A Primer on Account Stated, by Adrienne B. Koch
New York Law Journal (November 12, 2019)
A party that receives an invoice and holds it without dispute does so at its peril: Absent an objection within a reasonable time, the recipient can become liable for the entire amount of the invoice based on an account stated. There are, however, limits to this principle that are often overlooked, to the confusion of both litigators and their clients. This article explores those limits.
The basic premise of a claim for account stated is straightforward on its face: “[W]here an account is rendered showing a balance, the party receiving it must, within a reasonable time, examine it and object, if he disputes its correctness. If he omits to do so, he will be deemed by his silence to have acquiesced, and will be bound by it as an account stated unless fraud, mistake or other equitable considerations are shown.” Cushman & Wakefiled, v. Kadmon, 175 A.D.3d 1141 (1st Dept. 2019) (citation and internal quotations omitted).
But the rule is not as simple as it may seem. It does not mean that any party whose invoices have been ignored for a sufficient period of time will necessarily have a valid claim for an account stated. The invoices must have been rendered in the context of a relationship that gave the party the right to bill (and be paid by) the recipient of the invoices. As the Court of Appeals has explained, “[t]he rule that an account which has been rendered and to which no objection has been made within a reasonable time should be regarded as admitted by the party charged as prima facie correct assumes that there exists some indebtedness owing between the parties.” Gurney, Becker & Bourne v. Benderson Dev. Co., 47 N.Y.2d 995, 996 (1979). As a result, it “cannot be made the instrument to create liability when none exists.” Id.
One lower court recently articulated this principle more succinctly. It noted that because “an account stated claim is not maintainable ‘[i]n the absence of a claim establishing underlying liability,’” such a claim cannot survive “[w]ithout a viable contract or quasi-contract claim.” Michael R. Gianatasio, PE, P.C. v. City of New York, 53 Misc.3d 757, 774 (Sup. Ct. N.Y. Co. 2016) (citation omitted; first alteration in Gianatasio), aff’d, 159 A.D.3d 659 (1st Dept. 2018).
Despite efforts by the courts to provide clarity, however, litigation in this area suggests that the underlying principles are still widely misunderstood. Cushman & Wakefield, supra, illustrates this point. There, the plaintiff real estate broker (Cushman & Wakefield) sued to recover a commission it claimed to be owed, asserting causes of action for (among other things) breach of contract and account stated. The defendant argued that Cushman & Wakefield was not entitled to a commission under the terms of the parties’ agreement, and the lower court denied Cushman & Wakefield’s motion for summary judgment on both its contract claim and its account stated claim. See Cushman & Wakefield v. Kadmon, 2019 WL 95433 (Sup. Ct. N.Y. Co. Jan. 2, 2019). Cushman & Wakefield appealed only with respect to the account stated claim, and argued that because it had rendered an invoice to which the defendant had made no specific objections it should be entitled to summary judgment regardless of whether there were issues of fact with respect to the underlying contractual obligations. See 2019 WL 2902412 (Reply Brief for Plaintiff-Appellant). This, the Appellate Division held, was incorrect: Because “an account stated cannot be used to create liability where none otherwise exists,” the fact that “the parties might not have reached a meeting of the minds” with respect to the underlying obligations precluded summary judgment on the account stated claim. 175 A.D.3d at 1141.
This is consistent with the rule articulated in Gianatasio. Under it, Cushman & Wakefield’s appeal was doomed from the start. If, as the lower court held in the unappealed portions of its order, issues of fact precluded summary judgment on the breach of contract claim, then by definition Cushman & Wakefield could not possibly be entitled to summary judgment on its account stated claim.
The appellate courts have repeatedly reiterated this principle, dismissing claims for account stated where the plaintiff delivered invoices to a party that never contractually undertook to be liable for payment. Sometimes these cases simply involve disputed contractual liabilities. But they often involve situations where the plaintiff’s goods or services were provided to, or contracted for by, a party other than the one to whom the plaintiff directed its invoices. Such a mismatch is fatal to the account stated claim, just as much as the absence of any underlying obligation would be. See Ochoa v. Montgomery, 132 A.D.3d 827, 829 (2d Dept. 2015) (account stated claim against wife should have been dismissed, where record showed plaintiff’s contractual relationship was only with husband); DerOhannesian v. City of Albany, 110 A.D.3d 1288, 1291 (4th Dept. 2013) (dismissal of attorney’s claims for breach of contract and promissory estoppel required dismissal of claim for account stated; defendant municipality had simply never agreed to become liable for services rendered to its employee); DL Marble & Granite v. Madison Park Owner, 105 A.D.3d 479 (1st Dept. 2013) (absence of express consent by owner to pay directly for subcontractor’s work required dismissal not only of subcontractor’s contract and quasi-contract claims, but also of its account stated claim).
What, then, is the value of an account stated claim? Most importantly, it fixes the amount of liability: If invoices were rendered as part of a contractual or other relationship pursuant to which the recipient had an obligation to pay the sender, then (absent fraud or mistake) the retention of those invoices without objection precludes any dispute over the amount due. See generally 1 N.Y. Jur.2d Accounts and Accounting §§8, 22. Under these circumstances, “[i]t is unnecessary for the plaintiff to prove the details of work, labor, services, and materials furnished to defendants in order to succeed”; “[m]oreover, a party may obtain relief on an account stated without showing that the goods conformed to the contract.” Id. §29 (collecting cases; footnotes omitted). This makes the claim a powerful tool in the right circumstances.
It bears repeating that a party who receives invoices to which it has objections would do well to raise them. Failure to do so will—at the very least—invite an account stated claim. But it is also important to recognize the claim’s limits. The importance in litigation is clear: an account stated claim cannot survive without a valid underlying contractual or quasi-contractual obligation.
The business implications, however, are equally critical. To preserve the ability to assert a claim for account stated, the party rendering an invoice must make sure that the party to whom it is addressed and delivered actually has an obligation (independent of the invoice) to pay for the goods or services at issue. And if it is not clear which of several parties has that obligation, it is crucial to resolve any confusion at the outset. Sending an invoice to the “wrong” party does not create an account stated as to anyone.
Adrienne B. Koch is a litigation partner with Katsky Korins in New York.
Reprinted with permission from the November 12, 2019 edition of the “New York Law Journal”© 2019 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. ALMReprints.com – 877-257-3382 – firstname.lastname@example.org.