Chapter 2 ACTION ON ACCOUNT STATED

• Jurisdiction: North Carolina

2 ACTION ON ACCOUNT STATED

A. Definition

An account stated is a contract.¹ The North Carolina Supreme Court has, more than once, quoted American Jurisprudence on the nature of an account stated:

An account stated may be defined, broadly, as an agreement between the parties to an account based upon prior transactions between them, with respect to the correctness of the separate items composing the account, and the balance, if any, in favor of the one or the other. The amount or balance so agreed upon constitutes a new and independent cause of action, superseding and merging the antecedent causes of action represented by the particular constituent items; it is a liquidated debt, as binding as if evidence by a note, bill or bond.²

The Court has described an account stated as "by nature a new contract to pay the amount due based on the acceptance of or failure to object to an account rendered."³ However, it arises only where the indebtedness legitimately attaches to the party allegedly failing to object.⁴ Once there is agreement between parties that an account rendered by one of them to the other is correct, there is an account stated that constitutes a new and independent cause of action superseding and merging the antecedent cause of action.⁵ The account stated need not cover all the dealings between the parties. Since it is nothing more than an agreement between the parties, it extends only to the items they considered in reaching the agreement.⁶

In a case that will be of particular interest to attorneys seeking to collect fees in an action for account stated, the North Carolina Court of Appeals ruled that the determination that the account was stated foreclosed consideration of the reasonableness of the attorneys' fees the plaintiff law firm sought to collect.⁷

B. Elements

The elements required to establish a successful action on an account stated are:

(1) A calculation of the balance due;
(2) Submission of a statement to defendant;
(3) Acknowledgment of the correctness of the statement by the defendant; and
(4) A promise, express or implied, to pay the balance due.⁸

C. Elements Defined

1. Calculation of Balance Due

A calculation of the balance due may be inferred. In Woodruff v. Shuford,⁹ the plaintiff submitted a written statement for material and labor with copies of invoices, to the defendant. The court said the jury could reasonably infer there was a calculation of the balance due from plaintiff's preparation of the statement for labor and materials together with invoices. In an early case, the plaintiff's books were destroyed by fire, although it was shown that before the fire the defendant had examined the account. The court concluded there was competent evidence tending to establish the defendant's liability on the account in controversy.¹⁰

However, in Mazda Motors of America, Inc. v. Southwestern Motors, Inc.,¹¹ the plaintiff, Mazda Motors, failed to establish the amount at issue. Parts and tools from the account of one automobile dealership franchise had been transferred to another, the defendant. The plaintiff wrote to the defendant to say that, as a result of the movement of the parts and tools, indebtedness for them would be transferred from the account of the other dealership to that of the defendant. The former's outstanding parts balance would be credited and the latter's debited for "a like amount." When the defendant dealership was closed the plaintiff made a claim for the value of the parts and tools, however, said the court, there was no evidence that the plaintiff ever submitted to the defendant an account reflecting debits attributable to the transfer of parts to defendant. There was also no evidence establishing the value of that inventory. The plaintiff argued an account it submitted to the other dealership established the value, but the court disagreed, concluding that account was not probative of the value of inventory transferred since the indebtedness did not necessarily reflect the inventory on hand at the time of the transfer.

2. Submission of Statement

Where the plaintiff presents no evidence that a statement was submitted to the defendant, the plaintiff cannot establish an account stated between the parties.¹² That the defendant has been shown the plaintiff's books and records may be sufficient to constitute submission of a statement of account.¹³

3. Acknowledgment of Correctness of Statement¹⁴

To constitute a stated account, there must be a balance struck and agreed on as correct after examination and adjustment of that account.¹⁵ Where the defendant disputed the entire amount demanded, and indeed denied that he held any account with the plaintiff's predecessor in interest that could have been transferred to the plaintiff, the evidence was insufficient to establish an account stated.¹⁶ Acknowledgment of the correctness of a statement may reasonably be inferred from a defendant's failure to object to the account within a reasonable time.¹⁷

Retention of a statement of account does not in itself determine that the defendant agreed it was correct. A jury question is created and in determining whether the defendant's failure to object was an assent to the statement's correctness the jury may consider the nature of the transaction, the relation of the parties, the parties distance from each other and means of communication, their business capacity, their intelligence or want of intelligence, and the usual course of business between them.¹⁸

4. Promise, Express or Implied, to Pay Balance Due

An account becomes stated and binding on the parties if, after examination, the party to be charged unqualifiedly approves of it and expresses an intention to pay.¹⁹ Partial payment and a promise to pay the remainder is sufficient to permit the plaintiff to recover an indebtedness on the theory of an account stated.²⁰

A promise to pay the balance due may be inferred.²¹ In Woodruff v. Shuford,²² the plaintiff submitted a written statement for material and labor and copies of invoices to the defendant. Two weeks later, during a telephone conversation, the defendant told the plaintiff that he "would be up here within two weeks and pay the bill" and would return the bill and the copies of the invoices at that time. The defendant did return the bill and invoices, said he "would have the money rounded up within two weeks," but never paid the amount owed. The court said the defendant expressly promised to pay the bill, and the jury could reasonably infer he was promising to pay the stated balance due. In Santora, McKay & Ranieri v. Franklin,²³ the plaintiff law firm submitted two statements that the defendants admitted to receiving. There was no objection by defendants prior to the institution of the plaintiff's action approximately two and one-half years after receipt of the first statement and one and one-fourth years after receipt of the second. Additionally, one defendant indicated a willingness to pay the amount shown as due in a letter to an attorney in the firm. She did not object to the amount, but rather requested an extension of time to make the payment. The court found there was sufficient evidence to warrant the submission of jury instructions under the theory of an account stated.

Retention of a statement and failure to obj ect to it create a jury question about agreement to pay the balance due, but are not conclusive.²⁴ Where the plaintiff's evidence showed periodic invoices to which the defendant did not make his objections to the sale and delivery of the goods known to the plaintiff for nearly two years, the evidence, said the court, could reasonably warrant a conclusion that by failing to object to the bills and invoices received from the plaintiff within a reasonable time, the defendant impliedly agreed to the account stated.²⁵ On the other hand, the court in Carroll v. McNeill Industries, Inc.,²⁶ said it would have difficulty implying a promise to pay where, by signing an audit slip, the party to be charged merely agreed that both her books and the other party's showed a receivable and the audit slip stated clearly: "This is not a request for payment."

An agreement between the parties may establish the time within which the defendant must object. In Paine, Webber, Jackson & Curtis, Inc. v. Stanley,²⁷ the defendant opened a potato futures account with the plaintiff and signed a Client Commodity Agreement that said, in pertinent part: "statements of my accounts shall be conclusive if I do not object in writing within ten days after you mail them to me." The plaintiff sent the defendant a statement of his debit balance in the account, and the defendant acknowledged receipt of the statement. When he failed to object in writing, in accordance with the terms of the agreement, a statement from the plaintiff became, decided the court, conclusive as a matter of law and an account stated.

D. Defenses

Among the defenses that may be raised against an action on an account stated are payment,²⁸ a condition precedent,²⁹ accord and satisfaction,³⁰ fraud...