I continued to be amazed at the inability of banks to produce a copy of the actual credit card agreement signed by their customers when suing on a defaulted account.  The inability or unwillingness to produce a signed agreement is truly astounding. How can a bank obtain a judgment for a debt on a written contract without production of the contract itself?

The answer to that question is that banks are allowed to rely on the monthly billing statements they send their customers as proof of the debt without having to produce a signed copy of the written agreement. This action is called an Account Stated lawsuit, and for the first time the Nebraska court system has issued a ruling specifically allowing these lawsuits to proceed in the case of American Express Centurian Bank v. Scheer, 25 Neb. App.784 (2018).

In Scheer the trial court awarded American Express a judgment on 3 credit card accounts totaling $72,197.11.  It is important to note that Scheer was sued not by a junk debt buyer that purchases a list of delinquent accounts with little supporting documentation other than the name, address and amounts owed by various individuals.  Rather, Scheer was sued by American Express Centurion Bank itself and they still could not or would not produce a copy of the written contract in court.

Sheer responded to the lawsuit and offered 17 affirmative defenses included claims of being charged a usurious interest rate. Unfortunately, Sheer did not offer any evidence to the court and did not appear to demand production of any documentation from American Express during the lawsuit.  It appears that Scheer merely responded to the lawsuit and did nothing more.

American Express filed a Motion for Summary Judgment and offered affidavits attaching monthly billing statements and account histories. Scheer’s attorney filed no objections to admitting these affidavits into evidence.  The trial court awarded judgment on the motion and Sheer filed this appeal.

The Court of Appeals provided a summary of the legal history of account stated lawsuits in Nebraska:

  • An “account stated” is an agreement between persons who have had previous dealings determining the amount due by reason of such transactions. Sherrets, Smith v. MJ Optical, Inc., 259 Neb. 424, 610 N.W.2d 413 (2000).
  • An account stated creates a new cause of action in which pleading and proof of the original items of indebtedness are unnecessary.
  • The creditor in a valid account stated may recover thereon without pleading and proving the original items of the indebtedness. In re Estate of Black, 125 Neb. 75, 249 N.W. 84 (1933).
  • The failure to object to an account stated is admissible in evidence as tending to prove an acknowledgment of its correctness. Proof of an express promise to pay is not required. John Deere Co. of Moline v. Ramacciotti Equip. Co., 181 Neb. 273, 147 N.W.2d 765 (1967).

A glaring omission in this case history cited by the Court of Appeals is the case of B.C. Christopher & Co. v. Danker, 196 Neb. 518 (1976)In that case the Nebraska Supreme Court stated that “an account stated should be set aside if the case is to be tried on the original claims upon which it is based.”

The Danker was relying on the case of Andrews Electic Copany v Farm Automation Inc. 188 Neb. 669 (1972), a case involving a written agreement between a general contractor and a subcontractor.  The subcontractor (Andrews) sued under various theories including breach of contract, account stated and an open account.  The Nebraska Supreme Court stated that “An account stated is a contract to pay a stated sum.  It must ordinarily be set aside in order for the original claims upon which it is based to be tried.

Got that?  In two Nebraska Supreme Court opinions the court said that an account stated cause of action should be set aside in order to try the case upon the original claims.  And what is the original claim?  The breach of the written contract.  In other words, if an express written contract exists between two parties, the case should be tried upon the contract, not upon the stated account.

Neither the Danker nor the Andrews Electric opinions are cited by the Nebraska Appeals Court in the Scheer case. How did that happen? The two most relevant and controlling cases governing account stated lawsuits in Nebraska are not even referenced in the Scheer opinion nor in the briefs filled by the parties.  Amazing.

The Danker and Andrews Electric cases make it clear that the account stated theory of recovery should only be utilized when an express agreement between two parties does not exist and liability must be determined by reference to an ongoing record.

To make matters worse, the Appeals court went on to make several more incredible statements.

Because an account stated creates a new cause of action in which pleading and proof of the original items of indebtedness are unnecessary, American Express was not required to prove the underlying transactions.

Wait.  It gets worse.

An account stated is not subject to the usual defenses attacking the original items of indebtedness, but is subject to the defenses of usury, fraud, and mistake.

What does this statement mean?  It is not subject to the usual defenses attacking the original terms of indebtedness? Does this mean that the terms of a written contract are disregarded if a debtor fails to object to the stated account? The stated account triumphs over the written contract when no objection to the statement is registered? For example, if my written contract with the bank calls for interest at the rate of 9% but an employee erroneously enters the  rate as 90% percent and I fail to notice this error on my statement, am I now stuck paying 90% interest even though my contract says 9%?

And, it gets even worse.

Therefore, once American Express presented a prima facie case of an account stated, the burden of proof shifted to Scheer to prove that no agreement as to the amount owed existed. Absent evidence to dispute the existence of an account stated, Scheer was left to his affirmative defenses of usury, fraud, and mistake.

The burden of proof shifted to the defendant to prove that no agreement as to the amount owed existed? How exactly does one prove that an agreement does not exist? How can any defendant prove that “no agreement as to the amount owed existed?” How does one prove a negative?

The effect of this decision is to take away a defendant’s right to prove that a billing statement is not in compliance with the underlying written contract, and that is exactly what the court in Danker and Andrews Electric did not allow.

The court also seems to be oblivious to the highly regulated nature of credit card agreements. Federal and state laws require credit card agreements to be in writing and they specifically prevent banks from charging fees in excess of the written agreements.  The court has effectively cancelled the federal Truth in Lending Act by declaring that monthly billing statements govern and that written contracts don’t matter.  Defendant Scheer was not even allowed a trial to demonstrate how the monthly statements may conflict with actual contract between the parties.

I sign a contract with you to cut your grass for $20.  I perform the service and then I mail you a statement for $200.  You fail to object to my statement.  Maybe you don’t even open the mail.  Maybe you are depressed or are going through a divorce or perhaps you even moved away.  Do you owe me $20 or $200?


Image courtesy of Flickr and Jason Rogers.