Garber v. Harris Trust & Savings Bank
60 Ill. Dec. 410, 432 N.E.2d 1309, 104 Ill. App. 3d 675 (1982)
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Rule of Law:
The issuance of a credit card constitutes a unilateral offer to extend credit, not a binding contract, and the terms of such offers can be modified by the issuer, with a cardholder's continued use serving as acceptance and consideration for the modified terms.
Facts:
- Gary L. Blank held credit cards issued by Sears, J.C. Penney Co., Inc. (Penney), and First National Bank of Chicago (FNB).
- Sheldon Garber held Master Charge credit cards issued by Harris Trust and Savings Bank (Harris Trust).
- In spring 1980, FNB announced that, effective July 1, 1980, it would begin charging a $20 annual fee for its VISA cards and increase the minimum monthly payment from four to five percent on outstanding balances if cards were used after June 30.
- Penney initiated a policy to assess finance charges on future purchases from the date of each purchase, modifying its original policy which assessed charges from the billing date.
- In January 1980, Sears notified cardholders of a change in the method of computing finance charges, effective March 1980, which included purchases, payments, and credits in the average daily balance calculation.
- In May 1980, Sears notified cardholders of an increased minimum monthly payment schedule, effective July 1980, which would apply to previous balances and future purchases if the card was used.
- After May 1980, Harris Trust notified its cardholders that it would impose an annual fee upon the use of its card, effective after June 4, 1980, if the cardholder used their account on or after that date.
- Plaintiffs alleged these modifications breached their cardholder agreements and were void for lack of consideration.
Procedural Posture:
- Plaintiffs Gary L. Blank and Sheldon Garber filed a class action in chancery against defendants Harris Trust, Sears, Penney, and FNB, alleging breach of cardholder agreements due to modified terms without consideration.
- Defendants moved to dismiss the amended complaint.
- The circuit court (trial court) granted the motions to dismiss and dismissed the cause of action with prejudice.
- Plaintiffs appealed from the circuit court's order to the Appellate Court of Illinois, First District, Second Division.
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Issue:
Does the initial issuance of a credit card create a binding contract that prevents the issuer from unilaterally modifying the terms of credit extension without new consideration, or do subsequent modifications become binding upon continued use of the card?
Opinions:
Majority - Presiding Justice White
No, the initial issuance of a credit card does not create a binding contract that prevents unilateral modification of terms. The court concluded that a contract was not formed at the time of credit card issuance; rather, the issuance of a credit card is merely an offer to extend a line of open account credit. This offer is unilateral and supported by no consideration, meaning it can be withdrawn or modified at any time by the issuer. A separate contract is formed each time the card is used, according to the terms existing at that time. The court cited City Stores Co. v. Henderson and Novack v. Cities Service Oil Co. to support the prevailing view that a credit card's issuance is a continuing offer to purchase, lacking the consideration necessary for a binding contract at the outset, and thus terminable by either party. The cardholder's act of providing credit information and allowing a credit check was not considered bargained-for consideration for a promise to extend credit forever on fixed terms. Furthermore, even if the cardholder agreements were considered contracts, they were unenforceable for lack of mutuality of obligation, as cardholders were not obligated to make purchases. Such agreements, being of indefinite duration, are terminable and modifiable at will by either party. Express "change of terms" and "cancellation" provisions in some cardholder agreements reinforced the right to modify. The continued extension of credit by the issuers under the new terms, and the cardholders' subsequent use of their cards, constituted valid consideration and acceptance of the modifications, even if they had a retroactive impact on existing balances, as established in Beck v. First National Bank.
Concurring - Justice McNamara
Concurred with the majority opinion.
Concurring - Justice Rizzi
Concurred with the majority opinion.
Analysis:
This case significantly clarified the contractual nature of credit card agreements in Illinois, establishing that the relationship is primarily an "offer to extend credit" rather than a fully binding bilateral contract at the point of issuance. This ruling provides broad discretion to credit card issuers to unilaterally change terms, as long as proper notice is given and the cardholder continues to use the card, which is deemed acceptance and consideration. The decision empowers financial institutions to adapt quickly to changing economic conditions without renegotiating with each cardholder, but places the onus on consumers to monitor changes and either accept them through continued use or discontinue the card. This precedent likely influenced the standardized "change of terms" clauses prevalent in modern credit card agreements.
