Opinion ID: 561265
Heading Depth: 2
Heading Rank: 1

Heading: Did the Card User Have Apparent Authority?

Text: 10 Unlike express or implied authority, however, apparent authority exists entirely apart from the principal's manifestations of consent to the agent. Rather, the cardholder, as principal, creates apparent authority through words or conduct that, reasonably interpreted by a third party from whom the card bearer makes purchases, indicate that the card user acts with the cardholder's consent. See Restatement (Second) of Agency Secs. 8, 27 (1958). 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. However elastic the principle of apparent authority may be in theory, the language of the 1970 Amendments demonstrates Congress's intent that the category of cases involving charges incurred as a result of involuntary card transfers are to be regarded as unauthorized under sections 1602(o ) and 1643. The description in section 1643 of the conditions precedent to an issuer's recovery of up to $50 from the cardholder for unauthorized uses clearly assumes that cases of loss or theft fall within the definition of unauthorized uses, see 15 U.S.C. Sec. 1643(a)(1)(D) (1988) (requiring that the card issuer has provided the cardholder with a description of a means by which the card issuer may be notified of loss or theft of the card); id. Sec. 1643(a)(1)(E) (unauthorized use must occur before the card issuer has been notified that an unauthorized use of the credit card has occurred or may occur as the result of loss, theft, or otherwise), while section 1644's imposition of criminal penalties for [f]raudulent use of credit cards makes a similar assumption with respect to fraudulently induced transfers, id. Sec. 1644 (1988). 11 Because the statute provides no guidance as to uses arising from the voluntary transfer of credit cards, the general principles of agency law, incorporated by reference in section 1602(o ), govern disputes over whether a resulting use was unauthorized. These disputes frequently involve, as in this case, a cardholder's claim that the card bearer was given permission to use a card for only a limited purpose and that subsequent charges exceeded the consent originally given by the cardholder. Acknowledging the absence of express or implied authority for the additional charges, several state courts have adopted the analysis of the Court of Civil Appeals of Alabama in Martin v. American Express, Inc., 361 So.2d 597, 600 (Ala.Civ.App.1978), and declined to apply the Truth-in-Lending Act to limit the cardholder's liability, reasoning that the cardholder's voluntary relinquishment of the card for one purpose gives the bearer apparent authority to make additional charges. See Cities Service Co. v. Pailet, 452 So.2d 319, 321-22 (La.Ct.App.1984); Standard Oil Co. v. Steele, 22 Ohio Misc.2d 27, 489 N.E.2d 842, 843-44 (1985); Michigan National Bank v. Olson, 44 Wash.App. 898, 723 P.2d 438, 441 (1986); Mastercard v. Town of Newport, 133 Wis.2d 328, 396 N.W.2d 345, 348 (App.1986). 12 Though we agree that a cardholder, in lending or giving his card for one purpose, acts in a way that significantly contributes to the appearance of authority, at least as perceived by the third-party merchant, to make other purchases, we need not decide whether voluntary relinquishment for one purpose creates in every case apparent authority to incur other charges. In the pending case, the appearance of authority for Schley to purchase fuel on chartered flights was established not only by Towers' consent to Schley's unrestricted access to the PHH card but by other conduct and circumstances as well. 13 Nothing about the PHH card or the circumstances surrounding the purchases gave fuel sellers reason to distinguish the clearly authorized fuel purchases made in connection with non-charter flights from the purchases for chartered flights. It was the industry custom to entrust credit cards used to make airplane-related purchases to the pilot of the plane. By designating Schley as the pilot and subsequently giving him the card, Towers thereby imbued him with more apparent authority than might arise from voluntary relinquishment of a credit card in other contexts. In addition, with Towers' blessing Schley had used the card, which was inscribed with the registration number of the Gulfstream jet, to purchase fuel on non-charter flights for the same plane. The only difference between these uses expressly authorized and those now claimed to be unauthorized--the identity of the passengers--was insufficient to provide notice to those who sold the fuel that Schley lacked authority for the charter flight purchases. 14