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If your incorporated business defaults on a credit card, can you be held personally liable?

If your incorporated business defaults on a credit card, can you be held personally liable? A recent New York County Supreme Court decision says the answer is yes, when the credit card agreement contains plain language expansively defining who will be bound by use of the card.

In the case, called Creditone, LLC v Fang Mei Feldman, the defendant Ms. Feldman, as president of Ancient and Classic, Inc., had applied over the phone in 2003 for a business credit card for Ancient and Classic. She used the card from 2003 through 2005; Ancient and Classic was dissolved in 2008.

Plaintiff Creditone (assignee of Chase, which had issued the card) moved for summary judgment against Ms. Feldman, who opposed the motion for summary judgment, and moved to dismiss Creditone's complaint in its entirety, citing lack of jurisdiction.

Ms. Feldman argued that, while the plaintiff's affidavit of service claimed service by "nail and mail," she had received a copy of the summons and complaint by mail only. The court rejected this jurisdictional argument because it was not timely. Under New York CPLR 3211(e), a motion to dismiss must be made within 60 days of the date the answer (which must include lack of jurisdiction as a defense) was served. Ms. Feldman had waived her right to seek dismissal of the case by not filing her motion to dismiss within 60 days of her answer.

Ms. Feldman's argument on summary judgment was that because she had not signed a personal guarantee, she could not be personally liable for the charges on a business card. The court rejected this argument by stating that "a personal guarantee is not necessary as the issuance of a credit card constitutes an offer of credit, and acceptance of the offer is the use of the card by the holder."

Further, the agreement itself included the following language: "You will be bound by this account if you or anyone authorized by you uses your account for any purpose… The words "you," "your" and "yours" mean all persons responsible for complying with this agreement, including the person who applied for the account and the person to whom we address billing statements." Thus, concluded the court, Ms. Feldman's use of the card was her consent to be bound by the agreement. Accordingly, the court granted Creditone's motion for summary judgment.

As is often the case where a sizable debt is concerned (here the amount sought was $26,380), the debt collector actually had some evidence – it presented proof of ownership of the debt, the agreement, and statements sent in the name of both the business and the individual.

The take away? When applying for a business card, be aware of the fine print. Do not assume that incorporating automatically insulates you from personal liability from all debts of the business – we can see from this case that it does not. And keep in mind that the larger the debt, the more likely the creditor is to fight harder – and come to court with better proof.