Summary
determining R.C. 2323.13(E) "sets forth essentially four elements in the definition of consumer loan: there must be a `loan'; to a `natural person'; by which a debt is incurred; for primarily personal, family, educational or household purposes
Summary of this case from Arlington Bank v. Bee, Inc.Opinion
Nos. 90-373 and 90-681
Submitted February 12, 1991 —
Decided June 26, 1991.
CERTIFIED by and APPEAL from the Court of Appeals for Cuyahoga County, No. 57841.
On January 19, 1981, appellants, Michael and Rita Sroka, signed a cognovit note, thereby promising to pay appellee, Shore West Construction Co. ("Shore West"), the sum of $10,000, with interest from the date thereof of ten percent per annum. The note provided for payments of $6,000 on January 19, 1982, and $5,500 on January 19, 1983. The note contained a warrant of attorney, by which the Srokas agreed that an attorney could confess judgment against them on the note without any notice to them.
Shore West filed a complaint against appellants in the Court of Common Pleas of Cuyahoga County, demanding a judgment of $21,291.70 on the note. By the authority of the aforementioned warrant of attorney, Shore West also confessed judgment in its own favor. The common pleas court entered judgment in favor of Shore West on the same date.
Appellants filed a motion for relief from judgment, with supporting affidavits, and a motion for leave to file an amended answer and counterclaim instanter. According to appellants' affidavits, they had entered into a purchase agreement with Shore West in May 1980 for the construction of a personal family residence. However, appellants' agreement to purchase the new residence was contingent on the sale of their prior residence. When appellants found that they could not sell their "prior residence for the amount necessary to purchase the new residence," Shore West agreed to allow appellants to execute a promissory note that would serve as part of the down payment that otherwise would have been due on the new home. On that basis, appellants sold their prior residence at a reduced price and shortly thereafter executed the cognovit note described above.
Appellants contended in their affidavits that they refused to pay the amounts due on the note because Shore West had failed to repair defects in the home, including water seepage in the basement. Repair estimates for the water problem ranged from approximately $8,300 to $9,000.
Appellants asserted in their motion for relief from judgment that the cognovit judgment was void under R.C. 2323.13(E) because it arose out of a "consumer loan." They also contended that they were entitled to relief from judgment under Civ.R. 60(B)(5), and that they had demonstrated the existence of numerous meritorious defenses.
In response, Shore West did not dispute appellants' contention that the cognovit note had constituted part of the down payment for the purchase of a residence. Shore West contended, however, that the term "consumer loan" does not encompass loans obtained for purposes of purchasing real estate. Shore West also argued that the Civ.R. 60(B) motion was untimely, that appellants had asserted no meritorious defenses to the unconditional obligation contained in the note, and that appellants had waived all contractual defenses in the note.
The trial court denied appellants' motions without a hearing and without opinion. The court of appeals affirmed, concluding that appellants' asserted defenses had been waived under the terms of the note and that the cognovit note had not arisen out of a "consumer loan."
Appellants appealed to this court and also obtained an order from the court of appeals certifying the existence of a conflict between appellate districts. Although Shore West contends that no conflict exists, we note that appellants' other appeal remains pending and that the parties have fully briefed the issues. Because we hereby sua sponte allow appellants' discretionary appeal, we have full jurisdiction in any event to review appellants' challenge to the court of appeals' judgment.
Gareau Dubelko Co., L.P.A., Michael R. Gareau and William L. Costello, for appellee.
Donahue Scanlon, Harvey Labovitz and Lawrence S. Crowther, for appellants.
Upon review, we hold that a loan obtained for purposes of purchasing real estate may be a "consumer loan" under R.C. 2323.13(E)(1).
R.C. 2323.13(E) states in pertinent part:
"A warrant of attorney to confess judgment * * *, 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. * * *
"* * *
"As used in this section:
"(1) `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 forebearance [ sic, forbearance] of debt arising from a consumer loan.
"(2) `Consumer transaction' means a sale, lease, assignment, award by chance, or other transfer of an item of goods, a service, franchise, or an intangible, to an individual for purposes that are primarily personal, family, educational, or household."
If appellants' cognovit note arose out of either a consumer loan or consumer transaction, then the cognovit judgment entered against them is void and must be vacated for lack of subject matter jurisdiction.
Appellants have not argued that the cognovit note arose out of a consumer transaction. We therefore express no opinion on the application of R.C. 2323.13(E)(2) to a cognovit note arising out of a contract for the construction of a new home. Appellants instead contend that their cognovit note arose out of a consumer loan. In response, Shore West contends that the term "consumer loan" does not encompass a loan made for the purpose of purchasing real estate.
Shore West's argument has no merit. In construing the definition of "consumer loan" under R.C. 2323.13, we find no basis within R.C. 2323.13(E)(1) for a distinction between loans for purposes of purchasing real estate and loans for purposes of purchasing personal property or services. 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. Shore West's argument has no support in the definition of "consumer loan."
Shore West's argument is further weakened when the definition of "consumer loan" is compared to that of "consumer transaction." When the General Assembly desired to exclude real estate from the scope of the "consumer transaction" definition, it provided that the definition was limited to goods, services, franchises, and intangibles. See Heritage Hills, Ltd. v. Deacon (1990), 49 Ohio St.3d 80, 551 N.E.2d 125. The definition of "consumer loan" contains no such limiting language. The absence of such language strongly indicates that the General Assembly did not intend to exclude loans involving real estate from the definition of consumer loan. See Patton v. Diemer (1988), 35 Ohio St.3d 68, 70, 518 N.E.2d 941, 943. Accordingly, we hold that a loan obtained for purposes of purchasing real estate may be a "consumer loan" under R.C. 2323.13(E)(1). We disapprove Vroman v. Halishak (1984), 22 Ohio App.3d 14, 22 OBR 49, 488 N.E.2d 231, and Ohio Savings Assn. v. Cortell (1985), 24 Ohio App.3d 234, 24 OBR 444, 495 N.E.2d 33, to the extent those cases held to the contrary.
Shore West has not contended that its transaction with appellants failed in any other respect to meet the definition of consumer loan. It is therefore unnecessary to remand the case for an evidentiary hearing on the elements of R.C. 2323.13(E)(1). Consequently, in view of the undisputed facts, we hold that the common pleas court lacked jurisdiction under R.C. 2323.13(E) to enter a cognovit judgment against appellants. Because our disposition of this issue results in the vacation of the cognovit judgment, we will not address other issues raised by appellants concerning the propriety of Civ.R. 60(B) relief in this case.
Based on the foregoing, we reverse the judgment of the court of appeals and remand the case to the common pleas court for further proceedings in accordance with law.
Judgment reversed and cause remanded.
SWEENEY, HOLMES, DOUGLAS, WRIGHT, H. BROWN and RESNICK, JJ., concur.