Izraelewitz v. Manufacturers Hanover Trust Co

Brief Fact Summary. Plaintiff is disputing the charge on his Master Card for items that were returned to where they were purchased.

Synopsis of Rule of Law. “No Refund” policies are not unconscionable but bank-merchant agreements set out requirements that the merchant establish a fair policy for the exchange and return of merchandise.

Facts. Plaintiff George Izraelwitz (the “plaintiff”) brought this action to compel defendant Manufacturers Hanover Trust (the “defendant”) to credit his Master Card account in the amount of $250.00 plus finance charges. The charge posted to plaintiff’s account on July 16, 1981 and was for electronic diagrams purchased by plaintiff over the telephone from Don Britton Enterprises. On September 9, 1981 the plaintiff informed the defendant that the items purchased had been returned and provided a UPS receipt as evidence of the return of the items. When the plaintiff’s account was credited, Don Britton refused the charge back claiming that there was a “no refund” policy. Consequently, the plaintiff’s account was redebited. Plaintiff argued that he was unaware of the “no refund” policy and requested that his account be credited. Again, Don Britton refused the charge back and plaintiff’s account was redebited.

Issue. Is defendant liable for the disputed amount?

Held. No. The plaintiff is liable for the disputed amount. The court held that any claims or defenses that the plaintiff could assert against the card issuer would be no better than any claim he could assert against Don Britton. Considering this, the court examined whether the plaintiff’s claim against the merchant was of good faith and substantial merit. The Federal Truth in Lending Act “neither requires refunds for returns nor does it prohibit refunds in kind.” However, the court stated that bank-merchant agreements usually require that the merchant establish a fair policy for exchange and return of merchandise. Therefore, court established Don Britton’s fairness and the strength of the reasons behind his “No Refund” policy and it was found that for not having a refund policy, Don Britton compensated by offering back-up plans and an exchange procedure. Consequently, rather than a refund, the plaintiff could have taken advantage of any of the opportunities available to him.

Discussion. In making its decision, the court discussed the Federal Truth in Lending Act. The court stated that credit card agreements usually provide that a cardholder is obligated to pay the bank regardless of a dispute regarding the purchased merchandise. An exception to this rule arises under the Federal Truth in Lending Act which “allows claimants whose transactions exceed $50.00 and who have made a good faith attempt to obtain satisfactory resolution of the problem, to assert claims and defenses arising out of the credit card transaction, if the place of the initial transaction is in the same state or within 100 miles of the cardholder.” The court makes mention that the question of where the transaction occurred is determined under applicable state law and consequently, these federal laws are viewed as bare minimal standards. The court further stated that the “geographical limitation serves to protect banks from consumers who may expose them to unlimited liability through dealings with merchants in faraway states where it is difficult to monitor a merchant’s behaviour.