The "Account Stated" theory and the lowering of proof requirements in credit card debt actions

Account stated in credit card debt suit

Account stated is a judge-made (common-law) theory of recovery with a long pedigree in reported decisions. Under this theory, merchants could obtain a judgment for the value of unpaid goods they had sold to customers if there was a history of business dealings and a final bill stating the combined balance, but no formal contract between the parties stating all terms, including price of all items sold and delivered. Under the older published appellate opinions, the customer had to have agreed that the final bill accurately "stated" the amount owed as a result of multiple prior transaction. Hence, the name for the theory:  Account Stated (or “Stated Account”, which is used interchangeably for the same theory).

This common-law theory has been adapted by some courts of appeals in Texas to permit credit card companies or their assignees (debt buyers) to prove a credit card debt claim without having to actually produce the underlying contract (whether called card agreement, cardmember agreement, account agreement or customer agreement).

Additionally, these courts do not find it inappropriate to apply the theory in a creditor-debtor relationship between a bank and customer, even though the bank does not actually sell the goods or services for which the credit card is used.

Interestingly, and inconsistently, given the common origin of suit on account and account stated, such a debt claim by a financial institution cannot be brought as a sworn account claim (under Rule 185) because the bank is not a party to a sales transaction, but instead finances the purchase of goods or services from third-party merchants. The courts of appeals are in agreement that "sworn account" is not a proper theory for collection of a credit card debt.

But account stated is a different matter.

Instead of requiring the creditor/plaintiff to prove under which terms credit was extended, and that the Defendant agreed to those terms, these courts of appeals are satisfied if the proof submitted by the creditor includes a series of credit card statements showing transactions and Defendant’s address on them, and if there is no evidence that the address was wrong or that the Defendant disputed any of these billing statements. Under the revised theory of account stated, the court essentially imputes on the consumer/card-holder an agreement and promise to pay whatever amount appears on the last statement as long as he or she received it and did not complain about it. The customer does not actually have to do anything to communicate such agreement. He or she is simply deemed to have agreed to the correctness of what the bill from the credit card company said by acquiescence.

The courts of appeals that have blessed the account-stated theory (including the Houston and Dallas Courts of Appeals) have thus lowered the proof requirements for mass debt collection litigation by providing creditors with an alternative theory that is easier to prove than a breach of contract claim (particularly when the relevant card agreement, or change-in-terms notice(s) modifying interest rate and other terms, went missing).

While the Fort Worth Court of Appeal in 2008 ruled against the creditor in one case in which the proof of actual receipt of the credit card statements was an issue (Morrison v. Citibank), the Dallas Court has taken a different position in several of its own cases, and expressly declined to follow the contrary case from the Fort Worth appeals court in Evans v Citibank (2013).

Citing an earlier decision of the same court, the Dallas court concluded as follows:

The facts of Compton and Dulong v. Citibank  are nearly identical to the facts of this case. Summary judgment based on Citibank's account stated claim was proper if the evidence showed the account statements were sent to Evans, charges and payments were made on the account, fees and interest were charged on the account, and there is no evidence Evans ever disputed the fees or charges reflected on the statements. Compton, 364 S.W.3d at 418; Dulong v. Citibank , 261 S.W.3d at 894. On this record, given the more than two years of credit card billing statements submitted by Citibank, the cancelled checks, and the payment stubs, we conclude Citibank established as a matter of law that Citibank and Evans had an implied agreement fixing an amount due and that Evans impliedly promised to pay Citibank that amount due. Moreover, Evans's assertion in his affidavit that "the statements were not delivered to me or my home" does nothing to raise an issue of fact because that affidavit was struck by the trial court, and we have concluded the court's ruling was not an abuse of discretion. We overrule Evans's fourth issue.

Interestingly, other institutions of governments have moved to tighten proof requirements in debt cases. The Texas Supreme Court recently raised and formalized the pleading and proof requirements for debt suit (in Justice Courts), and the Texas Attorney General took enforcement action against a major debt collection outfit (Midland Funding LLC and its servicer, Midland Credit Management Inc.) and the corporate parent (Encore Capital Group, Inc.) for violating the Texas Debt Collection Act and DTPA because of the shoddy proof they routinely submitted in countless cases filed across the state, many of which resulted in default judgments. This consumer protection action resulted in an agreed judgment in December 2011, in which Midland committed itself, among other things (including payment of damages), to improve its practices regarding account documentation and production of affidavits.

Different branches in the separation-of-powers system in Texas thus seem to be pulling in different directions, and even the courts of appeals are not in agreement about the standards to apply to those that that bring debt suits on a massive scale in the many courts across this state.