Stieger v. Chevy Chase Sav. Bank, FSB

666 A.2d 479, 1995 D.C. App. LEXIS 215, 1995 WL 611720

Opinions

Opinion for the court by Senior Judge PRYOR.

Dissenting opinion by Associate Judge RUIZ, at p. 485.

PRYOR, Senior Judge.

For the first time we are asked to determine whether a credit cardholder who permits use of the card by another for a specific purpose is liable for other uses not specifically authorized. The precise issue is whether, in such circumstances, the card user had “apparent authority” to use the card in the context of the provisions of the Truth-in-Lending Act, 15 U.S.C.A. §§ 1601 et seq. (1988). We agree with the Superior Court that for thirteen of the fifteen disputed charges the matching of the signature, combined with the cardholder’s voluntary relinquishment of the card for a third party’s use, constitutes such “apparent authority” under the Act, thereby making appellant liable for the full amount of the thirteen charges. We, therefore, affirm the decision of the Superior Court.

I.

On November 10, 1992, appellant brought suit against Chevy Chase Bank, F.S.B. (“Chevy Chase”) claiming he should not be held liable for certain charges credited to his Chevy Chase Visa card. Appellant voluntarily gave his credit card to a Ms. Garrett for the limited purpose of renting a car and for hotel lodging during a business trip. Appellant contacted both the car rental agency and the hotel to determine what type of authorization would be needed for Ms. Garrett to use his Visa card. Both companies informed him that he must write a letter authorizing the charges. Appellant asserts that he wrote both companies, but was unable to produce a copy of the letter to the hotel, which he contends limited his liability to $350.00.

Shortly after the conclusion of Ms. Garrett’s business trip, appellant learned that she had made several other charges he had not specifically authorized. His signature apparently had worn off the back of his credit card, and Ms. Garrett signed it as “P. Stieger” rather than Paul Stieger. On thirteen of the fifteen charges in dispute, Ms. Garrett had signed the charge slip “P. Stieger,” and on the other two she signed her own name.¹ Appellant has obtained a judgment against Ms. Garrett for $3200.00, but only $750.00 has been collected, and Ms. Garrett can no longer be located. Therefore, this action was brought to contest Chevy Chase’s refusal to dismiss the charges as unauthorized.

Commissioner Diaz ruled in favor of Chevy Chase on all fifteen charges. Appellant appealed to the Superior Court asserting that the charges were unauthorized under the Truth-In-Lending Act. After review of the case, a judge of the Superior Court held that the Commissioner “had a factual and legal basis upon which she could properly decide that the voluntary relinquishment of the cardholder’s credit card for one purpose gives the bearer apparent authority to make additional charges.” (Citing Martin v. American Express, Inc., 361 So.2d 597, 599-600 (Ala.Civ.App.1978)).

The Superior Court judge also considered the Commissioner’s reasonableness analysis. The Superior Court found that the merchants acted reasonably in accepting appellant’s credit card in thirteen of the fifteen charges where the name signed (“P. Stieger”) matched the signature on the card. However, the court reversed the two charges where Ms. Garrett had signed her own name. Appellant filed an application for allowance of appeal, and on April 29, 1994 we granted the application.

II.

In a broad sense, the resolution of this matter involves an economic consideration of whether the cardholder, card issuer, or merchant should bear the financial responsibility in the circumstances presented. The Truth-In-Lending Act was enacted “in large measure to protect credit cardholders from unauthorized use perpetrated by those able to obtain possession of a card from its original owner.” Towers World Airways Inc. v. PHH Aviation Systems, Inc., 933 F.2d 174, 176 (2nd Cir.), cert. denied, 502 U.S. 823, 112 S.Ct. 87, 116 L.Ed.2d 59 (1991). The Act specifically limits liability for the cardholder to a maximum of $50 for charges made by third parties that are “unauthorized.” 15 U.S.C.A. § 1643(a). However, the Act does not limit liability for the cardholder for third party charges made with “actual, implied or apparent authority.” 15 U.S.C.A. § 1602(o).

The essential question on appeal is whether the disputed charges were incurred by an “unauthorized user” under the Act. The statute specifically incorporates agency concepts by defining “unauthorized use” as “a use of a credit card by a person other than the cardholder who does not have actual, implied, or apparent authority for such use and from which the cardholder receives no benefit.” 15 U.S.C.A. § 1602(o) (emphasis added); see also 12 C.F.R. § 226.12(b)(1) n. 22 (stating same). Thus, our inquiry focuses on whether the relinquishment of a credit card to another for a limited purpose, which is then expanded by the user to make additional charges not authorized by the cardholder, is an “unauthorized” use under 15 U.S.C.A. § 1602(o), thereby limiting cardholder liability. Since actual or implied authority are not alleged in this case, the narrower issue is whether Ms. Garrett had apparent authority to use the card.

Our cases reveal that “[a]pparent authority arises when a principal places an agent ‘in a position which causes a third person to reasonably believe the principal had consented to the exercise of authority the agent purports to hold. This falls short of an overt, affirmative representation by a principal...." Insurance Management of Washington, Inc. v. Eno & Howard Plumbing Corp., 348 A.2d 310, 312 (D.C.1975) (quoting Drazin v. Jack Pry, Inc., 154 A.2d 553, 554 (D.C.1959)); see also Feltman v. Sarbov, 366 A.2d 137, 139 (D.C.1976) (stating same). Specifically, in this jurisdiction “apparent authority of an agent arises when the principal places the agent in such a position as to mislead third persons into believing that the agent is clothed with authority which in fact he does not possess.” Jack Pry, Inc. v. Harry Drazin, 173 A.2d 222, 223 (D.C. 1961) (footnote omitted) (emphasis added).

“Though a cardholder’s relinquishment of possession may create in another the appearance of authority to use the card, the statute clearly precludes a finding of apparent authority where the transfer of the card was without the cardholder’s consent as in cases involving theft, loss, or fraud.” Towers, supra, 933 F.2d at 177. As one court has stated:

Where a credit cardholder, who was under no compulsion by fraud, duress, or otherwise, voluntarily permits the use of his or her credit card by another person, the cardholder has authorized the use of that card and is thereby responsible for any charges as a result of that use, even if he or she requested that the other person not charge over a certain amount or make charges on it for specified purposes. The user has apparent authority to use the card even after actual authority ceases; provided, however, that the cardholder is not liable for use of the card after the issuer has been notified that actual authority for others to use the card no longer exists.

Standard Oil Co. v. Steele, 22 Ohio Misc.2d 27, 489 N.E.2d 842, 844 (Ohio Mun.Ct.1985).

Nearly every jurisdiction that has addressed a factual situation “where a cardholder voluntarily and knowingly allows another to use his card and that person subsequently misuses the card,” Martin, supra, 361 So.2d at 601, has determined that the agent had apparent authority, and therefore was not an “unauthorized” user under the Act limiting liability for the cardholder. See Towers, supra, (concluding that Towers was liable for charges because Towers’ consent and other conduct revealed the pilot’s unrestricted access to the PHH card); Martin, supra (holding cardholder responsible for charges of business associate despite oral limitation of $500.00); American Express Travel Related Serv. Co., Inc. v. Web, Inc., 261 Ga. 480, 405 S.E.2d 652 (1991) (concluding that company is responsible for employee’s misuse of the credit card resulting in charges of $27,000.00); Oclander v. First Nat’l Bank of Louisville, 700 S.W.2d 804 (Ky.Ct.App.1985) (holding wife responsible for estranged husband’s almost $12,000.00 in charges when wife mistakenly advised the bank that she had both cards in possession and the bank removed the “block” from the account); Cities Serv. Co. v. Pailet, 452 So.2d 319 (La.Ct.App.1984) (concluding that defendant liable for employees charges outside the scope of the limited business trip); Standard Oil, supra, (holding company responsible for employee’s charges); Walker Bank & Trust Co. v. Jones, 672 P.2d 73 (Utah 1983) (concluding that spouse was responsible for husband’s charges despite notifying bank of intention not to be responsible for husband’s charges when husband still maintained apparent authority to use the cards because cards had not been returned to the bank or the account closed), cert. denied, 466 U.S. 937, 104 S.Ct. 1911, 80 L.Ed.2d 460 (1984); Mastercard, Consumer Credit Div. of First Wisconsin Nat’l Bank of Milwaukee v. Town of Newport, 133 Wis.2d 328, 396 N.W.2d 345 (Ct.App.1986) (holding town responsible for town clerk’s personal charges); c.f. Michigan Nat’l Bank v. Olson, 44 Wash.App. 898, 723 P.2d 438 (1986) (reversing summary judgment where factual dispute over whether husband’s girlfriend had been given card to use or husband had used the card himself).

However, when a voluntary relinquishment of the card to a third party who returns it after its use is then followed by an involuntary surrender, i.e. stolen, of the card to the same third party, there is an “unauthorized” use under the Act. Blaisdell Lumber Co., Inc. v. Horton, 242 N.J.Super. 98, 575 A.2d 1386 (App.Div.1990) (holding that plaintiff had not established card user as agent with express, implied or apparent authority to use credit card when lover stole card and used it without authorization); Vaughn v. United States Nat’l Bank of Oregon, 79 Or.App. 172, 718 P.2d 769 (1986) (affirming jury verdict finding cardholder not hable to bank when, although previously giving his credit card and personal identification number to a third party for specific purchases, subsequent automatic teller withdrawal was the result of the third party stealing the card). No liability can attach to the cardholder when the card was not voluntarily relinquished, but rather was stolen. Thomas v. Central Charge Serv., Inc., 212 A.2d 533 (D.C.1965); c.f. Fifth Third Bank/ Visa v. Gilbert, 17 Ohio Misc.2d 14, 478 N.E.2d 1324 (Ohio Mun.Ct.1984) (concluding that bank did not prove that unemancipated daughter was given access to credit card to make charges and therefore father not ha-ble). In addition, if the cardholder notifies the card issuer that the card is being used in an unauthorized manner, the cardholder will not be liable for any charges made by the third party after the notice. See Cities Serv., supra, Standard Oil, supra, but see American Express, supra, (concluding that Act does not limit liability where notice is given to the issuer of the credit card).

We agree with these general principles because the voluntary relinquishment of the credit card, as distinguished from the stolen card situation, can often “mislead third persons into believing the agent is clothed with authority which in fact he does not possess.” Drazin, supra, 173 A.2d at 223.

III.

Appellant argues that he had the right to expect Ms. Garrett to use the credit card only for the charges he authorized, and that he cannot be held liable for his agent acting beyond the scope of her authority. Appellant also asserts that Ms. Garrett could not reasonably present herself as Paul Stieger, and that a merchant should be required to give greater scrutiny to the person using the card.

Turning to the specific facts in this case, appellant gave Ms. Garrett his credit card to use. As the Superior Court noted, thirteen of the charges had the same signature as appeared on the back of the card. Appellant placed Ms. Garrett, by voluntarily giving her the card, “in such a position as to mislead third persons into believing that the agent is clothed with authority which in fact [s]he does not possess.” Jack Pry, Inc., supra, 173 A.2d at 223. To a merchant, voluntary relinquishment combined with the matching of a signature is generally a reasonable indication of apparent authority to utilize the credit card. See 15 U.S.C.A. § 1643(a)(1)(F); 12 C.F.R. § 226.12(b)(2)(iii) & Supp. I at 341 (requiring the card issuer to provide a means of verifying the authority of the card bearer such as a signature, photograph, fingerprint or electronic or mechanical confirmation).

We agree with the Superior Court that the Commissioner “could properly conclude that the third-party merchants’ actions were reasonable,” and that the “voluntary relinquishment of the cardholder’s credit card for one purpose gives the bearer apparent authority to make additional charges.” However, we agree with the Superior Court that the same cannot be said of the two charges where Ms. Garrett signed her own name rather than “P. Stieger.” It is an unreasonable extension of the apparent authority provided to Ms. Garrett for a merchant to accept charges, where the signatures do not match, without any additional factors to mislead the merchant into believing that the person presenting the card is the agent of the cardholder.

Appellant attempted to limit his authorization exclusively to the hotel and car rental company, and to a specific dollar amount for each. He testified he did this by writing letters to the two companies limiting the amount Ms. Garrett could charge. These letters to the two companies would limit his liability to the amounts stated in the letters if they were in fact received by the companies when the credit card was offered as payment. Mr. Stieger was able to produce only a copy of the letter to the car company. The charge to the car company did not exceed the limit in the letter. However, Mr. Stieger was unable to produce a copy of the letter to the hotel that he asserts limited the amount Ms. Garrett could charge to $350. By testifying that he voluntarily gave his credit card to Ms. Garrett and wrote the hotel to authorize the charge, the bank has met its burden of showing apparent authority.² Since Mr. Stieger has not submitted a copy of the letter limiting his exposure to $350, we agree with the Superior Court that the Commissioner did not err in concluding that Mr. Stieger is liable for the full amount of the hotel charge in excess of the $350.

In sum, Mr. Stieger was in the best position to control the uses of his credit card by not relinquishing it to a third party he could not trust, by notifying the card issuer that his credit limit should be lowered to a specific dollar amount, thereby limiting his exposure, or by notifying the card issuer upon becoming aware of certain unapproved purchases that any further purchases are unauthorized. As one court has noted “[i]n four-party arrangements of this sort [cardholder, issuer, third party and merchant], it is totally unrealistic to burden the card issuer with the obligation to convey to numerous merchants whatever limitation the cardholder has placed on the card user’s authority.” Towers, supra, 933 F.2d at 179 (footnote omitted). The Truth-In-Lending Act, although generally designed to protect credit cardholders, specifically reveals a congressional preference that where apparent authority exists, under the circumstances, the cardholder should bear the financial responsibility. Mr. Stieger voluntarily relinquished his credit card to an unreliable person, and thereby put Ms. Garrett in a position to mislead merchants to believe that she possessed apparent authority to utilize the card. Under the circumstances, Mr. Stieger should bear the financial responsibility for the unauthorized charges made by Ms. Garrett as determined by the trial court.

Affirmed.

1

. Twenty-two charges were made by Ms. Garrett, of which seven were dropped by the Bank prior to trial,

2

. This fact was uncontroverted, and thus under settled concepts, appellant created an apparent authority in Ms. Garrett to reasonably use the card. It sometimes happens, as here, that appellant provided the factual basis for appellee’s burden to proceed. A remand on this point would be futile.