A New Use for an Old Tool

At least since Abraham's and Lot's shepherds parted ways over a land-grazing disagreement, Western Civilization's literature has been full of accounts of people having monetary and property disputes. The plethora of litigators across the United States has produced some of the most creative and inventive excuses for not having to pay debts. Avoidance of debt more than likely became an even greater epidemic after the abolition of the debtors' prisons, which occurred at the federal level in 1833. Indeed, nothing has spawned disputes over money like fights over real estate. Commercial leasing litigation has become an art form ' and in states like New York, attorneys have, as a result of technicalities such as failing to serve the tenant properly, kept non-paying tenants in possession for years. (Croghan, Lore: “Candyman Reprieve,” New York Daily News, Aug. 18, 2004.) Against that background, there is special significance to the fact that two New York State courts have refurbished an old weapon for property owners to use in their battles against commercial tenants unjustly failing to pay rent.

According to a nationwide LexisNexis search, the new millennium represents the first appearance of cases whereby courts have recognized accounts stated in commercial landlord-tenant transactions. While the landlord-tenant relationship has evolved throughout the years from mostly simple neighborly transactions to ubiquitous complex commercial lease agreements, one fact remains constant: Some tenants just will not pay their rent.

There do not appear to be any studies analyzing the damage to the overall national economy due to the waste of resources entailed in landlords having to chase after unjustifiably unpaid rents. But, even were there such a study, it appears doubtful it would fully account for the loss of productivity engendered by the incalculable stress and anxiety property owners incur trying to meet their bills in spite of their faltering income streams. The lack of formal studies notwithstanding, the anecdotal evidence, which is the daily diet of a landlord-tenant practitioner, suggests that the societal costs are indeed enormous. Although the account stated doctrine is no panacea, this renewed weapon appearing for the first time this millennium in this guise should reduce those ills.

What Is Account Stated?

“Account stated” may be defined as the doctrine that allows a creditor to establish entitlement to payment from a debtor when the creditor proves merely that the debtor has received bills from the creditor and has retained them without objecting to them within a reasonable period of time.” (Jovee Contracting Corp. v. AIA Environment Corp., 283 A.D.2d 398 (App. Div. 2d Dept. 2001); 1000 Northern of New York Company v. Great Neck Medical Associates, 7 A.D.3d 592 (App. Div. 2d Dept. 2004))

The basic elements required to establish an account stated include: 1) a showing of mutual assent between the parties to the account, as to the correct balance; 2) a promise by one of the parties to pay that balance; and 3) a previous debtor-creditor relationship between the parties (1 Am Jur 2d Accounts and Accounting ' 26, Lisa A. Zakolski (2010)).

The existence of an account stated depends on the particular circumstances of the parties' relationship, and looks to their prior transactions. (In re Rockefeller, 2002 U.S. Dist. LEXIS 212 (S.D.N.Y. 2002).) Originally rooted in the practice of merchants and trade dealings, it has since permeated the marketplace and is applied to numerous credit relationships, including attorneys' fees, insurance policies, and commissions.

As such, an account stated is a valuable tool for creditors claiming nonpayment because it erects a presumption in favor both of existence of the debt and the balance owed on it. While not insuperable, this constructs a substantial barrier to the debtor's possible grounds for dispute.

An express showing of mutual assent and the debtor's promise to satisfy the debt would be ideal for the creditor, but since most dealings are not so simple, the law also implies accounts stated through partial payment. (Chisholm-Ryder Co. v. Sommer & Sommer, 421 N.Y.S.2d 455 (App. Div. 4th Dept. 1979).) Indeed, the most important hurdle partial payment overcomes for the creditor is the establishment of the element that there is a creditor/debtor relationship at all.

In account-stated litigation, there are no bright lines to find in the case law as to what constitutes a “reasonable time” for the debtor to object to the received accounting. One can readily enough assume that one week is too little and two years are too much, but things measured in months are questions of mixed law and fact where the court has substantial latitude. That said, however, when one is dealing with either extremely protracted or extremely brief periods, the court can rule that the time is either too long or too short as a matter of law. (In re Rockefeller, 2002 U.S. Dist. LEXIS 212 (S.D.N.Y. 2002) citing Legum v. Ruthen, 211 A.D.2d 701 (App. Div. 2d Dept 1995); Gurney, Becker & Bournce v. Benderson Dev. Co., 47 N.Y.2d 995 (1979); Werner v. Nelkin, 206 A.D.2d 422 (App. Div. 2d Dept1994); Shea & Gould v. Burr, 194 A.D.2d 369 (App. Div. 1st Dept 1994).)

Account Stated for Commercial Leases

Applying account stated to commercial leases is a bit different from the traditional application because normally the doctrine is invoked to settle a dispute over the amount owed. Unlike the origin of account stated where no written contract was in place, in commercial landlord-tenant situations there is almost always a written lease. This document provides concrete evidence both of the parties' contractual relationship and the details of the agreement, including the terms of payment and the parties' corresponding rights and remedies. However, tenants brought to court on claims of nonpayment of rent will often dispute the amount owed by trying to connect it to some purported nonperformance on the landlord's part. It is the nature of an account stated to remove such matters as possible defenses to rent and leave them only as potential counterclaims where, more often than not, they simply collapse.

As most practitioners are aware, most nonpayment cases occur as a result of the commercial tenant's inability or unwillingness to pay rent. Accounts stated assist landlords in getting around baseless and frivolous claims serving no purpose other than to camouflage unwillingness or inability to pay rent.

While each monthly invoice or billing statement is a separate account stated, later invoices do not vitiate the effect of earlier ones. The original lease is still the primary basis for liability and the account stated does not replace it, but rather merges those prior obligations. (1 Am Jur 2d Accounts and Accounting ' 34, Lisa A. Zakolski (2010)) New York courts also apply the doctrine of account stated to unitemized bills. (Legum v. Ruthen, 211 A.D.2d 701 (App. Div. 2d Dept 1995).)

Various provisions passing along assorted operational expenses to the tenant are ubiquitous in commercial leases across the United States. These can include wages paid to building staff, real property taxes, and maintenance and repairs, among other things. While the “fixed rent” reserved in a lease rarely needs more calculation than reference to the lease itself, these items of so-called “additional rent” often require the assistance of certified public accountants, both to impose and to verify. For this reason, many commercial leases containing these clauses contain additional clauses referred to as “pay now, fight later.” In the presence of such a clause, a tenant who questions the accuracy but immediately pays an additional rent bill could hardly be held bound by the doctrine of account stated. However, the other prong of the doctrine, “reasonable time,” then kicks in to establish when a tenant who decides to “fight later” has simply picked the fight too late. Even if there is a timely protest of the amount, there must be some level of specificity to the protest for the tenant to elude a finding of an account stated.

Once an account stated has met all its qualifications, it is enforceable at law, but subject to equitable defenses such as fraud or mistake. However, neither fraud nor mistake can be used to attack the accounting methodology underlying an account stated. (In re Rockefeller, supra.) It can only attack specific items in the account and show how when the accepted accounting methodology is applied to them, they were incorrectly calculated.

For example, let us say that a lease calls for additional rent based on 3% of the profits of the tenant. Without an account stated in place, the tenant could argue that the term “profits” means “net profits.” If, however, there is an account stated in place and the landlord had used “gross profits” to effect that calculation, the tenant cannot argue that the landlord should have used net profits instead. The tenant can at most argue that the gross profits were lower than what the landlord calculated them to be. There would still be an account stated, but the landlord's recovery would be lower if, in fact, the tenant presented convincing evidence of the lower number.

Defenses to an Account Stated

A tenant may refute an account stated upon showing that the landlord has failed to establish its basic elements or by proving fraud or mistake. (Romeo v. Bimco Indus., 57 A.D.2d 947 ( App. Div. 2d Dept 1977). However, “self-serving, bald allegations of oral protests are insufficient to raise a triable issue of fact as to the existence of an account stated.” (1000 Northern NY Co., supra, citing Darby & Darby v. VSI Intl, 95 N.Y.2d 308, 315 (2000).) The tenant must have set forth specific, as opposed to general, allegations of protest in support of its position, as they related to whom and when the objections to the rent invoices were made. Such determinations are made based on the factual circumstances and relationship of the parties. For example, an affidavit citing specific oral objections to the invoice's accuracy a month after receiving it has been found sufficient to defeat an account stated. (Sandvoss v. Dunkelberger, 112 A.D.2d 278, 279 (App. Div. 2d Dept 1985).)

Tenants are not able to claim they never received the invoices unless there is substantiating proof. Naked denials of ever having received the invoice are insufficient to invalidate an account stated. (Kramer, Levin, Nessen, Kamin & Frankel, Kramer, Levin, Nessen, Kamin & Frankel v. Aronoff, 638 F. Supp. 714, 720 (S.D.N.Y. 1986) citing Belmet Products, Inc. v. Merit Enterprises Inc., 236 N.Y.S.2d 254 (Civ. Ct. 1963).) If the landlord is able to show the invoices were mailed using the regular office mailing procedure, it is sufficient to establish a presumption of their receipt. (Morrison Cohen Singer & Weinstein, LLP v. Brophy, 19 A.D.3d 161, 162 (App. Div. 1st Dept 2005)) In order to overcome this presumption the tenant holds the burden of proving those office procedures were not followed or are so careless that it can reasonably be assumed the invoice was never mailed. (Burr v. Eveready Ins. Co., 253 A.D.2d 650 (App. Div. 1st Dept., 1998); Bronia, Inc. v. Ho, 873 F.Supp. 854 (S.D.N.Y 1995)).

Actual practice has taught that it can be difficult to get a good witness from a client who will competently testify to mailroom procedures sufficient to convince a judge that the mailing really took place. In this regard, certified mail, return receipt requested has proven enormously unreliable. The obvious solution is to instruct one's client to use nationally recognized overnight couriers requiring a signature or fax transmissions to obtain reliable proof of receipt.

Preemptive Drafting Measures

Landlords also have the option to include a provision in the lease that preemptively creates an account stated after a certain amount of time. The provision could read:

Tenant's failure to object to a statement, invoice or billing within x amount of time after receipt shall constitute tenant's acquiescence. Tenant shall be required to provide Landlord with a specific and detailed list of Tenant's objections at the time Tenant makes its objection to Landlord. The statement, invoice or billing shall be an account stated between Landlord and Tenant. (ALI-ABA Course of Study Materials, Commercial Real Estate Leases, by Ronald L. Gern (May 2008).)

Including such a lease provision will ease the Landlord's burden of proof in court.

Account Stated to Collect Rent

At the beginning of 2010, a New York trial judge granted summary judgment to a landlord suing in a plenary action to recover rent on the theory of account stated. In Villency v. Carp, the landlord was seeking $466,363.08 plus interest to satisfy the tenant's unpaid rent. (NYLJ 2/2/10, p. 27, col. 3 (Sup.Ct. Nassau Cty., J. Woodward)). The parties had agreed upon a Stipulation of Settlement to satisfy the debt, and the defendants signed personal guaranties accordingly. The principal defendants defaulted on the Stipulation and filed for bankruptcy. The landlord then sent an account stated to each guarantor defendant individually, demanding payment.

The defendants did not object to receiving the invoices or to their accuracy, but argued that they were not actively involved in the business and did not transact business with the landlord in their individual capacities. The court discredited the defense, finding the reasoning both “weak and inexcusable.” Because the defendants signed the original lease as well as the Stipulation of Settlement containing the personal guaranties, they were held personally accountable on the account stated.

The defendants argued, perhaps inartfully, that they should be excused from the obligation of payment under the account stated because they were not involved in the day-to-day operations of the debtor. However, it would have been far more interesting had they argued that the account stated was the first-ever bill they had received in their personal capacities after years of the principal debtor's dealing with the creditor. In other words, this case established not merely that a landlord-tenant relationship is sufficient for an account stated, but that the very first billing ever had between the parties was procedurally sufficient to state the account. Thus, contrary to common misconceptions, the account stated need not be as part of a series of bills that had predecessors to the account stated. Of course, in the normal course of landlord-tenant dealings, it would indeed be part of such a sequence.

However, the plaintiff fully met its burden to establish an account stated as a matter of law by showing that invoices were mailed using regular office procedure, received by defendants, and retained without objection for a reasonable period of time. Even with its relatively unusual fact pattern, this case points the way to a potent weapon generally available to landlords.

Defensive Account Stated

The principle of account stated works to a landlord's advantage not only as an offensive weapon to assert and make good on a claim of rent, but to defend against a claim of overpayment. In In re Rockefeller, the federal district court sitting in Manhattan applied the principle of account stated to bar a tenant from seeking reimbursement for supposed overpayment of items of additional rent (2002 U.S. Dist. Lexis 212). The tenant filed suit for over $7 million in overpayment resulting from alleged miscalculations of additional rent, but the tenant had waited until 1995 to challenge stated accounts for a lease covering years 1989 through 1993. Two years were, according to the court, well beyond a reasonable time to challenge the bills. The pay-now, fight-later clause of the lease, like the language suggested above, had specifically required “prompt” payment or objection, making the tenant disqualified for the protections of the lease itself as well as the doctrine of account stated. It should also be noted, however, that the court found that the debtor's general protest of the bills did not qualify as a sufficiently specific dispute to elude “account stated” status. In a further gloss on the doctrine, the court noted that although the checks used to make the lease payments displayed “Paid in Protest” across them, they were insufficiently specific to constitute effective objections to the stated accounts.

Conclusion

For landlords who take all of the proper steps, accounts stated are peculiarly suitable for motions for summary judgment. So, while accounts stated are a dusty old common law tool, even an ancient axe, properly polished, can prove to be truly cutting-edge.

Adam Leitman Bailey, a member of this newsletter's Board of Editors, is the founding partner and Dov Treiman is the Landlord-Tenant Managing Partner of Adam Leitman Bailey, P.C. The authors wish to thank the firm's extern and summer associate, Jennifer Beyer, for her extraordinary research assistance.

At least since Abraham's and Lot's shepherds parted ways over a land-grazing disagreement, Western Civilization's literature has been full of accounts of people having monetary and property disputes. The plethora of litigators across the United States has produced some of the most creative and inventive excuses for not having to pay debts. Avoidance of debt more than likely became an even greater epidemic after the abolition of the debtors' prisons, which occurred at the federal level in 1833. Indeed, nothing has spawned disputes over money like fights over real estate. Commercial leasing litigation has become an art form ' and in states like New York, attorneys have, as a result of technicalities such as failing to serve the tenant properly, kept non-paying tenants in possession for years. (Croghan, Lore: “Candyman Reprieve,” New York Daily News, Aug. 18, 2004.) Against that background, there is special significance to the fact that two New York State courts have refurbished an old weapon for property owners to use in their battles against commercial tenants unjustly failing to pay rent.

According to a nationwide LexisNexis search, the new millennium represents the first appearance of cases whereby courts have recognized accounts stated in commercial landlord-tenant transactions. While the landlord-tenant relationship has evolved throughout the years from mostly simple neighborly transactions to ubiquitous complex commercial lease agreements, one fact remains constant: Some tenants just will not pay their rent.

There do not appear to be any studies analyzing the damage to the overall national economy due to the waste of resources entailed in landlords having to chase after unjustifiably unpaid rents. But, even were there such a study, it appears doubtful it would fully account for the loss of productivity engendered by the incalculable stress and anxiety property owners incur trying to meet their bills in spite of their faltering income streams. The lack of formal studies notwithstanding, the anecdotal evidence, which is the daily diet of a landlord-tenant practitioner, suggests that the societal costs are indeed enormous. Although the account stated doctrine is no panacea, this renewed weapon appearing for the first time this millennium in this guise should reduce those ills.

What Is Account Stated?

“Account stated” may be defined as the doctrine that allows a creditor to establish entitlement to payment from a debtor when the creditor proves merely that the debtor has received bills from the creditor and has retained them without objecting to them within a reasonable period of time.” ( Jovee Contracting Corp. v. AIA Environment Corp. , 283 A.D.2d 398 (App. Div. 2d Dept. 2001); 1000 Northern of New York Company v. Great Neck Medical Associates , 7 A.D.3d 592 (App. Div. 2d Dept. 2004))

The basic elements required to establish an account stated include: 1) a showing of mutual assent between the parties to the account, as to the correct balance; 2) a promise by one of the parties to pay that balance; and 3) a previous debtor-creditor relationship between the parties (1 Am Jur 2d Accounts and Accounting ' 26, Lisa A. Zakolski (2010)).

The existence of an account stated depends on the particular circumstances of the parties' relationship, and looks to their prior transactions. (In re Rockefeller, 2002 U.S. Dist. LEXIS 212 (S.D.N.Y. 2002).) Originally rooted in the practice of merchants and trade dealings, it has since permeated the marketplace and is applied to numerous credit relationships, including attorneys' fees, insurance policies, and commissions.

As such, an account stated is a valuable tool for creditors claiming nonpayment because it erects a presumption in favor both of existence of the debt and the balance owed on it. While not insuperable, this constructs a substantial barrier to the debtor's possible grounds for dispute.

An express showing of mutual assent and the debtor's promise to satisfy the debt would be ideal for the creditor, but since most dealings are not so simple, the law also implies accounts stated through partial payment. ( Chisholm-Ryder Co. v. Sommer & Sommer , 421 N.Y.S.2d 455 (App. Div. 4th Dept. 1979).) Indeed, the most important hurdle partial payment overcomes for the creditor is the establishment of the element that there is a creditor/debtor relationship at all.

In account-stated litigation, there are no bright lines to find in the case law as to what constitutes a “reasonable time” for the debtor to object to the received accounting. One can readily enough assume that one week is too little and two years are too much, but things measured in months are questions of mixed law and fact where the court has substantial latitude. That said, however, when one is dealing with either extremely protracted or extremely brief periods, the court can rule that the time is either too long or too short as a matter of law. (In re Rockefeller, 2002 U.S. Dist. LEXIS 212 (S.D.N.Y. 2002) citing Legum v. Ruthen , 211 A.D.2d 701 (App. Div. 2d Dept 1995); Gurney, Becker & Bournce v. Benderson Dev. Co. , 47 N.Y.2d 995 (1979); Werner v. Nelkin , 206 A.D.2d 422 (App. Div. 2d Dept1994); Shea & Gould v. Burr , 194 A.D.2d 369 (App. Div. 1st Dept 1994).)

Account Stated for Commercial Leases

Applying account stated to commercial leases is a bit different from the traditional application because normally the doctrine is invoked to settle a dispute over the amount owed. Unlike the origin of account stated where no written contract was in place, in commercial landlord-tenant situations there is almost always a written lease. This document provides concrete evidence both of the parties' contractual relationship and the details of the agreement, including the terms of payment and the parties' corresponding rights and remedies. However, tenants brought to court on claims of nonpayment of rent will often dispute the amount owed by trying to connect it to some purported nonperformance on the landlord's part. It is the nature of an account stated to remove such matters as possible defenses to rent and leave them only as potential counterclaims where, more often than not, they simply collapse.

As most practitioners are aware, most nonpayment cases occur as a result of the commercial tenant's inability or unwillingness to pay rent. Accounts stated assist landlords in getting around baseless and frivolous claims serving no purpose other than to camouflage unwillingness or inability to pay rent.

While each monthly invoice or billing statement is a separate account stated, later invoices do not vitiate the effect of earlier ones. The original lease is still the primary basis for liability and the account stated does not replace it, but rather merges those prior obligations. (1 Am Jur 2d Accounts and Accounting ' 34, Lisa A. Zakolski (2010)) New York courts also apply the doctrine of account stated to unitemized bills. ( Legum v. Ruthen , 211 A.D.2d 701 (App. Div. 2d Dept 1995).)

Various provisions passing along assorted operational expenses to the tenant are ubiquitous in commercial leases across the United States. These can include wages paid to building staff, real property taxes, and maintenance and repairs, among other things. While the “fixed rent” reserved in a lease rarely needs more calculation than reference to the lease itself, these items of so-called “additional rent” often require the assistance of certified public accountants, both to impose and to verify. For this reason, many commercial leases containing these clauses contain additional clauses referred to as “pay now, fight later.” In the presence of such a clause, a tenant who questions the accuracy but immediately pays an additional rent bill could hardly be held bound by the doctrine of account stated. However, the other prong of the doctrine, “reasonable time,” then kicks in to establish when a tenant who decides to “fight later” has simply picked the fight too late. Even if there is a timely protest of the amount, there must be some level of specificity to the protest for the tenant to elude a finding of an account stated.

Once an account stated has met all its qualifications, it is enforceable at law, but subject to equitable defenses such as fraud or mistake. However, neither fraud nor mistake can be used to attack the accounting methodology underlying an account stated. (In re Rockefeller, supra.) It can only attack specific items in the account and show how when the accepted accounting methodology is applied to them, they were incorrectly calculated.

For example, let us say that a lease calls for additional rent based on 3% of the profits of the tenant. Without an account stated in place, the tenant could argue that the term “profits” means “net profits.” If, however, there is an account stated in place and the landlord had used “gross profits” to effect that calculation, the tenant cannot argue that the landlord should have used net profits instead. The tenant can at most argue that the gross profits were lower than what the landlord calculated them to be. There would still be an account stated, but the landlord's recovery would be lower if, in fact, the tenant presented convincing evidence of the lower number.

Defenses to an Account Stated

A tenant may refute an account stated upon showing that the landlord has failed to establish its basic elements or by proving fraud or mistake. ( Romeo v. Bimco Indus. , 57 A.D.2d 947 ( App. Div. 2d Dept 1977). However, “self-serving, bald allegations of oral protests are insufficient to raise a triable issue of fact as to the existence of an account stated.” ( 1000 Northern NY Co., supra , citing Darby & Darby v. VSI Intl , 95 N.Y.2d 308, 315 (2000).) The tenant must have set forth specific, as opposed to general, allegations of protest in support of its position, as they related to whom and when the objections to the rent invoices were made. Such determinations are made based on the factual circumstances and relationship of the parties. For example, an affidavit citing specific oral objections to the invoice's accuracy a month after receiving it has been found sufficient to defeat an account stated. ( Sandvoss v. Dunkelberger , 112 A.D.2d 278, 279 (App. Div. 2d Dept 1985).)

Tenants are not able to claim they never received the invoices unless there is substantiating proof. Naked denials of ever having received the invoice are insufficient to invalidate an account stated. ( Kramer, Levin, Nessen, Kamin & Frankel, Kramer, Levin, Nessen, Kamin & Frankel v. Aronoff , 638 F. Supp. 714, 720 (S.D.N.Y. 1986) citing Belmet Products, Inc. v. Merit Enterprises Inc. , 236 N.Y.S.2d 254 (Civ. Ct. 1963).) If the landlord is able to show the invoices were mailed using the regular office mailing procedure, it is sufficient to establish a presumption of their receipt. ( Morrison Cohen Singer & Weinstein, LLP v. Brophy , 19 A.D.3d 161, 162 (App. Div. 1st Dept 2005)) In order to overcome this presumption the tenant holds the burden of proving those office procedures were not followed or are so careless that it can reasonably be assumed the invoice was never mailed. ( Burr v. Eveready Ins. Co. , 253 A.D.2d 650 (App. Div. 1st Dept., 1998); Bronia, Inc. v. Ho , 873 F.Supp. 854 (S.D.N.Y 1995)).

Actual practice has taught that it can be difficult to get a good witness from a client who will competently testify to mailroom procedures sufficient to convince a judge that the mailing really took place. In this regard, certified mail, return receipt requested has proven enormously unreliable. The obvious solution is to instruct one's client to use nationally recognized overnight couriers requiring a signature or fax transmissions to obtain reliable proof of receipt.

Preemptive Drafting Measures

Landlords also have the option to include a provision in the lease that preemptively creates an account stated after a certain amount of time. The provision could read:

Tenant's failure to object to a statement, invoice or billing within x amount of time after receipt shall constitute tenant's acquiescence. Tenant shall be required to provide Landlord with a specific and detailed list of Tenant's objections at the time Tenant makes its objection to Landlord. The statement, invoice or billing shall be an account stated between Landlord and Tenant. (ALI-ABA Course of Study Materials, Commercial Real Estate Leases, by Ronald L. Gern (May 2008).)

Including such a lease provision will ease the Landlord's burden of proof in court.

Account Stated to Collect Rent

At the beginning of 2010, a New York trial judge granted summary judgment to a landlord suing in a plenary action to recover rent on the theory of account stated. In Villency v. Carp, the landlord was seeking $466,363.08 plus interest to satisfy the tenant's unpaid rent. (NYLJ 2/2/10, p. 27, col. 3 (Sup.Ct. Nassau Cty., J. Woodward)). The parties had agreed upon a Stipulation of Settlement to satisfy the debt, and the defendants signed personal guaranties accordingly. The principal defendants defaulted on the Stipulation and filed for bankruptcy. The landlord then sent an account stated to each guarantor defendant individually, demanding payment.

The defendants did not object to receiving the invoices or to their accuracy, but argued that they were not actively involved in the business and did not transact business with the landlord in their individual capacities. The court discredited the defense, finding the reasoning both “weak and inexcusable.” Because the defendants signed the original lease as well as the Stipulation of Settlement containing the personal guaranties, they were held personally accountable on the account stated.

The defendants argued, perhaps inartfully, that they should be excused from the obligation of payment under the account stated because they were not involved in the day-to-day operations of the debtor. However, it would have been far more interesting had they argued that the account stated was the first-ever bill they had received in their personal capacities after years of the principal debtor's dealing with the creditor. In other words, this case established not merely that a landlord-tenant relationship is sufficient for an account stated, but that the very first billing ever had between the parties was procedurally sufficient to state the account. Thus, contrary to common misconceptions, the account stated need not be as part of a series of bills that had predecessors to the account stated. Of course, in the normal course of landlord-tenant dealings, it would indeed be part of such a sequence.

However, the plaintiff fully met its burden to establish an account stated as a matter of law by showing that invoices were mailed using regular office procedure, received by defendants, and retained without objection for a reasonable period of time. Even with its relatively unusual fact pattern, this case points the way to a potent weapon generally available to landlords.

Defensive Account Stated

The principle of account stated works to a landlord's advantage not only as an offensive weapon to assert and make good on a claim of rent, but to defend against a claim of overpayment. In In re Rockefeller, the federal district court sitting in Manhattan applied the principle of account stated to bar a tenant from seeking reimbursement for supposed overpayment of items of additional rent (2002 U.S. Dist. Lexis 212). The tenant filed suit for over $7 million in overpayment resulting from alleged miscalculations of additional rent, but the tenant had waited until 1995 to challenge stated accounts for a lease covering years 1989 through 1993. Two years were, according to the court, well beyond a reasonable time to challenge the bills. The pay-now, fight-later clause of the lease, like the language suggested above, had specifically required “prompt” payment or objection, making the tenant disqualified for the protections of the lease itself as well as the doctrine of account stated. It should also be noted, however, that the court found that the debtor's general protest of the bills did not qualify as a sufficiently specific dispute to elude “account stated” status. In a further gloss on the doctrine, the court noted that although the checks used to make the lease payments displayed “Paid in Protest” across them, they were insufficiently specific to constitute effective objections to the stated accounts.

Conclusion

For landlords who take all of the proper steps, accounts stated are peculiarly suitable for motions for summary judgment. So, while accounts stated are a dusty old common law tool, even an ancient axe, properly polished, can prove to be truly cutting-edge.

Adam Leitman Bailey, a member of this newsletter's Board of Editors, is the founding partner and Dov Treiman is the Landlord-Tenant Managing Partner of Adam Leitman Bailey, P.C. The authors wish to thank the firm's extern and summer associate, Jennifer Beyer, for her extraordinary research assistance.