Authorized Users Are Not Contractually Liable! Poulson Brief

Identity Theft, Account Takeover, Unauthorized Use, Misuse, Apparent Authority, Authorized Use.
David A. Szwak

Authorized Users Are Not Contractually Liable! Poulson Brief

Postby David A. Szwak » Tue Nov 29, 2005 9:32 pm

Issue 3: Is an Authorized User Liable For Charges Made on the Principal’s Account?

According to Citibank’s pleading in another case, the answer is “no.” In Li v. Citibank USA, Not Reported in F.Supp.2d, 2001 WestLaw 34379613 [U.S.D.C. W.D. Wis. 2001], Citibank [same defendant as here], argued: “Defendant contends that plaintiff Li lacks standing to bring this action because he is not a "cardholder" but only an "authorized user," arguing that an authorized user is not liable for repayment of the account. [emphasis added.].”


Further supporting the position that an authorized user is not liable is the decision [and case cited therein] in Matter of Laursen, 214 B.R. 378 [Bkrtcy. D. Neb.1997], which stated: “First, I conclude that Mr. Laursen is not contractually liable for the credit card debt. The credit card is in the name of Patti Laursen, and she made all the charges and took the cash advances on the account. Although, Mr. Laursen directed Ms. Laursen to make the charges and cash withdrawals, he did not sign the credit card agreement and he did not sign any of the credit card charge invoices. There is simply no privity of contract between Mr. Laursen and the Bank and he has no contractual liability to the Bank. See In re Houfek, 126 B.R. 530 (Bankr.S.D.Ohio 1991). The Bank did not offer evidence from which I conclude that Ms. Laursen acted as an agent of Mr. Laursen in obtaining the credit card or in incurring the debt. The Bank has not established that Ms. Laursen had actual, implied, or apparent authority to act as Mr. Laursen's agent in obtaining the card or in incurring charges on the credit card account. Because the Bank has not demonstrated a principal-agency relationship, contractual liability of Mr. Laursen cannot be predicated upon the activities of Ms. Laursen. Courts have been hesitant to find contractual liability on the part of individuals other than the person who applies for and receives the credit card. Individuals that the cardholder designate as having authority to make purchases on a credit card are often referred to as "authorized users" of a credit card. Decisional law indicates that even authorized users are not regarded as contractually liable for charges they make on the account. See Sears Roebuck & Co. v. Ragucci, 203 N.J.Super. 82, 495 A.2d 923 (1985); Cleveland Trust Co. v. Snyder, 55 Ohio App.2d 168, 380 N.E.2d 354 (1978). [emphasis added.].” In accord: Sears Roebuck & Co. v. Stover, 32 Ohio Misc.2d 1, 513 N.E.2d 361 (Ohio Mun.1987) [Store brought action against credit card account principal's daughter to recover money upon credit card holder's death. The Court held that the account principal's daughter, an authorized user, did not become liable to the store on a unjust enrichment theory or any other merely by signing the sales tickets for purchases she made using her father's credit card.], and Blaisdell Lumber Co., Inc. v. Horton, 242 N.J.Super. 98, 575 A.2d 1386, [N.J. Super. A.D. 1990]. [b:781bfa9854]Plainly, both Sears and Citibank are aware that authorized users are not liable for charges made on the principal’s account given extensive litigation by both Sears and Citibank in the issues at hand and the consistent adverse results attained to their positions.[/b:781bfa9854]

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