Account Stated

On December 12, 2008, Layne and Anita Dellamuth bought flooring materials and installation services from Carpets Unlimited. The Dellamuths made a downpayment that left a balance of a little more than $23,000. Carpets Unlimited subcontracted the installation services to Jared Keeton, who performed that work later the same month, but apparently not to the liking of the Dellamuths because a dispute arose between them and Keeton about the quality of the installation. In addition, the Dellamuths objected to additional charges that Keeton added to the amount owed. In February 2009 Carpets Unlimited corrected the work at no additional cost to the Dellamuths.

By August 2011 the Dellamuths still had not paid Carpets Unlimited the remaining $23,000. Carpets Unlimited sent the Dellamuths a letter and invoice, demanding payment, by certified mail, which the Dellamuths signed for on August 27. Another letter and invoice, sent on June 26, 2012, was returned unclaimed. In August the same year, Carpets Unlimited sued the Dellamuths, and the trial court granted Carpets Unlimited’s motion for summary judgment. The Dellamuths appealed, and today the Indiana Court of Appeals affirmed the trial court’s decision.

An interesting aspect of this case is that Carpets Unlimited did not sue on the basis of breach of contract. Instead, Carpets Unlimited sued solely on the basis of a legal theory known as account stated, a theory that is more often used as an alternative basis for a lawsuit, included in a complaint primarily as a back-up theory in case the plaintiff’s breach of contract fails for one reason or another, perhaps because the contract is held to be unenforceable.

An account stated is an agreement between two parties that a statement of an amount owed by one of the parties to the other is correct and an agreement, either express or implied, that the person owing the amount will pay it. Once an account stated is established, it becomes an independent, enforceable agreement; the creditor no longer has to prove the elements of the contract or other basis of the original obligation. Instead, the burden shifts to the debtor to show that the amount is not owed.

Perhaps the most important aspect of account stated – the most powerful for the creditor and the most dangerous for the debtor – is that an agreement need not be expressed but can be implied. If the creditor sends an invoice or account statement to the debtor, and the debtor fails to object within a reasonable time after receiving the invoice or statement, the debtor is deemed to have agreed that the amount set forth in the invoice or statement is correct and to have agreed to pay that amount.

In this case, the Dellamuths failed to object to the August 2011 letter and invoice and were deemed to have accepted the amount of the invoice as a correct statement of the amount they owed and to have agreed to pay that amount. Carpets Unlimited did not have to prove that a contract with the Dellamuths existed or that the materials had been delivered and the services properly performed. Instead, the burden shifted to the Dellamuths to prove that they did not owe the amount of the invoice, and they did not (and presumably could not) do so.

However, the Dellamuths argued two other points that, in other circumstances, might have worked. First, they pointed to case law holding that once a dispute has arisen about debtor’s obligation, the debtor need not continue to object to future statements from the creditor. In this case, the Dellamuths argued that by complaining to Keeton about the quality of the installation and they no longer needed to object to statements from Carpets Unlimited in order to avoid an implied acceptance of those statements. The Court of Appeals rejected that argument, pointing out that Carpets Unlimited had corrected the installation and that, although the Dellamuths objected to additional amounts that Keeton added to the total obligation, Carpets Unlimited’s invoice was for the $23,000 balance to which the Dellamuths had never objected.

Second, the Dellamuths claimed that the relationship between them and Carpets Unlimited could not give rise to an account stated, pointing to case law holding that prior dealings between the parties is a prerequisite to account stated, apparently arguing that there could be no account stated because they had not previously done business with Carpets Unlimited. The Court of Appeals disagreed, looking to case law from other states to clarify that the requirement for prior dealings between the parties means that there must have been prior dealings that gave rise to the debt described in the account statement. Accordingly, the Court held that the contract between the Dellamuths and Carpets Unlimited for materials and services, as well as the delivery of the materials and performance of the services, satisfied the requirement for prior dealings.

There are two sides to the moral of this story. On the debtors’s side, never ignore an invoice or an account statement because you think you do not owe it. Instead of ignoring it, object – and do it in writing to make a record of the objection. On the creditor’s side, account stated can be a powerful way to shore up your ability to recover amounts that are owed to you. If in doubt, send a statement or invoice – preferably by a method that includes confirmation of receipt — and see if the debtor objects.

If you have a dispute over money that you owe to another person, or that another person owes to you, and you’d like to speak with an attorney, please get in touch with us using the contact form on this page.

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