The "Account Stated" in Indiana Collections

On August 27, 2014, the Indiana Court of Appeals issued a Not-for-Publication Memorandum Decision in the case of Dellamuth v. Ken’s Carpet Unlimited. As an NFP decision, the case cannot be cited as precedent, but it does offer some discussion as to the “account stated” contract theory as it pertains to collecting debts in Indiana. The Court explained the “account stated” as follows:

An account stated is “an agreement between the parties that all items of an account and balance are correct, together with a promise, expressed or implied, to pay the balance.” The account stated operates as a new contract without the need for renewed consideration, and the plaintiff does not need to plead and prove the creation and performance of each contract underlying the account. An agreement that the balance is correct may be inferred from delivery of the statement and the account debtor’s failure to object to the amount of the statement within a reasonable amount of time. The amount indicated on a statement is prima facie evidence of the amount owed on the account, and once a prima facie case is made, the burden of proof shifts to the account debtor to prove that the amount claimed is incorrect.

(internal citations and quotations omitted.)

The advantage of the “account stated” is that, if a creditor has provided goods or services and sent a statement of account to the debtor, but the debtor fails to object to the statement in a reasonable time, the statement of account serves to make a prima facie case of the amount due. The debtor can still rebut that presumption, but the burden is on the debtor which makes it quite a bit easier for the creditor to prove its case.

This case involved an agreement between homeowners and a carpet company for the installation of carpet for a certain amount of money. The debtor-defendants made an initial payment and the plaintiff subcontracted the work. The work was apparently defective, and the debtors refused to pay the subcontractor. The plaintiff corrected the work and sent an invoice for the agreed amount less the initial payment. The defendants never objected. At trial, the defendants objected that the carpet company did not prove that there had been “prior dealings between the parties” which is a required element of proving an “account statement.” The court found that the original agreement to perform the work and the actual performance of that work satisfied the “prior dealings” requirement. The upshot of the “prior dealings” requirement seems to be that one can’t merely send a statement of account to random people and expect that a court will enter a judgment on an account stated if those strangers fail to object.

The lesson is that a creditor’s ability to prove and collect on an account becomes easier if it sends statements of accounts and keeps records of those statements and any subsequent responses (or lack of responses).

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