Unauthorized Use: Principal's Exposure?

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

Unauthorized Use: Principal's Exposure?

Postby David A. Szwak » Mon Oct 17, 2005 8:11 pm

PRINCIPAL'S LIABILITY FOR UNAUTHORIZED USE:

As a general rule, a cardholder is not liable for unauthorized use, however, if he allows a third person to use his account number, card or template, regardless of the scope of the authority, then the cardholder is liable for all resulting charges made. Michigan Nat. Bank v. Olsen, 723 P.2d 438 (Wash. App. 1986); Tower World Airways, Inc. v. PHH Aviation Systems, Inc., 933 F.2d 174 (2d Cir. 1991); Standard Oil Co. v. Steele, 489 N.E.2d 842 (Ohio Mun. 1985).

Of course, the consent must be freely given and under no compulsion by fraud, duress or otherwise. Martin v. American Express, Inc., 361 So.2d 597 (Ala. App. 1978).

If the cardholder makes statements or conducts himself in a manner so as to condone the third party's use of his account number, card or template then he may be held to have clothed the third person with "apparent authority," and he may be liable for all resulting use of the account. Tower World Airways, Inc. v. PHH Aviation Systems, Inc., 933 F.2d 174 (2d Cir. 1991); Vaughn v. U.S. Nat. Bank of Oregon, 718 P.2d 769 (Or. App. 1986); Standard Oil Co. v. Steele, 489 N.E.2d 842 (Ohio Mun. 1985).

The cardholder cannot, after the fact, attempt to limit or deny the authority he extended to a third person if voluntarily given. Selber Bros., Inc. v. Bryant, 406 So.2d 251 (La. App. 1981).

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