Monday, April 13, 2015

Core v CBNA (2015) "Account Stated" - Citibank-sponsored Cause of Action for Litigating Credit Card Collection Cases in Texas Pays Off


What to do when you don't win all of your cases ... such as a contract case when you can't find the contract, or some of the essential terms went missing because they were on a separate schedule? Citibank has shown the way: You create your own cause of action. Voila! 
-- A cause of action that does not require proof of the missing contract and its terms.  
citibank signage at retail bank branch location in Texas
citibank logo at retail bank branch  
Citibank lost a credit card collection case in 2005 on all three theories it had asserted – breach of contract, sworn account, and quantum meruit -- and then endeavored to change the legal landscape by persuading the Dallas Court of Appeals to adapt then-existing precedents governing common-law suits on account to make them amenable for its own purposes, i.e. judicial collection of bank debt. See  Dulong v. Citibank (S.D.), N.A., 261 S.W.3d 890 (Tex. App.-Dallas 2008, no pet.)(Citibank was not required to produce a written agreement to recover on account-stated theory) -- CONTRA -- Tully v. Citibank (South Dakota), N.A., 173 S.W.3d 212 (Tex.App.-Texarkana 2005, no pet.) (credit card not a sworn account because no title to personal property passes from the bank to the cardholder).   

Several of the fourteen intermediate courts of appeals in Texas have since followed suit, most recently the Corpus Christi and Eastland Courts of Appeal, both acting for the Fort Worth Court of Appeals in cases transferred to them by the Texas Supreme Court in the name of docket equalization. See TEX. GOV'T CODE ANN. § 73.001. 

Interestingly, the Fort Worth Court of Appeals had not signed on to Citibank’s revamp of the law governing suits on account under Texas common law. See Morrison v. Citibank (South Dakota) N.A., 02-07-00130-CV, 2008 WL 553284 (Tex.App.-Fort Worth Feb. 28, 2008, no pet.) (mem. op.) (per curiam)(reversing judgment on account stated theory involving debt suit on ten credit card accounts on factual sufficiency ground and declining to decide whether account stated is a viable theory of recovery in a suit to collect a credit card debt).  
Having lost in Tully, Citibank - then known as Citibank (South Dakota) N.A. - embarked on a different litigation strategy. It would urge the judges in the thousands of cases filed in the trial trial courts around the state, and the justices in the much smaller set that reached the courts of appeals, to accept the idea that a debt claim based on a customer's failure to make payments as required under the terms of a credit card agreement could be litigated as something other than a breach of contract: as a common-law suit on account

A credit card account, after all, is an account. And since there are periodic account statements, it's a stated account. To make it sound more authoritative, and to tie the proposed alternative legal theory into the legal tradition governing suits on account by merchants, the word order was flipped: Account Stated.

Dulong v Citibank and Compton v Citibank (South Dakota) N.A. Progeny - Proof of Contract not Required
Under Dallas Court of Appeals opinions, Citibank is not required to prove the
contract when it invokes the "account stated" theory as an alternative
theory of recovery 
But a suit on account at common law had historically involved sales transactions between the plaintiff and the defendant rather than purely financial transactions involving a bank that is -- by definition -- not a merchant. An open account would become a stated account when merchants would strike a balance as to the net payment due by one to the other based on debits and credits associated with their mutual transactions, and a suit on account stated would be based on the amount resulting from the accounting and agreed-to by the parties as correct and owed by one to the other. 

Rule 185 of the CPRC, the sworn account rule,  merely provided an expedited mechanism for presenting such a claim. Rule 185 is not a rule of substantive law. See Rizk v. Fin. Guardian Ins. Agency, Inc., 584 S.W.2d 860, 862 (Tex.1979); A & J Printing, Inc. v. DSP Enter., L.L.C., 153 S.W.3d 676, 682 (Tex.App.-Dallas 2004, no pet.). Rather, it is a rule of procedure regarding the evidence necessary to establish a prima facie right of recovery. See Rizk, 584 S.W.2d at 862; A & J Printing, 153 S.W.3d at 682.

Under rule 185 of the Texas Rules of Civil Procedure, when an action is founded on an open account on which a systematic record has been kept and is supported by an affidavit, the account shall be taken as prima facie evidence of the claim, unless the party resisting the claim files a written denial under oath. See Tex. R. Civ. P. 185; Panditi v. Apostle, 180 S.W.3d 924, 926 (Tex. App.-Dallas 2006, no pet.). A defendant resisting a suit on a sworn account must comply with the rules of pleading and timely file a verified denial or he will not be permitted to dispute the receipt of the services or the correctness of the charges. See TEX.R. CIV. P. 93(10), 185; Vance v. Holloway, 689 S.W.2d 403, 404 (Tex.1985); A & J Printing, 153 S.W.3d at 682. If there is a proper denial, the plaintiff must prove its claim with sufficient evidence on each of the substantive elements.  

The essential elements to prove a sworn account are: (1) that there was a sale and delivery of merchandise or performance of services; (2) that the amount of the account is just, that is, that the prices were charged in accordance with an agreement or were customary and reasonable prices; and (3) that the amount is unpaid. Adams v. H & H Meat Prods., Inc., 41 S.W.3d 762, 773 (Tex. App.-Corpus Christi 2001, no pet.). See also Cass v. Stephens, 156 S.W.3d 38, 70 (Tex. App.-El Paso 2004, pet. denied); Burch v. Hancock, 56 S.W.3d 257, 264 (Tex. App.-Tyler 2001, no pet.); Tex. R. Civ. P. 185. 
SOURCE: DALLAS COURT OF APPEALS - 05-06-00216-CV - 2/23/07 

Citibank scored a major victory when it persuaded the Dallas Court of Appeals to quietly delete the sales-transaction element from the cause of action. See Dulong v. Citibank (South Dakota), N.A., 261 S.W.3d 890 (Tex. App.-Dallas 2008, no pet.).  The requirement still survives in the sworn account context under rule 185, and this is logically inconsistent because a sworn account is merely as special form of a common-law suit on account, and does not itself create a cause of action.  

Nevertheless, by now, numerous courts of appeals around Texas have endorsed Citibank's program of revamping the common law to accommodate the interests of prominent and high-volume plaintiffs in more efficient litigation with lowered proof requirements, most notably itself, but -- by extension -- benefiting other creditors suing on credit card debt likewise.  

The most recent account-stated opinions handed down by Texas appellate courts no longer even cite the old cases whence the cause of action on open account and account stated stem from. See Neil v. Agris, 693 S.W.2d 604 (Tex.App.-Houston [14th Dist.] 1985, no writ);  Continental Cas. Co. v. Dr. Pepper Bottling Co. of Texas, Inc., 416 F.Supp.2d 497, 504 (N.D.Tex. 2006); Arnold D. Kamen & Co. v. Young, 466 S.W.2d 381, 388 (Tex. Civ.App.-Dallas 1971, writ ref'd n.r.e.).


At Citibank’s urging, the Dallas Court first departed from long-standing precedent as to the essential nature of a suit on account in 2008, and its erroneous holding that credit card debt owed to a bank is actionable as an account stated has since acquired the status of new precedent, -- one that has been followed in numerous subsequent case in Dallas and elsewhere. 

Dulong v Citibank and progeny - Proof of contract no longer required in credit card debt collection suit
Several sister courts of appeals have decided their own cases based on Dulong, even though they were not required to do so, and even though the Dallas court had not even acknowledged the substantive change it wrought in this area of the common law. The panel opinion, authored by Justice Richter, merely pointed out in a footnote that Dulong had not challenged the viability of an account stated cause of action in her case. 
The intermediate courts of appeals that have adopted the Citibank doctrine blessed by the Fifth Court of Appeals in Dulong can no longer be proven wrong because they get to say what the controlling law is, at least in their part of the State. In theory it is the prerogative of the Texas Supreme Court to determine what the common law of the state is, and whether it should be modified. With respect to collection of bank debt on “account stated” grounds, however, the supreme court has not spoken. But the older cases governing applicability and proof of an account stated have effectively been overruled by the Dallas-based court and several other appellate jurisdictions that have followed it; -- even though the Dallas Court offered no analysis and provided no reasons why the law should be changed in favor of a particular category of litigants with heavy dockets at the expense of a particular category of defendants: consumers.  


And Citibank did not even have to hire and pay big bucks for lobbyists to persuade the Texas Legislature to enact bank-friendly litigation to dispense with need for proof of the terms governing the account, -- even though those terms must be disclosed in writing under the Truth in Lending Act (TILA) when a consumer credit account is established. Citibank effectively got the courts to change the substance of the law and ease the burden of proving a debt collection case,  by relieving financial institutions appearing as plaintiffs from the requirement to prove the terms of the underlying contract. 
Copies of billing statements combined with testimony that they were mailed to the defendant will now do in most cases, and the customer's "agreement" will be inferred, rather than having to be proven, even though the notion that silence constitutes assent is generally rejected in the context of contract formation.   

Citibank may have lost many more credit card debt cases for evidentiary reasons after is suffered reversal in Tully v Citibank, but if you can persuade the courts to go with a new theory under which you do better because it lowers the burdens of proof or eliminates it altogether on a particular element, the prospects obviously look much brighter. Unsurprisingly Citibank wins virtually all of its appealed cases. It has numerous cases to its name that not only attest to its success in putting its stamp on the jurisprudence of Texas, but also control the disposition to thousands of other cases because the appellate opinion have the character of legal authority that the trial courts are not at liberty to ignore. 
In the meantime, other breach-of-contract plaintiffs continue to have to prove the contract on which they sue, and merchants and service providers still have to prove an agreement on price or the reasonable or customary value of the goods sold or services rendered. And those who rendered compensable services in the absence of a contract must prove the value of those services when seeking to recover in quantum meruit. 

DULONG V CITIBANK (2010): Dallas Court of Appeals deletes sale-of-goods/services elements from suit-on-account case law it cites - without acknowledging it 



A party is entitled to relief under the common law cause of action for account stated where (1) transactions between the parties give rise to indebtedness of one to the other; (2) an agreement, express or implied, between the parties fixes an amount due; and (3) the one to be charged makes a promise, express or implied, to pay the indebtedness.[2] Neil v. Agris, 693 S.W.2d 604, 605 (Tex.App.-Houston [14th Dist.] 1985, no writ); Continental Cas. Co. v. Dr. Pepper Bottling Co. of Texas, Inc., 416 F.Supp.2d 497, 504 (N.D.Tex.2006) (citing Arnold D. Kamen & Co. v. Young, 466 S.W.2d 381, 388 (Tex. Civ.App.-Dallas 1971, writ ref'd n.r.e.))[3].

Dulong contends the summary judgment evidence did not establish that Citibank had an agreement with Dulong, that Citibank owned the debt, or that she acknowledged the total amount due.[4] In support of her argument that Citibank failed to prove an agreement, Dulong points to the fact that Citibank failed to attach a cardholder agreement to the Affidavit. Because an agreement on which an account stated claim is based can be express or implied, Citibank did not have to produce a written contract as long as it could produce other evidence of the agreement between the parties to meet its burden of proof. See Neil, 693 S.W.2d at 605. An express contract arises when its terms are stated by the parties whereas an implied contract can arise from the acts and conduct of the parties. Harrison v. Williams Dental Group, P.C., 140 S.W.3d 912, 916 (Tex.App.-Dallas 2004, no pet.).

Therefore, we examine the summary judgment evidence to determine whether Citibank adduced evidence to establish the existence of an implied agreement between the parties. Citibank submitted billing statements from January 1999 to November 2006. The statements are issued to Dulong at the same billing address. There is no evidence to suggest the statements were not received. The statements reflect that when credit was available, new charges were made on the account almost every month. Payments were also made. The Affidavit states that the initial interest rate on the account is set forth on the first billing statement, and the subsequent financial terms in effect each time the card was issued are set out on each monthly statement. The credit card statements support this fact. The credit card statements also show that late fees and "over the limit" fees were periodically assessed. There is no evidence Dulong ever objected to or disputed these fees. Based on the series of transactions reflected on the account statements, it is reasonable to infer that Dulong agreed to the full amount shown on the statements and impliedly promised to pay the indebtedness.

On this record, we conclude Citibank established as a matter of law that Citibank and Dulong had an implied agreement fixing an amount due and that Dulong impliedly promised to pay Citibank the amount due. Dulong's issue is resolved against her. The judgment of the trial court is affirmed.

NEIL V AGRIS: Mailing of a bill is not enough if there is no agreement on price for the services rendered 

Neil v. Agris, 693 S.W.2d 604 (Tex.App.-Houston [14th Dist.] 1985, no writ)(overruled by Dallas Court of Appeals in Dulong without saying so)  



This is an appeal from a judgment entered against appellant in a suit on an account stated. In three points of error, appellant asserts there is no evidence of 1) a prior transaction by which appellant became indebted to appellee; 2) any agreement, express or implied, fixing the amount for the services; or 3) a promise, express or implied, to pay for the services. 

We reverse and render.

Suit was filed on a sworn account and, alternatively, account stated. The money allegedly due appellee resulted from professional services rendered by him to appellant following injuries received by her in an accident. She had never been previously treated by appellee. During trial, appellee elected to proceed only on an account stated.

An account stated has been defined as an agreement 1) between two persons who have had previous transactions, 2) fixing the amount due in respect of such transactions and 3) promising payment. H.G. Berning, Inc. v. Waggoner, 247 S.W.2d 570, 571 (Tex.Civ.App.—Beaumont 1952, no writ). At a minimum, appellee was required to prove 1) that professional services were rendered and 2) the prices charged were agreed to by appellant or that, in the absence of an agreement, the prices charged were usual, customary and reasonable. Eastern Dev. & Inv. v. City of San Antonio, 557 S.W.2d 823, 825 (Tex. Civ.App.—San Antonio 1977, writ ref'd n.r. e.).

In her second point of error, appellant contends that there was no evidence offered that she agreed to pay appellee $1700 for professional services. We agree.

At trial, appellee did not testify. While there was some discussion concerning appellee's affidavit attached to his motion for summary judgment on a sworn account, it was never offered or admitted. His sole attempt to prove an account stated was through his bookkeeper, who testified that she mailed appellant a bill which was never paid. There is no evidence in the record to show at the time the services were rendered or even subsequently that appellant agreed to pay $1700 to appellee for the professional services rendered. In the absence of an agreement fixing the price for the services, appellee was required to prove that the price charged for his services was usual, customary and reasonable; this he failed to do

We therefore sustain appellant's second point of error.

Our disposition of appellant's second point makes it unnecessary for us to pass on appellant's other points. Since appellee failed to prove an element of his cause of action at trial, appellant's motion for judgment should have been granted. We will therefore now render the judgment which the trial court should have rendered.

The judgment is reversed and here rendered that appellee take nothing.

TULLY V CITIBANK – Sworn account not a proper theory of recovery, given that were was no sale of goods or services by the creditor to the debtor 

Tully v. Citibank (South Dakota), N.A., 173 S.W.3d 212 (Tex, App. - Texarkana 2005, no pet.) 



Citibank cannot collect a credit card debt through a suit on a sworn account. A suit on a sworn account is permitted only if the claim is "founded upon an open account or other claim for goods, wares and merchandise, including any claim for a liquidated money demand based upon written contract or founded on business dealings between the parties, or is for personal service rendered, or labor done or labor or materials furnished...." TEX.R. Civ. P. 185. "A sworn account applies only to transactions between persons, in which there is a sale upon one side and a purchase upon the other, whereby title to personal property passes from one to the other, and the relation of debtor and creditor is thereby created by general course of dealing—it does not mean transactions between parties resting upon special contract." Bird v. First Deposit Nat'l Bank, 994 S.W.2d 280, 282 (Tex. App.-El Paso 1999, pet. denied). Because no title to personal property passes from the bank to the cardholder, a credit card debt is not a sworn account as contemplated by Texas Rule of Civil Procedure 185. Id. Citibank was not entitled to summary judgment based on its suit on a sworn account theory.

Second, because Citibank proved the existence of an express contract, Citibank cannot recover under the theory of quantum meruit. "Quantum meruit is an equitable theory of recovery which is based on an implied agreement to pay for benefits received." Heldenfels Bros., Inc. v. City of Corpus Christi
832 S.W.2d 39, 41 (Tex.1992).

Third, Citibank failed to prove the amount due based on the breach of contract argument.[2] Although Tully's affidavit failed to raise a fact issue,[3] Citibank failed to prove it was entitled to summary judgment. Specifically, Citibank failed to prove that the interest rate charged was agreed on by Tully.[4] The contract introduced into evidence does not specify the interest rate that was agreed on. Further, there were no notices of interest rate increases introduced into evidence. The only evidence concerning the rate of interest are the rates specified on the copies of the monthly statements Citibank sent to Tully.[5] Citibank failed to prove its damages as a matter of law. Because a genuine issue of material fact issue exists concerning the interest rates agreed on, the trial court erred in granting summary judgment. 

BIRD V FIRST DEPOSIT NATIONAL BANK - Bank debt not actionable as suit on account 

Bird v. First Deposit Nat'l Bank 994 S.W.2d 280, 282 (Tex. App.-El Paso 1999, pet. denied).



In her sole issue on appeal, Smith urges that the trial court erred in entering judgment against her because a credit card is not a sworn account as contemplated by Texas Rule of Civil Procedure 185. A sworn account applies only to transactions between persons, in which there is a sale upon one side and a purchase upon the other, whereby title to personal property passes from one to the other, and the relation of debtor and creditor is thereby created by general course of dealing—it does not mean transactions between parties resting upon special contract.[11] A credit card transaction is a "transaction in which a card that may be used for personal, family, or household use is used to debit an open-end account in connection with: (A) a purchase or lease of goods or services; or (B) a loan of money."[12] A cash advance, like the $3,500 extended on the credit card here, is clearly a loan.[13]

We find that a credit card issued by a financial institution does not create the sort of debtor-creditor relationship required in order to bring suit under Texas Rule of Civil Procedure 185. We reach this conclusion because no title to personal property passes from the bank to the cardholder; rather, the card evidences a line of credit extended by the bank which the cardholder may use to purchase goods and services from a third party. And where the transaction in question is a cash advance, there is no good or service involved at all, but a pure loan of money. An unpaid bank credit card account, therefore, creates a cause of action for the bank's money or credit advanced as a loan, but not for goods or services sold or delivered to the cardholder.[14] (This case does not involve a credit card issued directly by a provider of goods or services, such as a gasoline card or department store card. We therefore do not reach the question of whether that type of credit card debt is subject to collection by a suit on sworn account.) We find that a bank's credit card account is analogous to a promissory note, which has been specifically excluded from the definition of sworn account.[15] Thus, Texas Rules of Civil Procedure 93 and 185 do not apply to the bank's action here. The trial court's entry of judgment based solely upon Smith's failure to file a sworn denial of the bank's petition was incorrect. Accordingly, we find that Smith has met the fourth element required in a restricted appeal, error on the face of the record. We sustain her issue on appeal.

MAGIC CARPET COMPANY v. PHARR - Delivery of goods as element of account stated suit 

Magic Carpet Co. v. Pharr, 508 S.W.2d 696 (Tex.Civ.App.-Dallas 1974, no writ)


Although there is some question as to whether "account stated" is the proper term for establishing the amount due for goods or services furnished without previous agreement on the price, all authorities agree that proof of plaintiff's delivery of goods or rendition of services to defendant and defendant's acknowledgment of a certain sum as due to plaintiff is sufficient for a prima facie case, without other proof of price, value, quantity, or specific items. Dodson v. Watson, 110 Tex. 355, 220 S.W. 771 (1920); Alexander Marketing Co. v. Medford, 170 S.W.2d 809 (Tex. Civ.App.—Texarkana 1943, no writ); Central Nat'l Bank v. Cox, 96 S.W.2d 746 (Tex.Civ.App.—Austin 1936, writ dism'd); 6 Corbin on Contracts §§ 1305, 1310, 1312 (1962).

The "delivery receipt" signed by defendant shows that plaintiff delivered materials to defendant. Defendant's check of the same date payable to plaintiff for $1,070 is amply sufficient as an acknowledgment of the amount due in view of decisions holding that an implied acknowledgment of the amount due is sufficient. Graham v. San Antonio Machine and Supply Corp., 418 S.W.2d 303, 312 (Tex.Civ. App.—San Antonio 1967, writ ref'd n. r. e.); Wilson v. Clarke Floor Machine Co., 380 S.W.2d 768 (Tex.Civ.App.—Eastland 1964, no writ); Davis v. Gilmore, 244 S. W.2d 671 (Tex.Civ.App.—San Antonio 1951, writ ref'd); Peurifoy v. Hood Rubber Products Co., 59 S.W.2d 428 (Tex. Civ.App.—Eastland 1933, no writ). A check on which payment was later stopped was specifically held to be an acknowledgment sufficient to establish a stated account by the Supreme Court of Nebraska in Hansen v. Abbott, 187 Neb. 248, 188 N. W.2d 717 (1971). Consequently, a prima facie case was shown, and the trial court erred in rendering judgment for defendant on the ground of lack of evidence of a contractual relationship.

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