D.H. Overmyer Co. v. Frick Co.

Brief Fact Summary.

When D.H. Overmyer Co. (Defendant) defaulted on a note that contained a cognovit clause, Frick Co. (Plaintiff) used the clause to obtain a judgment against Defendant without notice or a hearing. Defendant moved to vacate the judgment.

Synopsis of Rule of Law.

A cognovit clause in a promissory note is not a per se violation of the Fourteenth Amendment’s Due Process Clause.

Facts.

Defendant entered a contract with Plaintiff for the manufacture and installation of equipment. Defendant defaulted on its payments and the two parties reached a post-contract agreement whereby Defendant made a partial payment and issued an installment note for the balance owed Plaintiff. Plaintiff completed the work and Defendant accepted it as satisfactory. Defendant again asked for relief on the balance owed to Plaintiff. Attorneys for both corporations participated in the negotiations and created a second note to replace the first. This second note included a “cognovit” clause which allowed Plaintiff to obtain a judgment without notice or hearing to Defendant should Defendant default on interest or principal payments. Defendant later claimed a breach of contract and stopped making payments on this second note. Plaintiff used the cognovit clause to obtain a judgment against Defendant without notice or a hearing. Defendant moved to vacate the judgment and the trial court denied the motion. The state appellate court affirmed and the U.S. Supreme Court granted certiorari.

Issue.

Is the Fourteenth Amendment’s Due Process Clause violated per se by the inclusion of a cognovit clause in a promissory note?

Held.

(Blackmun, J.) No. A cognovit clause in a promissory note is not a per se violation of the Fourteenth Amendment’s Due Process Clause. Defendant argues that the Due Process Clause requires reasonable notice and an opportunity to be heard. In this case, however, one party to a contract has agreed, as a condition of the contract, to waive in advance the right to a hearing in an action on the note. Due process rights in a civil proceeding are subject to waiver. Even if the requirements for such a waiver were held to be as strict as in a criminal proceeding—voluntary, knowing, and intelligently made—that standard would be met here. The cognovit clause was included in a note after negotiations between two corporate parties with the advice of competent counsel. Defendant voluntarily, knowingly, and intelligently waived its rights to prejudment notice and hearing, with full awareness of the legal consequences of such a waiver. A cognovit clause is not, per se, a violation of the Fourteenth Amendment’s Due Process Clause. Whether such a clause is constitutional depends on the facts of each case. Defendant is not entirely without recourse in this matter. The judgment court may vacate the judgment if Defendant shows a valid defense, such as prior payment or mistaken identity. Affirmed.

Discussion.

The Supreme Court here implies that a contract clause waiving due process rights might be invalid in other circumstances, such as when the consumer contract is a contract of adhesion, where there was no consideration given for the inclusion of the clause, or where the bargaining power of the parties favored the creditor to a large degree. These cases are fact determinative.