New Century Financial Case Review
Week 4 Assignment: Dennegar Liability Denisa Dobrin New England College of Business and Finance Introduction Hello everyone and welcome! My name is Denisa Dobrin and this week I will be reviewing the case “New Century Financial Services Inc v. Dennegar”. My main objective will be to answer the question: “Under what theory could Dennegar be liable for the charges?” This presentation constitutes my Week 4 Assignment for the “Legal Issues in Business” class at NECB. Case overview To start, here is an overview of our case. In February 2001, AT&T Universal issued a credit card in the name of the defendant, Lee Dennegar. AT&T Universal then sent monthly statements to the home owned by the defendant, 55 Thompson Street in Raritan. Mark Knutson was the roommate of the defendant at that time. Since Knutson had no funds or income, the defendant's funds were used to pay the mortgage on the Raritan home, and all other household expenses. The defendant testified that he allowed Knutson to manage their household's financial affairs and the "general office functions concerned with maintaining the house" (the mail, signing his name to checks etc.) – per Fisher (n.d.). After Knutson died, the defendant learned that Knutson had incurred obligations in his name of which he claimed he was not previously aware. This happened as the plaintiff, New Century Financial Services Inc., to whom the AT&T Universal credit card debt had been assigned, filed an action to collect. Although defendant stated, as mentioned, that he had no knowledge of this account, the trial judge found that "defendant created the situation where someone else would utilize his financial resources to pay for the joint expenses." (Fisher, n.d.) Since either he or Knutson had opened and used the account, the defendant was liable for the accrued debt. On appeal, defendant argued that the judge erroneously admitted hearsay evidence. He also maintained that “the evidence failed to demonstrate the formation of a contract between AT&T and defendant, or that Knutson had the apparent authority to act for defendant, and that plaintiff or its assignor failed to comply with the Truth in Lending Act (TILA), 15 U.S.C.A. §§ 1601 to 1667.” (Justia US Law.com, 2007) Upon reviewing the case, it becomes obvious that the theory we need to analyze closer is the Agency theory. While doing that will also define the "Master-Servant Rule” and find a meaning for apparent authority. We will then touch on the issue of Creditors' and Debtors' rights as it relates to credit cards. Lastly, there will be a few words about the Truth in Lending Act (TILA) before drawing to a conclusion on the case at hand. Agency theory Agency is conceivably the most conventional legal relationship in the business world. It explains the relationship between principals and agents. It is a legal relationship in which one party, the agent, transacts business (for third parties) for and under the control of the second, the principal.
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New Century Financial Case Review
- 1. presented by Denisa Dobrin New England College of Business and Finance MBA530 – Legal Issues in Business Prof. Deborah Sementa
- 2. Table of Contents • Introduction …………………………………………. 3 • Overview of the case ................................................ 5 • Agency theory - Agency relationships ..…………… 10 • The "Master-Servant Rule” ………………………….. 12 • Apparent authority …………………………………… 13 • Truth in Lending Act (TILA)…………………………... 14 • Conclusion………………………………………………17 • References ……………………………….…………… 22
- 3. Denisa Case review: “New Century Financial Services Inc v. DENNEGAR”.
- 4. NEW CENTURY FINANCIAL SERVICES INC v. DENNEGAR
- 7. The appeal Hearsay evidence Failure to form a contract Failure to comply with the Truth in Lending Act (TILA)
- 9. Agents: Agency theory - Agency relationships The "Master-Servant Rule” Apparent authority Truth in Lending Act (TILA) Creditors' and Debtors' rights Credit Cards
- 10. Agency theory
- 12. The "Master-Servant Rule” Respondeat superior (Latin = "let the master answer“)
- 14. Truth in Lending Act (TILA)
- 16. Credit Cards
- 18. Judges verdict Per Agency theory, the trial judge found that defendant was properly held liable
- 19. Not applicable…
- 22. REFERENCES Baime, E. (n.d.). Week 4: Lecture - Agency I. Retrieved from: https://necb.instructure.com/courses/1180860/discussion_topics/2516973?module_item _id=10257448 Baime, E. (n.d.). Week 4: Lecture - Agency II. Retrieved from: https://necb.instructure.com/courses/1180860/discussion_topics/2516972?module_item _id=10257449 Dornfeld, R. O. (1955) "Tort Liability in German School Law". Law and Contemporary Problems (Duke University School of Law) 20 (1): 72–79. JSTOR 1190275 Fisher, J.A.D. (n.d.). New Century Financial Services Inc v. Dennegar. Retrieved from: http://caselaw.findlaw.com/nj-superior-court-appellate-division/1263011.html Justia US Law.com (2007) NEW CENTURY FINANCIAL SERVICES, INC. v. LEE B. DENNEGAR. Retrieved from: http://law.justia.com/cases/new-jersey/appellate-divisionpublished/2007/a5403-05-opn.html Wikipedia (n.d.) Respondeat superior. Retrieved from: http://en.wikipedia.org/wiki/Respondeat_superior#cite_note-Owen-2
Editor's Notes
- Hello everyone and welcome!
- My name is Denisa Dobrin and this week I will be reviewing the case “New Century Financial Services Inc v. DENNEGAR”. My main objective will be to answer the question: “Under what theory could Dennegar be liable for the charges?” This presentation constitutes my Week 4 Assignment for the “Legal Issues in Business” class at NECB.
- To start, here is an overview of our case.
- In February 2001, AT&T Universal issued a credit card in the name of the defendant, Lee Dennegar. AT&T Universal then sent monthly statements to the home owned by the defendant, 55 Thompson Street in Raritan. Mark Knutson was the roommate of the defendant at that time. Since Knutson had no funds or income, the defendant's funds were used to pay the mortgage on the Raritan home, and all other household expenses. The defendant testified that he allowed Knutson to manage their household's financial affairs and the "general office functions concerned with maintaining the house" (the mail, signing his name to checks etc.) – per Fisher (n.d.).
- After Knutson died, the defendant learned that Knutson had incurred obligations in his name of which he claimed he was not previously aware. This happened as the plaintiff, New Century Financial Services Inc., to whom the AT&T Universal credit card debt had been assigned, filed an action to collect. Although defendant stated, as mentioned, that he had no knowledge of this account, the trial judge found that "defendant created the situation where someone else would utilize his financial resources to pay for the joint expenses." (Fisher, n.d.) Since either he or Knutson had opened and used the account, the defendant was liable for the accrued debt.
- On appeal, defendant argued that the judge erroneously admitted hearsay evidence. He also maintained that “the evidence failed to demonstrate the formation of a contract between AT&T and defendant, or that Knutson had the apparent authority to act for defendant, and that plaintiff or its assignor failed to comply with the Truth in Lending Act (TILA), 15 U.S.C.A. §§ 1601 to 1667.” (Justia US Law.com, 2007)
- Upon reviewing the case, it becomes obvious that the theory we need to analyze closer is the Agency theory. While doing that will also define the "Master-Servant Rule” and find a meaning for apparent authority. We will then touch on the issue of Creditors' and Debtors' rights as it relates to credit cards. Lastly, there will be a few words about the Truth in Lending Act (TILA) before drawing to a conclusion on the case at hand.
- Agency is conceivably the most conventional legal relationship in the business world. It explains the relationship between principals and agents. It is a legal relationship in which one party, the agent, transacts business (for third parties) for and under the control of the second, the principal. Its main concern is resolving problems that can exist in agency relationships; that is, between principals (in our case, Dennegar) and agents of the principals (Knutson). Principals often choose to delegate decision-making authority to the agents. Agency problems can sometimes arise because of inefficiencies or incomplete information.
- Per Baime (n.d.), “in an agency relationship, one person - the agent - acts for or represents another person - the principal. The principal delegates a portion of his or her power to the agent. The agent then manages the assigned task and exercises the discretion given by the principal.” Dennegar, as the agent entered in an agency relationship with Knutson, to who he delegated control of his finances.
- The "Master-Servant Rule" is based on the concept of vicarious liability (per Wikipedia - “a form of strict, secondary liability that arises under the common law doctrine of agency”) and it is recognized in both common law and civil law jurisdictions, as mentioned ever since 1955 by Dornfeld. The expression “respondeat superior “ has its roots in the Latin: "let the master answer".In the Dennegar liability case, there’s enough evidence to conclude that there was a "Master-Servant Rule" relationship, which makes Dennegar the “employer”, thus the party “responsible for the actions of employees performed within the course of their employment.” (Wikipedia, n.d.)
- Baime (n.d) tells us that agency relationships can occasionally be formed “without agreement”, based on apparent authority (or "ostensible authority"). Apparent authority “referred to as agency by estoppel, occurs when a person leads another to believe that someone else is his or her agent and is estopped or prevented from denying it.” (Baime, n.d)
- The TILA credit card provisions were designed to strictly limit the cardholder's liability for "unauthorized" charges, 15 U.S.C.A. § 1643(a)(1), by, among other things, placing the burden of establishing cardholder liability on the card issuer, 15 U.S.C.A. § 1643(b), and imposing criminal sanctions for the fraudulent use of credit cards, 15 U.S.C.A. § 1644.These protections, however, only limit the cardholder's liability for the credit card's "unauthorized" use. Congress defined "unauthorized use," within the context of 15 U.S.C.A. § 1643, as "a use of a credit card by a person other than the cardholder who does not have actual, implied, or apparent authority for such use and from which the cardholder receives no benefit." 15 U.S.C.A. § 1602(o).
- The general rule is that a principal is accountable for the conduct of his agent acting within the scope of his authority even though the conduct is unauthorized and the principal receives no benefit from it, e.g., Mick v. Corp. of Royal Exchange Assur., 87 N.J.L. 607, 613-615 (E. & A. 1914).
- Congress enacted the credit card provisions of the TILA "in large measure to protect credit cardholders from unauthorized use." Towers World Airways Inc. v. PHH Aviation Sys. Inc.,933 F.2d 174, 176 (2d Cir.), cert. denied, 502 U.S. 823, 112 S.Ct. 87, 116 L.Ed.2d 59 (1991).
- In accordance with Agency theory, the trial judge found that defendant was properly held liable for the credit card balance, despite his argument that he never applied for, or used, the credit card in question. The defendant, as principal, did – per judge’s ruling - appoint Knutson as his agent for the conducting of his financial affairs and, as such, he authorized Knutson to conduct the financial affairs of their household. Per Restatement (Second) of Agency, § 26, "authority to do an act can be created by written or spoken words or other conduct of the principal which, reasonably interpreted, causes the agent to believe that the principal desires him so to act on the principal's account"
- The judge found no merit in defendant's allegation that he could not be held liable for the credit card charges through the application of either (a) common law principles, or (b) the Truth in Lending Act. Case law stipulates that “a cardholder's failure to examine credit card statements that would reveal fraudulent use of the card constitutes a negligent omission that creates apparent authority for charges that would otherwise be considered unauthorized under the TILA.” (Justia US Law.com, 2007)
- Even if Knutson abused the authority given him by defendant, the application of the rule of law described by Justice Proctor for the Court in Ross Systems v. Linden Dari-Delite, Inc., 35 N.J. 329, 338 (1961) renders defendant liable for the debt.