Allied Stores of New York, Inc. v. Funderburke

• Decision Date: 23 January 1967
• Citation: 52 Misc.2d 872,277 N.Y.S.2d 8
• Parties: ALLIED STORES OF NEW YORK, INC., doing business as B. Gertz, Plaintiff, v. Mary FUNDERBURKE, Defendant.
• Court: New York City Court

Page 8

277 N.Y.S.2d 8

52 Misc.2d 872

ALLIED STORES OF NEW YORK, INC., doing business as B. Gertz, Plaintiff, v. Mary FUNDERBURKE, Defendant.

Civil Court of the City of New York, New York County, Trial

Term, Part 31.

Jan. 23, 1967.

As Amended Feb. 23, 1967.

Miller & Silverman, New York City, Richard C. Leonhardt, New York City, of counsel, for plaintiff.

Joseph List, New York City, for defendant.

HAROLD BIRNS, Judge.

The question for decision in this case is whether a person to whom a credit card has been issued shall be liable for purchases to issuer where such holder is unaware of its loss and use by a thief.

I

Plaintiff, operator of a department store, seeks judgment for.$2,460, claiming nonpayment for 237 purchases made in defendant's name during a one-month period in 1965. Plaintiff relies on an application for credit signed by defendant in 1961 whereunder a credit card was issued. By the signed application, entitled 'Retail Instalment Credit Agreement (Flexible Charge Account)', the defendant agreed '1.--To pay for all purchases made by any person presenting the identification plate which Seller will lend me, until Seller receives my notice by certified mail that same has been lost or stolen'.

Liability is sought to be imposed under sections 511, 512 and 513 of the General Business Law, effective January 1, 1962, whereby the Legislature took cognizance of the wide use and acceptance of credit cards in business and commerce and the losses occasioned by improper and unauthorized use of such cards. It was designed to protect holders and issuers of credit cards against the unknowing assumption of liability for purchases by use of a credit card after its loss or theft by requiring any provision to impose such liability to be written or printed in certain specified fashion, either on the card itself or on a writing accompanying the card when issued, or on an application for the card. In addition, it sought to make ineffective the fine print provisions found on the backs of many credit cards by which issuers of such cards attempt to impose liability on holders for purchases made after loss or theft of the cards, provisions of which the holder is not made aware. (Report, Joint Legislative Committee on Commerce and Economic Development, Legislative Document (1961) No. 79, page 58.)

Section 512 provides in part:

'A provision to impose liability on an obligor for * * * use of a credit card after its loss or theft is effective only if it is conspicuously written or printed in a size at least equal to eight point bold type either on a card, or on a writing accompanying the card when issued or on the obligor's application for the card, and then only until written notice of the loss or theft is given to the issuer.'

With respect to credit cards issued prior to the said effective date, this section continues:

'Such a provision either in a credit card issued prior to the effective date of this article, or in a writing accompanying such a card when issued, or in the obligor's application for such a card is effective, on or after the effective date of this article, only if the issuer mails to the obligor, properly addressed, written notice of the provision conspicuously written or printed in a size equal to eight point bold type.'

Among the definitions furnished by section 511 are those of "Holder' means a person to whom such a credit card is issued and includes an obligor'--defined as 'any person who has agreed to pay obligations arising from use of a credit card issued to him or another person'. It is clear that these sections are designed to have retroactive as well as prospective effect. (McKinney's Statutes, vol. 1, sections 52 and 53.)

Prior to enactment and critically noted was the statute's intendment to deal only with certain abuses in the use of credit cards and credit identification devices in public use, most of which, it was observed, provide that the user or obligor is liable for purchases made with the credit card until the issuer receives notice of its loss or theft. (Report of Committee on State Legislation, Association of the Bar, 1961, No. 107, p. 465, Re S. Print 1816, 3722; Int. 1758.) These sections of the General Business Law impose limitations of liability on the credit card obligor for use of lost or stolen credit cards where notice of such theft or loss is transmitted to the issuer. Liability may be imposed only where such notice is not given as required. With prophetic vision it was anticipated: 'A serious ambiguity arises, however, with respect to the effect of this provision on any common law liability which might arise in the absence of any contractual provision whatever' (Report of Committee on State Legislation, supra p. 406).

It has been held that credit card provisions under which the holder assumes liability for all purchases made, even by unauthorized users, are enforceable. (Union Oil Co. of California v. Lull, 220 Or. 412, 349 P.2d 243, 247.)

But under the credit agreement here, which conforms with section 512, although the plaintiff issuer assumes all the risk of loss or theft after receipt of notice of such facts, the agreement does not expressly provide that the holder assumes all risk occasioned by loss or theft of the credit card where the credit card holder is unaware of such facts and thus is unable to give the required notice.

In this case purchases were made with the defendant's credit card but the defendant was unaware of its loss or theft. Obviously until notified by the plaintiff, as will be seen hereafter, of the purchases made in her name, the defendant was unable to give the notice required by statute and her agreement. Thus the statute as well as the agreement does not precisely meet the problem raised and each 'leaves unclear its effect on liability not imposed by any 'provision' in the contract' (Report of Committee on State Legislation, supra pp. 466--467).

II

It is in this context of statutory and contractual ambiguity that the facts of this case must be analyzed. For a period of four years, the defendant, a dining room attendant at Creedmoor State Hospital, diligently and responsibly paid the bills due and owing on her charge account for purchases made through use of her credit card. Her credit agreement with the plaintiff provided for certain minimum monthly payments to be made by her depending on her monthly balance. At the lowest range of the credit scale, if said balance were between $10 and $80, the minimum payment was to be $10 a month; if between $181 and $200, payment was to be at $40 a month, and over $200, arrangements for monthly payments were to be made with plaintiff's credit office. In addition, under paragraph 3 of the credit agreement, 'for all purchases exceeding my approved limit' the defendant agreed to pay at once.

On June 26, 1965, defendant made payment at plaintiff's store and reduced her outstanding balance from $121.36 to $86. It was not necessary for defendant to exhibit her credit card to effect such payment. On June 30, 1965, defendant left New York City to visit her mother in North Carolina, where she remained until she returned on July 13, 1965.

It appears that between June 16, 1965, and July 13, 1965, 237 purchases were made at plaintiff's department store by someone using the credit card issued to defendant. Of this number, 230 were transactions totaling less than $15, the remaining seven were transactions totaling more than $15. Under the procedures in the store, presentation of the credit card would without more allow transactions of less than $15. For transactions totaling more than that level, some inquiry by the sales personnel was required to be made of the credit department.

It was only upon the defendant's return to New York that, by letter, she was asked to visit plaintiff's store, where for the first time she learned of the said purchases and discovered that her card was lost or stolen.

It appears further that at the end of June, 1965, the charges in defendant's account were in excess of $471.74 and that the last charge against defendant's account occurred on the day of her return.

At the trial the sales slips were examined and the signatures thereon were compared with the signature defendant had placed on her credit agreement in 1961. The defendant denied the sales slip signatures were hers or that she had authorized them. She maintained she never signed her name in the fashion appearing on the said sales slips. Her contention is indeed borne out by a comparison, and the court concludes that the signatures on the sales slips are forgeries. Under all the facts elicited at the trial, there is no evidence which in any way demonstrates that the defendant failed to exercise reasonable care with respect to the credit card issued to her by plaintiff nor that she authorized anyone else to act in her stead.

III

Plaintiff contends that the defendant is liable for all the purchases made in her name through the use of said card and relies on the paragraphs of the credit agreement referred to herein, asserting that under paragraph 1 and the sections of the General Business Law her lack of negligence or knowledge that the card was lost has no relevance to the issue of liability.

As stated earlier, defendant could not meet the condition contained in paragraph 1 because it was impossible to give notice of the credit card's loss or theft inasmuch as she never had knowledge of those facts until her visit to the plaintiff's store on July 14. Whi...