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Garber v. Harris Trust & Savings Bk.





APPEAL from the Circuit Court of Cook County; the Hon. ALBERT GREEN, Judge, presiding.


Plaintiffs, Gary L. Blank and Sheldon Garber, purporting to represent a class of credit cardholders, brought this action in chancery against defendants Harris Trust and Savings Bank (Harris Trust), Sears Roebuck and Co. (Sears), J.C. Penney Co., Inc. (Penney), and First National Bank of Chicago (FNB). The amended complaint alleges that Blank is the holder of credit cards issued by the defendants Sears, Penney and FNB. It also alleges that Garber is the holder of Master Charge credit cards issued by Harris Trust. In essence, the amended complaint asserts that each defendant had breached the provisions of its "cardholder agreement" document by changing the terms on which that defendant would offer to extend credit and that the alleged changes in the cardholder agreements were void for lack of consideration. These cardholder agreements are alleged to be contracts. In their prayer for relief, plaintiffs sought injunctive relief against the changes, money damages, and other relief. Defendants moved to dismiss the amended complaint. After hearing oral argument, the circuit court entered an order granting the motions to dismiss and dismissing the cause of action with prejudice. Plaintiffs appeal from this order.

The alleged modifications of the cardholder agreements at issue are as follows. In spring 1980, FNB announced that, effective July 1, 1980, it would begin charging a $20 annual fee for its VISA cards and would increase the minimum monthly payment from four % to five % on the outstanding balance in any VISA account. The changed terms only became effective if cardholders used their cards after June 30, 1980. Penney allegedly breached its cardholder agreement by initiating a policy whereby finance charges on future purchases would be assessed against a cardholder from the date of each purchase, regardless of the date on which he was billed. This policy allegedly modified provisions of the original Penney cardholder agreement which provided that a finance charge would be assessed against a cardholder from the date on which he was billed. The alleged modifications by Sears arose out of two notices which Sears sent to its cardholders. The first notice was sent to cardholders in January 1980, and it advised them of a change in the method of computing finance charges which took effect in March 1980. Pursuant to this change, purchases, payments and credits to a cardholder's account during the current monthly billing period would be included in the computation of each day's average daily balance, a figure used to compute finance charges. The notice gave the cardholder the options of discontinuing the use of his Sears credit privileges after the effective date of the change or of continuing to use his card, thereby accepting the proposed change. The second notice, sent to Sears cardholders in May 1980, advised them of a change (increase) in the minimum monthly payment schedule which took effect in July, 1980. This notice gave the cardholder similar options. The new schedule of minimum payments would apply to previous balances as well as to future purchases, if the card was used after this modification. The alleged modification complained of with respect to Harris Trust was that Harris had notified its cardholders that after May 1980, Harris would impose an annual fee upon the use of its card. This notice also informed cardholders that the changes announced would become effective after June 4, 1980, assuming that the cardholder uses his account on or after that date.

Plaintiffs assert that the cardholder agreements between the defendant credit card issuers and the plaintiff credit cardholders are binding contracts to continue to extend credit on the same terms and that there was no consideration to support the alleged modifications since a promise to do something which one is already obligated to do, i.e., to extend credit, does not constitute a valid consideration. Plaintiffs find the existence of a contract in the following manner. The applications and brochures, displayed and advertised by defendants, are invitations for an offer. The credit application submitted by a potential cardholder to one of the defendant credit card issuers constitutes an offer. Acceptance of this offer occurs when the issuer issues a credit card to the cardholder. A cardholder furnishes consideration to the issuer by providing the issuer with requested credit information and by allowing the issuer to commence a credit check prior to the issuance of the card.

Conversely, the card issuers argue that the issuance of a card constitutes an offer to extend credit, and that offer is accepted by use of the card. Upon such use, the cardholder agrees to all provisions in the cardholder agreement, and the agreement becomes a binding contract between the cardholder and the issuer. In other words, each use of the credit card constitutes a separate contract between the parties.

For the reasons stated below, we conclude that a contract was not formed at the time of the issuance of the credit card; that a separate contract is created each time the card is used according to the terms of the cardholder agreement at the time of such use; that the cardholder agreements were subject to modification at will; and that in any event, consideration was given for the modifications.

Although the parties do not refer us to any Illinois cases to support the position that cardholder agreements are standing offers to extend credit, support for this position is found in the case law of other jurisdictions. In City Stores Co. v. Henderson (1967), 116 Ga. App. 114, 156 S.E.2d 818, plaintiffs brought an action for tortious misconduct based upon an alleged refusal, without prior notice of credit revocation, of defendant's clerk to extend further credit to one of the plaintiffs when she sought to charge purchases made at its store. In discussing the nature of the relationship between a cardholder and the issuer of the card, the court stated:

"The issuance of a credit card is but an offer to extend a line of open account credit. It is unilateral and supported by no consideration. The offer may be withdrawn at any time, without prior notice, for any reason or, indeed, for no reason at all, and its withdrawal breaches no duty — for there is no duty to continue it — and violates no rights. Acceptance or use of the card by the offeree makes a contract between the parties according to its terms, but we have seen none which prevents a termination of the arrangement at any time by either party." (116 Ga. App. 114, 120-21, 156 S.E.2d 818, 823.)

This language was quoted with approval in Novack v. Cities Service Oil Co. (1977), 149 N.J. Super. 542, 548, 374 A.2d 89, 92, affirmed (1978), 159 N.J. Super. 400, 388 A.2d 264. (See also 50 Am.Jur.2d Letters of Credit § 38 (1970).) In Novack, the plaintiff's complaint alleged, in part, a cause of action grounded in contract for the allegedly wrongful termination of his Cities Service credit card. His argument was that defendant, by canceling plaintiff's credit card without notice and contrary to established intercompany procedures, breached an express term of the contract between them. In finding as a matter of law that no contractual relationship was created by the issuance and receipt of the credit card, the court stated:

"The conclusion that the issuance of a credit card does not create a contract includes an analysis of the concept of consideration. It is well settled that to be enforceable a contract must be supported by valuable consideration. [Citations.] Consideration involves a detriment incurred by the promisee or a benefit received by the promisor, at the promisor's request. In the credit card relationship, neither status is created. The holder of the card (promisee) is free to cancel or not use it, and has gratuitously received an opportunity to purchase without incurring any detriment. Additionally, there does not appear to be any benefit bargained for or received by the issuing company (promisor). Lacking consideration, the credit card account is, as stated in City Stores, a continuing offer to purchase which may be withdrawn by either party at any time." 149 N.J. Super. 542, 548-49, 374 A.2d 89, 92.

• 1 Thus the prevailing view in this country is that the issuance of a credit card is only an offer to extend credit. There is no persuasive reason, under the circumstances presented in the instant appeal, for swaying from the accepted position that the issuance of a credit card does not create a contract. We therefore conclude that defendant credit card issuers could terminate or modify the terms of their offers to extend credit as to future transactions. Once a credit card issuer withdraws its offer, a cardholder cannot compel it to extend credit to him in accordance with the terms of that offer.

Plaintiff relies primarily upon Steinberg v. Chicago Medical School (1977), 69 Ill.2d 320, 371 N.E.2d 634, as support for his theory that a contract is formed at the time of issuance of a credit card. In Steinberg, the plaintiff received a catalog and submitted an application and fee to the defendant medical school. He was rejected. He then filed a class action against the school alleging that the school failed to evaluate his application and those of other applicants according to the academic criteria in the school's catalog. The supreme court held that the allegations of the complaint stated a cause of action for breach of a contract to appraise applicants according to those criteria. The court concluded that the tender of the application and payment of the fee was an offer to apply; that acceptance of the application and fee constituted acceptance of an offer to apply under the established criteria; and that the application fee was sufficient consideration to support the agreement between the applicant and the school. Steinberg might be applicable if plaintiffs had alleged that the card issuers evaluated their applications for credit in a manner contrary to that set forth in the credit application. However, that is not the case. The case at bar involves modifications of the terms of offers to extend credit. Steinberg involved no such modifications and is therefore inapposite.

Defendants-appellees make other convincing arguments in support of the decision of the circuit court.

• 2 First, an argument was made that even if the parties to the cardholder agreement had intended it to be a contract, the agreement would be unenforceable for want of mutuality of obligation. Mutuality of obligation is not essential to the validity of a contract. However, where there is no other consideration for a contract, the mutual promises of the parties constitute the consideration, and these promises must be binding on both parties or the contract fails for want of consideration. (Armstrong Paint & Varnish Works v. Continental Can Co. (1921), 301 Ill. 102, 108, 133 N.E. 711; Higbie v. Rust (1904), 211 Ill. 333, 337, 71 N.E. 1010; Gardiakos v. Vanguard Communications, Inc. (1976), 38 Ill. App.3d 937, 939, 350 N.E.2d 210.) If there is any other consideration for the contract, mutuality of obligation is not essential. (Armstrong Paint & Varnish Works v. Continental Can Co. (1921), 301 Ill. 102, 108.) Here, the cardholder plaintiffs did not give consideration for the alleged promise to extend credit in the future. *fn1 Their argument that providing requested credit information and allowing the issuer to commence a credit check constitutes consideration is unpersuasive. For a performance or a return promise to constitute consideration, it must be bargained for. "A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise." (Restatement (Second) of Contracts § 71 (1981); 17 C.J.S. Contracts § 74 (1963).) The act which constitutes the consideration generally must be at the instance of the promisor, and must be regarded by the parties as consideration. (17 C.J.S. Contracts § 74 (1963); see Bartlett v. Lauff (1933), 271 Ill. App. 551, 555-56.) Even assuming that defendant credit-card issuers promised to extend credit forever on ...

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