Account Stated Claims
When a party fails to pay for goods or services delivered, the other party will typically send a demand letter, followed by a lawsuit, if payment is not received. Depending on the circumstances, there may be several grounds for a suit seeking payment, one of which is known as “account stated.” This cause of action is most often used by parties who have existing or regular dealings with each other to buy and sell goods or services and may not have a contract for each transaction. They simply invoice each other for payment.
What Is an Account Stated Claim?
“Account stated” is a cause of action for payment where one party sent an invoice to the other and the recipient of the invoice failed to object within a reasonable period. By failing to timely object, the recipient of an invoice may be liable for the entire amount of the invoice. The rationale is that a party who fails to dispute an invoice is deemed to have acquiesced and is bound by it as an account stated, unless fraud, mistake, or other equitable considerations are shown. If the transaction meets the requirements, the account stated claim provides a means for recovering moneys by preventing the party from objecting to the invoice long after the fact.
Among the benefits of an account stated claim is that it precludes a dispute over the amount owed. The plaintiff does not have to prove the details of its performance since the party who received the invoice should have made any objections to performance or the amount of the invoice within a reasonable period of time after receipt.
What Are the Elements of an Account Stated Claim?
There are three elements of an account stated claim: (1) the account was presented, (2) by mutual agreement, it was accepted as correct, and (3) the debtor promised to pay the amount so stated.
The second and third elements may be shown by the debtor’s failure to object to the stated amount within a reasonable time. While there is no clear-cut rule as to what constitutes a reasonable amount of time, a delay of five months has been found to be unreasonable under New York caselaw.
Notably, an account stated claim cannot be used to create liability where none exists. There must be an existing obligation.
How Can a Party Defend Against an Account Stated Claim?
A party can raise various defenses to an account stated claim. First, objections can be made concerning the creditor’s evidence. For example, proof is needed, concerning transactions and invoicing. A creditor should have documentation of monthly or regular billing to show active communication between the parties. Absence of such proof is fatal to the claim. The debtor can also seek to refute the creditor’s claim that the debtor failed to respond in a timely manner.
In addition, there are several affirmative defenses to an account stated claim, including fraud and mistake. The debtor has the burden of showing these exist. The fraud or mistake must involve an important fact, rather than an inconsequential fact. In the absence of fraud or mistake, the debtor may also be able to show other equitable considerations, which weigh against enforcement of the account stated claim. Equitable considerations are “legal speak” for considerations that a court can consider regarding fairness.
The statute of limitations may also be a defense. In New York, the statute of limitations is six years, which starts to run on the date of the last transaction in the account.
How Can Parties Avoid an Account Stated Claim?
Parties should carefully review invoices in a timely manner. If the recipient of the invoice has an objection to the amount billed or to the performance of the other party, it is essential to notify the billing party in writing as soon as possible. In addition, all parties should keep complete records of transactions as they may become relevant in litigation. Legal counsel should also be consulted if it appears that litigation is likely.
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