Creditor’s Causes of Action

If someone owes you money, under what theory will you sue the debtor?  The following article discusses the various causes of action to bring against a debtor.  In nearly all cases, the suit will be brought under a suit on a sworn account with various alternative theories as backup. This article discusses various causes of action that are available to the creditor.  In our cases, we pretty much plead all of them.

Suit on a Sworn Account

A suit on a sworn account is a claim that is based upon almost any claim for debt between the parties.  It is a claim upon any open account or other claim for goods, wares, and merchandise, including any claim for a liquidated money demand based upon written contract or is founded on business dealings, or is for personal services, or is for labor done, for materials on which a systematic record has been kept. It is an all encompassing broad basis to bring a law suit.

A sworn account is a creditor’s preferred cause of action. Its advantage is, absent a sworn denial, it is self-proving and entitles the creditor to judgment on the pleadings.  A defendant, debtor, who does not file a sworn denial to a suit on a sworn account cannot dispute the accuracy of the charges.  It is a rare creditor’s suit that should not be based upon a sworn account.

In days gone by, a suit on a sworn account required the sale of personal property.  As a result, there are numerous questionable cases in which the issue is whether the transaction is a sworn account.  These cases are based upon Texas Revised Civil Statute Article 2226 which has been supplanted by Texas Rules of Civil Procedure Rule 185 and Texas Civil Practice and Remedies Code Chapter 38.  The clear language of Rule 185 makes the suit on a sworn account applicable to personal services rendered, labor, materials, and business dealings between the parties.  The sale of personal property is no longer required for a suit on a sworn account. This distinction is critical because someone may bring to court these cases and try to pursued a judge that they apply.

Texas Rules of Civil Procedure 185 states as follows:

“When any action or defense 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, on which a systematic record has been kept, and is supported by the affidavit of the party, his agent or attorney taken before some officer authorized to administer oaths, to the effect that such claim is, within the knowledge of affiant, just and true, that it is due, and that all just and lawful offsets, payments and credits have been allowed, the same shall be taken as prima facie evidence thereof, unless the party resisting such claim shall file a written denial, under oath. A party resisting such a sworn claim shall comply with the rules of pleading as are required in any other kind of suit, provided, however, that if he does not timely file a written denial, under oath, he shall not be permitted to deny the claim, or any item therein, as the case may be. No particularization or description of the nature of the component parts of the account or claim is necessary unless the trial court sustains special exceptions to the pleadings.”

Rule 185 requires an affidavit to be filed with the petition.  The affidavit must contain specific required language.  If it does not, there is no suit on a sworn account.

The Defendant must answer the suit on a sworn account with a sworn statement that denies the claim.  If he, she or it does not, they will not be permitted to deny the claim.  Nearly any sworn denial is sufficient, but a sworn general denial is insufficient to satisfy the requirements of the rule.  If the Defendant fails to properly deny the account, the Defendant may not dispute the receipt of items or services, or the correctness of the charges or ownership of the account.

However, some affirmative defenses that are not inconsistent with the accuracy of the account.  Often referred to as affirmative defenses in Rule 93, verified pleas in Rule 94 and Rule 95 – payment.  For example, the failure of consideration or statute of limitations defense can be raised in the absence of a verified denial.

Suit on an Account Stated

“An account stated is an agreement between parties who have had previous transactions of a monetary character that all the items of the account representing such transactions, and the balance struck, are correct, together with a promise, express or implied, for the payment of such balance.”  Eastern Development, 557 S.W.2d 823 (Tex.App. – San Antonio).  The essential elements of an ‘account stated’ are transactions between the parties [which] give rise to an indebtedness to the other. It is an agreement, express or implied, between the parties fixing the amount due; and a promise, express or implied, by the one to be charged, to pays such indebtedness.” Continental Cas., Co. 416 F.Supp.2d 497 (US Dist, N.D. Texas). To bring an action on an account stated, it would be incumbent on the plaintiff to allege in his petition that the defendant admitted the correctness of the account and that he expressly or impliedly assented to it.” Unit Inc. 524 S.W.2d 330 (Tex.App. – Dallas).  Essentially, an account stated is an agreement between parties that gave rise to a debt where both parties agree that the amount is due.  Silence can be construed that an amount is due and that the amount due is correct.

Suit on Quantum Meruit or Unjust Enrichment

“So I did something for somebody, we didn’t have a contract, but they are sure enjoying the benefit of it.”  This is a claim in Quantum Meruit.  “They (the debtor) are enjoying the benefit of my work.”  In all of our cases, as an alternative cause of action we plead Quantum Meruit. It arises out of equity or fairness. In the event our suit fails in sworn account or contract, we can bring a quantum merit cause.

Quantum Meruit is an equitable remedy (a fairness remedy) which does not arise out of a contract, but is independent of it.  Generally, a party may recover under quantum meruit only when there is no express contract covering the services or materials furnished. It is based upon the promise implied by law to pay for beneficial services rendered and knowingly accepted. Recovery in quantum meruit will be when non-payment for the services rendered could “result in an unjust enrichment to the party benefitted by the work.”

To recover in quantum meruit the Plaintiff must plead and prove that (1) services were rendered and materials furnished; (2) for the person sought to be charged; (3) which services and materials were accepted by the person sought to be charged, used and enjoyed by him; (4) under such circumstances that the Plaintiff expected to be paid.

Suit on Money Had and Received

Again, a suit in equity where one person obtains money which belongs to another. A cause of action for money had and received is less restricted and fettered by technical rules and formalities than any other form of action.  “It aims at the abstract justice of the case and looks solely to the inquiry whether the defendant holds money which belongs to the plaintiff.”  United States v. Jefferson Elec. Mfg. Co. 291 U.S. 386.  Money had and received claim also reaches property purchased with the money.

The Guaranty

A guaranty is an agreement where one person guarantees payment.  It is where a person assumes the responsibility of assuring payment of another’s debts and obligations.  You see this very often in auto loans or apartment leases. Creditors prefer a guarantee because it provides liability against the guarantor.  “Under a guaranty of collection, the guarantor agrees to pay if the debt cannot be collected from the maker by the use of reasonable diligence. Ford, 767 S.W.2d 851 (Tex.App. – Dallas 1989)  Other courts hold that the holder of the note does not need to take any action preliminary action against the maker as a condition precedent to the guarantor’s liability.  Hopkins, 551 S.W.2d 343 (Tex. 1977).

See Texas Business and Commerce Code §3.419(e)

“If the signature of a party to an instrument is accompanied by words indicating that the party guarantees payment or the signer signs the instrument as an accommodation party in some other manner that does not unambiguously indicate an intention to guarantee collection rather than payment, the signer is obliged to pay the amount due on the instrument to a person entitled to enforce the instrument in the same circumstances as the accommodated party would be obliged, without prior resort to the accommodated party by the person entitled to enforce the instrument.”

A guaranty may be continuing or specific. “A continuing guaranty contemplates a future course of dealing between the lender and debtor, and the guaranty applies to other liabilities as they accrue.  A specific guaranty applies only to the liability specified in the guaranty contract.  A guarantor may require that the terms of his guaranty be followed strictly, and the guaranty agreement may not be extended beyond its precise terms by construction or implication.” Beal Bank, SSB, 227 S.W.3d 187 (Tex.App. – Houston (1st Dist.) 2007).

Guaranties are strictly construed. The Texas Supreme Court said: “It is well settled . . . that a guarantor may rely and insist upon the terms and conditions of his guarantyship being strictly followed, and if the creditor and principal debtor vary in any material degree the terms of their contract, then a new contract has been formed, upon which the guarantor is not obligated or bound. McKnight, 463 S.W.2d 428 (Tex. 1971.) In Smith, an 1848 Texas Supreme Court case, “his obligation (guarantor) does not extend one jot or tittle beyond what is ‘nominated in the bond’.  The guarantee is strictly construed and may not be extended by construction or implication.

A guaranty is unenforceable unless it is in writing and signed by the person to be charged.  There cannot be a verbal guarantee (“Oh yes, I’ll guarantee payment” – is unenforceable and is no guaranty).

In summary:  a guarantee is an agreement where one party guarantees payment to another which may be a specific amount or a continuing amount but must be strictly construed such that any modification of contract creates a new contract in which the guarantor is not obligated.