Are E-Signatures Sufficient to Obtain a Cognovit Judgment?

Cognovit judgments are widely used by lenders in the commercial space as further security for repayment. Cognovit provisions allow lenders to appear in a courtroom and immediately obtain a judgment against a borrower without following traditional litigation procedures. However, courts are resistant to accepting electronic signatures for cognovit judgment purposes. Courts still prefer a discernable wet-ink signature before issuing a cognovit judgment. It is not advisable to use black ink or an electronic signature if your document contains a cognovit provision.

Ohio courts tend to follow the Ohio Judicial Conference’s cognovit judgment checklist before issuing a cognovit judgment against a party. In doing so, Courts have the expectation of reviewing the original loan document with an easily discernable wet-ink signature of the borrower/guarantor. Recently, in other states, clients have experienced difficulties with electronic signatures when seeking cognovit judgments. Within Ohio, we have experienced difficulties with courts granting a cognovit judgment in circumstances where they cannot easily discern the wet-ink signature from an electronic signature or potentially a copy of the signature. Given this practical difficulty and the lack of guidance from the Ohio Appellate courts, the Ohio Supreme Court, or an applicable statute, clients are cautioned not to accept electronic signatures when dealing with cognovit provisions.

Ohio has adopted a version of the Uniform Electronic Transactions Act (“UETA”)(R.C. 1306.01 et seq.). R.C. 1306.06(A) indicates a record or signature may not be denied legal effect or enforceability solely because it is in electronic form. Generally speaking, this means that Ohio courts will not deny the enforceability of a contract solely because it has an electronic signature. The UETA, however, generally does not apply to transactions governed by the Uniform Commercial Code (“UCC”) but does apply to UCC Article 2 and Article 2(A) Sales and Leases. Specifically, the UETA does not apply to Negotiable Instruments, Wills, Codicils, or Testamentary Trusts. This statute is also largely inapplicable to consumer transactions. The Electronic Signatures in Global Commerce Act (“E-Sign”) (15 U.S.C. §7001 et seq.) is a federal law that preempts state law and provides further requirements for consumer transactions not contained within UETA.

Going Forward, it is not advisable to use electronic signatures on any type of negotiable instrument that contains a cognovit provision until there is a statute permitting electronic signatures for cognovit judgments or a clear legal standard established by the courts.  It is not anticipated that either of these will occur for quite some time as most people facing cognovit judgments do not have the financial means to create an appellate record that would warrant an appellate court or Supreme Court ruling on this issue. The best practice is to insist upon any borrower subject to cognovit provision to sign the cognovit note in ink, most preferably blue ink, so courts may easily determine a signature’s authenticity.