The Debtor in this Chapter 11 case, filed in the Middle
District of Alabama, objected to Becket & Lee's client's $20,000 claim for
the Debtor's business credit card, citing merely that he either did not owe the
debt or did not agree with the amount of the debt listed on the claim. The lack
of specificity in the objection caused Becket & Lee Associate Attorney
Natalie McGhee to contact the Debtor's Counsel, who admitted that the objection
was filed in order to coerce the Creditor to reduce the amount of the claim.
The Debtor (incorrectly) assumed that the Creditor would rather lower the claim
amount than litigate the validity of the claim, a tactic that apparently had
worked with some of the Debtor's other creditors.
Becket & Lee responded to the objection, arguing that it
was so lacking in detail that the Creditor was unable to formulate a response
to it. Discovery requests and responses were exchanged by both parties, during
which the Debtor was provided with account statements and the contract
governing the account. In the Debtor's discovery responses, he finally settled
on the position that the debt was not his personal liability, but rather the
liability of his company. Although the account agreement clearly specified the
liability of both the company and the responsible company officer for the
charges on the account, the Debtor alleged that the lack of a signature on the
agreement precluded the Creditor from holding him liable for the debt.
In response to the new allegations, Becket & Lee filed a
brief and affidavit from the Creditor, arguing that, in accordance with the
terms of the account agreement, the Debtor's use of the card constituted
acceptance of the account agreement, and, therefore, no signature was necessary
to bind the Debtor to the terms of the agreement.
Shortly after the Creditor's brief was filed, the Debtor's
Counsel made an offer to resolve the objection if the Creditor reduced its
claim by $10,000. The creditor declined but counter-offered to reduce the claim
by a nominal amount, accounting for a few months of finance charges and late
fees incurred after the Debtor's last payment. The Debtor rejected this offer.
With no chance of settlement, Becket & Lee and the Creditor prepared for
the evidentiary hearing. A witness from the Creditor was prepared to testify
Shortly before the evidentiary hearing, the Judge reversed his
earlier decision and refused to allow the Creditors' witness to appear by
telephone. After some persuading, the Judge returned to his previous decision
to allow the telephonic witness, only to change his mind again at the hearing
two days later. At that hearing, the Debtor admitted he used the card but
testified that he did not remember who opened the account for the company and
claimed that he never made any payments. The Debtor further testified that he
did not remember ever seeing a copy of the account agreement. The Creditor's
records, however, indicated that the Creditor's representative had spoken with
the Debtor approximately one month prior to the bankruptcy.
The matter was set for a second hearing at which time the
Creditor's witness was required to appear in person.
In preparation for the second hearing, a supplemental brief
was filed to address the contingency that the court might find that the Debtor
was not contractually liable for the account because he did not sign the
account agreement. Although this position is not necessarily valid, Becket
& Lee's experience is that in certain areas of the country, courts have
required evidence of the debtor's signature on "something" in order to find
liability for an individual on a corporate debt. Therefore, the supplemental
brief focused on the theory of "unjust enrichment," which is the legal
principle holding that a party should not be permitted, unjustly, to enrich
himself at the expense of another, but should be required to make restitution
for property or benefits received where it is just and equitable that such
restitution to be made. Becket & Lee argued that the Debtor would be
unjustly enriched if he were allowed to use the credit card to obtain assets to
keep his business going, keep the profits from the business for himself, and
then successfully object to paying the claim in his bankruptcy case.
At the hearing, the Creditor's witness testified that not all
accounts are opened by a written application in the first instance; in fact
many accounts are opened over the phone or internet, with no signature
whatsoever. The witness further testified that upon approval of an application,
a credit card is mailed to the responsible corporate officer, along with the
account agreement. The account agreement specifies the terms of the account and
the liability of both the company, and its representative, for the debt. The
agreement directs the user not to use the account unless the user agrees to the
terms of the agreement.
The Judge reserved a ruling at the hearing but later issued a
decision overruling the Debtor's objection and allowing the claim. In its
written ruling, the Court elaborated on the question of whether the Debtor was
primarily liable or a guarantor on the account. This issue is significant
because in Alabama, a claim against a guarantor must be evinced by the
guarantor's signature, showing assent to be secondarily liable for the debt of
another. Here, the court found that the provisions of the contract were
unambiguous on their face, and by its terms, the Debtor was not a guarantor,
but rather was primarily liable for the account. Thus, a signature was not
The court agreed with Becket & Lee's argument that use of
the card signified assent to the account agreement and that the Debtor was
personally liable with the company on the account, notwithstanding the fact
that he did not sign a contract. The Court noted that the account statements
included the Debtor's name, that the Debtor was President of the company, and
that the charges on the account were for expenses for the Debtor's business.
Having determined that the Debtor was, in fact, responsible, the Court allowed
the claim in full.
In re Adams, Bankruptcy No. 03-30172-WRS-11 (Bankr. M.D. of Al. 2003)
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