Maggio, Inc. v. Neal (196 Cal. App. 3d 745, 1987)

Opinion

WIENER, Acting P. J.

—Plaintiff Maggio, Inc. sued defendant James E. Neal, its former vice president for marketing, to recover $69,000 loaned to Neal during his employment. Neal denied liability claiming the money constituted nonreimbursable advances against bonuses. Following a reference under Code of Civil Procedure section 638, a retired superior court judge sitting as a referee rejected Neal’s argument and decided in favor of Maggio for the entire amount. The referee also determined that since the loans constituted an open book account and an account stated they were not barred by the two-year limitations period of section 339. The court adopted the referee’s findings and recommendations and entered judgment in favor of Maggio for $69,000 plus interest. Neal appeals from the judgment.

We conclude there is substantial evidence to support the finding that the sums advanced were loans which Neal was obligated to repay. We decide, however, that the court erred in accepting the referee’s conclusion the advances constituted an open book account and an account stated subject to the four-year limitations period of section 337. Applying the two-year statute of limitations requires a $24,000 reduction of the judgment. As so modified we affirm the judgment.

Factual and Procedural Background

Neal began working as a salesman for Maggio in September 1978, about two years after the corporation was formed. Maggie’s business, headquartered in Holtville, California, was growing an judicial acceptance of the enhanced reliability of record keeping in the context of a debtor-creditor relationship where the parties are aware of that relationship and there is, in fact, an account between them. Conversely, there is no reason to extend the limitations period where the creditor acts in a self-serving manner by creating what is in effect a private record of an account without informing the debtor. There is also no reason to permit a creditor to bootstrap this private account into an account stated by merely mailing a summary of accounts allegedly due to the debtor and treating the debtor’s silence as acceptance.

A.

Neal argues there are two fatal deficiencies in the evidence supporting the finding of a book account. First, the evidence fails to show the physical records kept by respondent constitute an open book account as defined in section 337a. Second, the parties did not treat the sums due as a book account.

In deciding whether a book account exists the court must examine the agreement, or lack of agreement, between the parties and their conduct in the context of their commercial dealing. The mere incidental keeping of accounts does not alone create a book account. (H. Russell Taylor’s Fire Prevention Services, Inc. v. Coca Cola Bottling Corp. (1979) 99 Cal.App.3d 711, 728 [160 Cal.Rptr. 411].)

Here there is no evidence of an agreement between the parties that the loans to Neal would be carried as a book account. Nor does the conduct of the parties show that they intended or expected such an account would be created. Accordingly, there is insufficient evidence to support the finding of an open book account.

B.

Neal also asserts there was insufficient evidence to support the finding that an account stated existed between the parties because Neal never agreed that he owed $69,000 to Maggio.

An account stated is an agreement, based on prior transactions between the parties, that the items of an account are true and that the balance struck is due and owing. (Gleason v. Klamer (1980) 103 Cal.App.3d 782, 786 [163 Cal.Rptr. 483].) To be an account stated, “it must appear that at the time of the statement an indebtedness from one party to the other existed, that a balance was then struck and agreed to be the correct sum owing from the debtor to the creditor, and that the debtor expressly or impliedly promised to pay to the creditor the amount thus determined to be owing.” (H. Russell Taylor’s Fire Prevention Service, Inc. v. Coca Cola Bottling Corp., supra, 99 Cal.App.3d at p. 726.) The agreement necessary to establish an account stated need not be express and is frequently implied from the circumstances. When a statement is rendered to a debtor and no reply is made in a reasonable time, the law implies an agreement that the account is correct as rendered. (Zinn v. Fred R. Bright Co. (1969) 271 Cal.App.2d 597, 600 [76 Cal.Rptr. 663, 46 A.L.R.3d 1317]; California B.G. Ass'n v. Williams (1927) 82 Cal.App.434, 442 [255 P. 751].)

Actions on accounts stated frequently arise from a series of transactions which also constitute an open book account. (See, e.g., Zinn v. Fred R. Bright Co., supra, 271 Cal.App.2d 597; Sure-Grip Skate Wheel Co., Inc. v. Bergin (1962) 208 Cal.App.2d 562 [25 Cal.Rptr. 413].) However, an account stated may be found in a variety of commercial situations. The acknowledgement of a debt consisting of a single item may form the basis of a stated account. (Jeanese, Inc. v. Surety Title & Gty. Co. (1959) 176 Cal.App.2d 449 [1 Cal.Rptr. 752, 9 A.L.R.2d 495] (action against title company following demand letter for amount due on second trust deed where defendant trustor had mistakenly reconveyed property).) The key element in every context is agreement on the final balance due. (See 1 Witkin, Summary of Cal. Law (9th ed. 1987), Contracts, § 917, p. 820.)

Here, there is no evidence that Neal knew that he was indebted to Maggio or that he was aware that Maggio was maintaining an account which showed his increasing indebtedness. Certainly Neal’s later failure to respond to letters sent in April and June cannot be viewed as acquiescence in light of the advice he received from his counsel. Thus there is insufficient evidence to establish an agreement on the balance due.

Our conclusion is simply another way of saying that Maggio did not satisfy its burden of proving Neal’s debt was an account stated. Placing this burden on Maggio is only reasonable since Maggio could easily have avoided any loss by informing Neal on the occasion of each advance and/or on a regular basis thereafter that the advances were loans which Maggio expected to be repaid at some future date but in any event on termination of Neal’s employment. It is the employer’s responsibility to define the employment relationship in explicit terms. When the employer fails to do so, as Maggio has done here, it is reasonable that it, not the employee, should bear the risk of loss.

Ill

Dispostion

The judgment is modified by reducing the principal amount to $45,000 and as modified the judgment is aflirmed. The parties to bear their respective costs on this appeal.

Butler, J., concurred.

Unless otherwise specified all statutory references are to the Code of Civil Procedure.

Section 337a provides: “The term ‘book account’ means a detailed statement which constitutes the principal record of one or more transactions between a debtor and a creditor arising out of a contract or some fiduciary relation, and shows the debits and credits in connection therewith, and against whom and in favor of whom entries are made, is entered in the regular course of business as conducted by such creditor or fiduciary, and is kept in a reasonably permanent form and manner and is (1) in a bound book, or (2) on a sheet or sheets fastened in a book or to backing but detachable therefrom, or (3) on a card or cards of a permanent character, or is kept in any other reasonably permanent form and manner.”

See footnote, ante, page 745.

BENKE, J., Concurring and Dissenting

—I concur in the opinions expressed by the majority except as to the question of the existence of an account stated. I believe the record supports the conclusion an account stated does exist.

The agreement necessary to establish an account stated need not be expressed and is frequently implied from the circumstances. Further, when a statement is rendered to a debtor and no reply is made within a reasonable time, the law implies his agreement that the account is correct as rendered. (Zinn v. Fred R. Bright Co. (1969) 271 Cal.App.2d 597, 600 [76 Cal.Rptr. 663, 46 A.L.R.3d 1317]; California B. G. Ass'n v. Williams (1927) 82 Cal.App. 434, 442 [255 P. 751].) I would not diminish the application of these rules because an employer-employee relationship, rather than a commercial transaction, is involved.

In late 1983, Carl made two telephone calls to Neal concerning repayment of the advances. During both telephone conversations, Neal did not deny owing money to the corporation based on the advances and, indeed, expressly stated that something could be worked out. In April and June of 1984, letters were sent to Neal requesting repayment of the $69,000 in advances. No responses were made to these requests. Neal’s failure to reply to the letters of April and June 1984 was an implied agreement that the statements were correct as rendered. In fact, Neal presented no dispute to Carl regarding the existence of this debt until he responded to the case filed against him by Carl. I would thus afiirm the lower court’s conclusion an account stated has been demonstrated.