It’s common for parties who have existing or regular dealings with each other to buy and sell services or goods without a contract. Instead, the parties will simply invoice each other for payment. New York law recognizes that the parties may have an implied agreement based on such invoices and they can sue for payment even though they don’t have a written agreement. As an example, a recent case awarded a plaintiff a multi-million dollar judgment. Accordingly, buyers and sellers should be aware of how the law works.
“Account stated” is a cause of action for payment. Essentially, it allows you to make a claim for payment even if there is no contract or agreement between the parties, provided you meet certain criteria. These include:
- There were prior transactions between the parties;
- Invoices were sent from one party to the other;and
- The receiving party failed to object to the invoices within a reasonable amount of time.
In these circumstances, a court may find an implied agreement exists as to the correctness of the invoice and balance due.
As mentioned above, this type of claim was the subject of a recent court case. The New York Appellate Division, Third Department granted summary judgment on a multi-million dollar account stated claim. The case involved two parties who previously contracted for Plaintiff to build a rooftop solar generation system. This work was completed. They also had an agreement to negotiate potential additional generation systems. While the parties negotiated that agreement, and in anticipation of finalizing the deal, the Plaintiff purchased $1.9 million worth of solar cells that it would use to build two additional systems. During this time, the Plaintiff periodically invoiced the Defendants for the purchase price and storage costs of the additional solar cells. The negotiations fell through and no agreement was reached as to the additional generation systems. Plaintiff brought an action after the Defendants failed to pay for the solar cells. The Court found that there was no contract as to the two additional systems. However, since the Defendants had received invoices over a period of time and never objected, Plaintiff had established its account stated claim. The Defendants argument that they never ordered the solar cells didn’t hold up against their failure to object to the invoices. As a result, Defendants were liable.
Parties should carefully review invoices in a timely manner. Account stated claims typically arise in two ways: (1) a party gets an invoice, makes a partial payment, doesn’t believe it owes the rest and doesn’t pay the rest, but makes no objection as to this amount; or (2) a party gets an invoice, doesn’t believe it owes any of the invoiced amount and makes no objection. Partial payment or failing to object to invoices may imply an agreement to the rest of the balance. To avoid potential liability, make sure you review invoices and make prompt objections to the invoicing party in writing.
If you are facing a lawsuit or seeking payment from another party, contact us for a consultation.
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