $24,000.00 because of a $4,000.00 judgment against husband for child support arrearages. Wife appealed to this court. The first appeal, CA No. 67385, was consolidated with the second appeal, CA No. 68588, taken after the trial court heard the motion for relief from judgment. Arguing that the trial court erred in entering judgment on the cognovit note by warrant of attorney, wife raises four assignments of error, which will be treated together. The first two assignments of error filed in Case No. 67385 state as follows: I. THE TRIAL COURT ERRED IN GRANTING JUDGMENT ON A COGNOVIT NOTE WHICH WAS BASED UPON A CONSUMER LOAN, THE JUDGMENT THEREBY BEING RENDERED VOID; AND THE TRIAL COURT FAILED TO HOLD AN EVIDENTIARY HEARING ON THE ELEMENTS OF R.C. 2323.13 (E)(1). II. THE TRIAL COURT ERRED IN GRANTING JUDGMENT ON A COGNOVIT NOTE WHEN THE COMPLAINT DOES NOT SPECIFICALLY ADDRESS THE BASIS OF THE TRANSACTION AND THE TRIAL COURT FAILED TO INQUIRE AS TO SUBSECTION (E) AND MAKE SOME FINDING THEREON IN THE RECORD, AT LEAST IN THE ENTRY RENDERING JUDGMENT. The second two assignments of error filed in Case No. 68588 state as follows: I. THE TRIAL COURT ERRED IN FAILING TO GRANT IN TOTAL DEFENDANT-APPELLANT'S MOTION FOR RELIEF FROM JUDGMENT ON THE GROUND THAT DEFENDANT-APPELLANT HAS DEMONSTRATED A POTENTIALLY VALID DEFENSE TO ALL OR PART OF A CLAIM AND TIMELINESS BY OPERATIVE FACTS THAT SHE IS ENTITLED TO RELIEF UNDER CIVIL RULE 60 (B). II. THE TRIAL COURT ERRED IN DENYING DEFENDANT- APPELLANT'S MOTION FOR RELIEF FROM JUDGMENT WITHOUT FIRST MAKING A FACTUAL DETERMINATION OF THE ALLEGED GROUNDS FOR RELIEF ADVERSE TO THE MOVANT. - 5 - In order to prevail on a motion brought under Civ.R. 60(B), the movant must demonstrate the following: (1) the party has a meritorious defense or claim to present if relief is granted; (2) the party is entitled to relief under one of the grounds stated in Civ.R. 60 (B)(1) through (5); and (3) the motion is made within a reasonable time, and, where the grounds of relief are Civ.R. 60(B)(1), (2) or (3), not more than one year after the judgment, order or proceeding was entered or taken. GTE Automatic Electric v. ARC Industries (1976), 47 Ohio St.2d 146, paragraph two of the syllabus. A motion for relief from judgment will be overruled if these three elements are not satisfied. Rose Chevrolet, Inc. V. Adams (1988), 36 Ohio St.3d 17. However, in the case of a judgment on a cognovit note, only two of the three elements need to be satisfied. Meyers v. McGuire (1992), 80 Ohio App.3d 644, at 646. The court in Meyers stated: Ordinarily, a motion to vacate should be overruled if any of these three requirements are not satisfied. Rose Chevrolet, Inc. v. Adams (1988), 36 Ohio St.3d. 17, 20, 520 N.E.2d 564, 566-567; Moore v. Emmanuel Family Training Ctr. (1985), 18 Ohio St.3d 64, 67, 18 OBR 96, 99, 479 N.E.2d 879, 882-883. The courts of this state have oft recognized, however, that special circumstances are presented when a judgment is entered on a cognovit note. When prior notice is not supplied, the maker has forfeited all rights to prejudgment notice and a trial. D.H. Overmyer Co. v. Frick Co. (1972), 405 U.S. 174, 187, 92 S.Ct. 775, 783, 31 L.Ed.2d 124, 135. As this court observed long ago, collateral attacks upon such judgments traditionally have been freely permitted. Mirman v. Webster (App.1934), 17 Ohio Law Abs. 327, 328. The prevailing view is that relief from a judgment taken upon a cognovit note, without prior notice, is warranted by authority of Civ.R. 60(B)(5) when the movant (1) establishes a meritorious defense, (2) in a timely application. Matson v. Marks (1972), 32 Ohio App.2d 319, 327, 61 O.O.2d 476, 480-81, 291 N.E.2d 491, 497; - 6 - Society Natl. Bank v. Val Halla Athletic Club & Recreation Ctr., Inc. (1989), 63 Ohio App.3d 413, 418, 579 N.E.2d 234, 238. Accordingly, in the case at bar, wife must establish (1) that her 60(B) motion was timely made and (2) that she has a meritorious defense. Wife timely filed her 60(B) motion on June 3, 1994, less than a month after judgment was entered upon the cognovit note. Wife also has established a meritorious defense. Wife argues that judgment cannot be entered against her because the loan in question is a consumer loan. The note that he sought to obtain judgment upon is a cognovit note. A cognovit note is a legal device by which the debtor consents in advance to the holder's obtaining a judgment without notice or hearing, and possibly even with the appearance, on the debtor's behalf, of an attorney designated by the holder. D.H. Overmyer Co. v. Frick Co. (1972) 405 U.S. 174, 92 S.Ct. 775, 31 L.Ed.2d 124, 61 O.O.2d 528. Often, judgment on a cognovit note is entered pursuant to a warrant of attorney. "A warrant of attorney consented to by a debtor provides for a waiver of prejudgment notice and hearing." Fogg v. Friesner (1988), 55 Ohio App.3d 139, at 140. Revised Code 2323.13(E) prohibits a warrant of attorney to 1 confess judgment when the note arises out of a consumer loan. In 1 Revised Code 2323.13(E) states as follows: (E) 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. An action founded upon an instrument arising out of a (continued...) - 7 - Shore West Constr. Co. v. Sroka (1991), 61 Ohio St.3d 45, the Supreme Court, applying R.C. 2323.13(E), held that a judgment entered on a cognovit note that arises out of a consumer transaction is void and must be vacated for lack of jurisdiction. See also, Calet v. Frye (July 6, 1994), Summit App. No. 16626, unreported. The court in Shore West then interpreted what constitutes a "consumer loan" under R.C. 2323.13(E)(2) as follows: R.C. 2323.13(E)(1) sets forth essentially four elements in the definition of consumer loan: (1) there must be a "loan"; (2) to a "natural person"; (3) by which a debt is incurred; (4) for primarily personal, family, educational or household purposes. There is no hint in this definition that real estate cannot serve primarily personal, family, educational or household purposes. Indeed, it is clear that the purchase of a home serves the most fundamental of personal and family purposes. In Shore West, supra, the court held that a cognovit note which was used as a down payment on a home was a consumer transaction under R.C. 2323.13 and that the trial court, therefore, did not have jurisdiction to enter judgment upon a warrant of an attorney. In Calet, supra, the court held that a cognovit note which was payment for services by a real estate agent arose from a consumer transaction under R.C. 2323.13(E)(2), and thus the judgment entered based upon the warrant of attorney was void. In the case at bar, wife has established the four elements necessary for a consumer loan. The first element is that there 1 (...continued) consumer loan or a consumer transaction as defined in this section is commenced by the filing of a complaint as in any ordinary civil action. - 8 - must be a "loan." At the time of the divorce, the parties agreed that the husband had a "beneficial ownership" in the property which he transferred to the wife for $33,000. She initially paid him $5,000. For the remainder husband extended credit with a cognovit note, thus giving the wife the opportunity to pay over time. As a loan to pay for an encumbrance on the property, this transaction satisfies the first element. The second element, that the loan be to a natural person, is also satisfied: wife is a natural person as opposed to a corporate or other business entity. As to the third element, it is uncontroverted that a $28,000.00 debt was incurred by defendant. Finally, the fourth element requires that the debt be incurred for primarily "personal, family, educational or household purposes." This debt was incurred so that defendant could have a home for herself and her children. One could not think of a better example of family or household purpose. The elements of a consumer loan having been satisfied, the cognovit judgment entered against defendant is void. Moreover, to find otherwise would be incongruous, because it was his failure to make payments to her that resulted in her inability to pay him under the note. To find otherwise would also be inconsistent with the domestic relations court order that found husband, not wife, in contempt for failure to keep up payments. The trial court erred, therefore, by not granting defendant's motion for relief for judgment. We hereby reverse the trial court's denial of wife's Civ.R. 60(B) motion and vacate the judgment entered on the cognovit note. - 9 - Judgment reversed and remanded. - 10 - This cause is reversed and remanded, and the judgment entered on the cognovit note is vacated. It is, therefore, ordered that appellant recover of appellee her costs herein taxed. It is ordered that a special mandate be sent to said court to carry this judgment into execution. A certified copy of this entry shall constitute the mandate pursuant to Rule 27 of the Rules of Appellate Procedure. BLACKMON, P.J., and NAHRA, J., CONCUR. DIANE KARPINSKI JUDGE N.B. This entry is made pursuant to the third sentence of Rule 22(D), Ohio Rules of Appellate Procedure. This is an announcement of decision (see Rule 26). Ten (10) days from the date hereof, this document will be stamped to indicate journalization, at which time it will become the judgment and .