Whether you are a landlord, a small business owner or an individual undoubtedly you will find yourself in a position in which someone owes you or your business money. Collections can be difficult to pursue on your own, especially when the debtor is resistant to paying his or her debt. Attorneys are often contacted for assistance with collecting debts. Various legal theories can be used when filing a lawsuit, such as breach of contract, equitable theories, account stated and open account claims.
On July 30, 2013 the Michigan Supreme Court defined these alternative theories of recovery more clearly in the case known as Fisher Sand & Gravel Co. v Neal A. Sweebe. In this case, Fisher Sand & Gravel Company sought payment for concrete supplies it provided to Sweebe on account more than four years after the last payment was made by the defendant. Sweebe countered that the Michigan Uniform Commercial Code’s four-year limitations period barred Fisher’s claims. The trial and appeals courts agreed with Sweebe and dismissed Fisher’s claims. The Michigan Supreme Court, however, held that account stated and open account actions are subject to the six-year limitations period provided by MCL § 600.5807(8), even when the actions are based on a debt stemming from the sale of goods.
According to the Court, the UCC’s four-year limitations period only applies to breach of contract claims involving the sale of goods. An action on an account stated is an action to enforce a subsequent promise to pay an account. Similarly, an open account claim “is an action to collect on the single liability stemming from the parties’ credit relationship regardless of the underlying transactions comprising the account.” Neither involves the sale of goods. Accordingly, the UCC’s four-year period of limitations did not bar Fisher’s claims.
Consequently, when the party that owes money makes statements or sends writings disputing or inquiring into the accuracy of the claimed amount owed to the creditor, these statements can be viewed as denials of the balance due on open account. It is therefore wise for every debtor presented with a bill to immediately dispute the balance due with an expression that their silence, conduct, statements or writings is deemed to be an admission of the amount on open account or account stated. A debtor should never respond with silence to any claim by a creditor for monies due, unless the amount is undisputed by the debtor.
The Supreme Court quoted Professor Arthur Corbin, in his treatise on contract law, which stated: “If a claimant renders an account and it is assented to as correct by the other party with an express or implied promise to pay, an action may be maintained on the promise. The account stated is a new, independent cause of action, superseding and merging the antecedent cause of action.” In other words, the agreed statement serves in place of the original account and it becomes an original demand and amounts to an express promise to pay the actual sum stated. Accordingly, greater care must be taken in responding to subsequent claims from a creditor as to the amount due, than perhaps in creating the original obligation upon which a breach of contract action was founded.
Gerald C. Davis, a partner in our Livonia office, concentrates his practice on corporate and business law, leveraged buy-outs, company reorganization and refinancing, analyzing investments for joint ventures, intellectual property, and drafting loan agreements. He can be reached at (734) 261-2400 or email@example.com.