Opinion
F061570 Super. Ct. No. 150144
12-19-2011
WINDECKER, INC., Plaintiff and Respondent, v. JERRY MENEFEE et al., Defendants and Appellants.
Bourdette & Partners and Philip C. Bourdette; Arkin Law Firm and Sharon J. Arkin for Defendants and Appellants. Morse, Morse & Morse and Brian D. Morse for Plaintiff and Respondent.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
OPINION
APPEAL from a judgment of the Superior Court of Merced County. Ronald W. Hansen, Judge.
Bourdette & Partners and Philip C. Bourdette; Arkin Law Firm and Sharon J. Arkin for Defendants and Appellants.
Morse, Morse & Morse and Brian D. Morse for Plaintiff and Respondent.
This is an appeal from a final judgment after a trial to the court sitting without a jury. Defendants and appellants Jerry Menefee and Colleen Menefee, individually and doing business as Menefee & Sons, contend the court erred in granting judgment against them in favor of plaintiff and respondent Windecker, Inc. We disagree and affirm the judgment.
FACTS AND PROCEDURAL HISTORY
For several decades plaintiff supplied petroleum products to defendants and their farming business. Sales to defendants were of two basic kinds. First, defendants bought fuel through a cardlock facility, which is essentially a credit card issued by plaintiff for use at restricted-access, private fueling stations. Second, plaintiff delivered petroleum products to defendants' farming locations. In that case, the delivery driver prepared an invoice which he submitted to plaintiff's office manager at the end of the day. The office manager posted the invoices on the computer the next day and, at the end of the month, printed out a statement for each account. The statement reflected both deliveries and cardlock purchases; the original invoices for deliveries were attached to the statement, which was mailed to customers, including defendants. Each monthly statement itemized all unpaid charges from previous months.
Invoices contained these statements at the bottom: "RETAIN THIS INVOICE FOR YOUR RECORDS" and "A SERVICE CHARGE OF 1.5% PER MONTH (ANNUAL RATE of 18%) WILL BE CHARGED ON OVERDUE ACCOUNTS." Both the invoices and the monthly statements provided: "TERMS: NET 10 DAYS." In practice, plaintiff charged the 1.5 percent service charge on amounts unpaid 30 days after billing.
From the time they began doing business with plaintiff in 1973 through the late 1990's, defendants paid their account with plaintiff. After that time, their payments "[got] behind and [were] consistently behind until [the] action was brought," according to plaintiff's owner. Nevertheless, plaintiff continued to provide petroleum products to defendants on credit through mid-2004. By then, defendants owed a principal balance of $89,799.68 on their account, a balance defendants stipulated to at trial. Plaintiff thereafter required defendants to pay for current purchases upon delivery.
Plaintiff was an accrual-basis taxpayer and had a line of credit with its bank secured by its accounts receivable. For an accrual-basis taxpayer, a credit sale is treated as income at the time of sale, even if the charge is not subsequently paid. Conversely, when such a taxpayer "writes off" a bad debt, such a write-off reduces income in the year of the write-off. With respect to plaintiff's line of credit, the bank evaluated the creditworthiness of plaintiff on the "aging" of plaintiff's accounts receivable. As a result of these two factors, plaintiff decided to write off defendants' bill in the amount of $129,568.84 (a sum that included principal and service charges). This write-off was entered into plaintiff's accounting program effective August 12, 2004. The program did not have a function for bad debts, so the write-off was shown as three payments. (The program also limited payments to $50,000, so three entries were required to reduce the bill to zero). The next monthly statement generated by plaintiff and mailed to defendants therefore showed these "payments" and reflected a balance of zero on the account as of August 12, 2004. plaintiff's owner, John Windecker, testified that after this "zero balance" monthly statement, he began preparing and mailing to defendants a handwritten monthly statement of account showing the true balance due on the account; however, he did not retain a copy of these statements and no such statement was introduced into evidence.
The August 30, 2004, statement showed a balance due of $79.33, reflecting a cardlock charge in that amount after the write-off was credited against the earlier balance on August 12, 2004.
During a portion of the time plaintiff supplied products to defendants, plaintiff also rented a parcel of land from defendants. At one point, plaintiff subleased a portion of the property to a pallet company. The pallet company went out of business, leaving hundreds of pallets on the premises. A subsequent fire damaged the premises.
Plaintiff sued defendants on March 15, 2007, for $129,568.84 (a principal balance of $89,799.68 plus the service charges on past due amounts). The complaint contained one cause of action for breach of contract, and one cause of action on common counts which included an open book account and an account stated. Defendants filed a general denial and claimed an offset for the damage to the rented property.
The matter was tried to the court. At the end of the plaintiff's case-in-chief, the court granted judgment for defendants on the breach of contract cause of action on statute of limitations grounds. (See Code Civ. Proc., § 339, subd. 1 [two years for oral contract].) At the conclusion of the trial, the court ruled that plaintiff had failed to meet its burden of proof on the account-stated theory of the common counts cause of action. The court concluded that the only statement of account in evidence was the August 30, 2004, statement reflecting the $129,568.84 write-off and a new charge of $79.33. The court found that this exhibit was not an accurate statement of account because there was no agreement between the parties that the write-off would constitute payment on the account. Accordingly, plaintiff had failed to prove a settled account between the parties.
All further statutory references are to the Code of Civil Procedure unless otherwise indicated.
The court found in favor of plaintiff, however, on the open-book account theory. The court found that the evidence presented by plaintiff satisfied the requirements for a book account under section 337a and that the final entry in that account occurred within the requisite four-year statute of limitation period. In addition, the court determined that defendants were entitled to an offset of $10,000 for the cost of the cleanup of the rental parcel after the fire; the offset was to be taken against the principal balance on the account and the service charges adjusted accordingly. The net judgment awarded in favor of plaintiff and against defendants, jointly and severally, was $204,242.54. The amount consisted of principal minus offset plus service charges and costs.
DISCUSSION
Section 337a states: "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 a 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." Section 337a was adopted in 1959 to liberalize and simplify the common law concerning introduction of business records. (Costerisan v. De Long (1967) 251 Cal.App.2d 768, 771.) Section 337, subdivision 2, providing for a four-year statute of limitations on a book account (undefined in the statute, but one of the "common counts" under common law (see 4 Witkin, Cal. Procedure (5th ed. 2008) Pleading, § 553, pp. 680-682), was enacted as part of the original Code of Civil Procedure in 1872.
Defendants' first contention on appeal is stated in their opening brief, as follows: "The trial court relied only on Plaintiff's Exhibit 1 for its conclusion that a book account existed and what the amount owed under that book account was. But ... Exhibit 1 does not meet the legal requirements for establishing either the existence of a book account or the amount owed pursuant to the account." Characterizing exhibit 1 as a compilation prepared for trial, defendants contend the exhibit failed to embody two essential characteristics of a book account, namely, that it was prepared and maintained contemporaneously with the business transactions it purported to reflect, and that it completely reflected both credits and debits to the account. Defendants contend "the trial court's findings themselves make clear that Plaintiff's Exhibit 1 was the foundational predicate for all of [the court's] conclusions."
Defendants' contention fails for two reasons. It is true that a compilation of amounts claimed to be due from a defendant, prepared by a plaintiff for litigation purposes, does not constitute a book account. (Tsemetzin v. Coast Federal Savings & Loan Assn. (1997) 57 Cal.App.4th 1334, 1343.) And it is true that exhibit 1 consists, in part, of a compilation of debits to defendants' account with plaintiff. Defendants' argument ignores, however, the fact that exhibit 1 contained the invoices for each delivery of petroleum product to defendants. Exhibit 1 was not merely a summary or compilation, but included the underlying sources of data. Accordingly, Tsemetizin v. Coast Federal Savings & Loan Assn., supra, 57 Cal.App.4th at page 1343 is not applicable.
Second, reviewing the evidence as a whole, we are persuaded that plaintiff adequately established the existence and content of a book account. It is obvious that technology and business practices have evolved since the enactment of section 337a. The statute itself contemplates such changes, providing that a book account may be maintained not only in traditional manners but also "in any other reasonably permanent form and manner." (§ 337a.) The near ubiquity of computerized bookkeeping systems in the modern business world requires that we recognize that a book account may be maintained in "reasonably permanent form and manner" on a computer, even though the "account book" must normally be transformed into a printout for use in litigation. (See Interstate Group Administrators, Inc. v. Cravens, Dargan & Co. (1985) 174 Cal.App.3d 700, 708, fn. 4.) In the present case, plaintiff's office manager testified in detail about the manner in which she maintained accounts on plaintiff's computer system. Defendants' exhibit A, admitted into evidence, was a monthly printout from this computer-based bookkeeping system, and reflected all the essential components of a book account, particularly when correlated with the detailed delivery information (cross-referenced in the printout by invoice number) contained in the original invoices comprising exhibit 1. (See Egan v. Bishop (1935) 8 Cal.App.2d 119, 122 ["The law does not prescribe any standard of bookkeeping practice which all must follow, regardless of the nature of the business of which the record is kept. We think it makes no difference whether the account is kept in one book or several so long as they are permanent records, and constitute a system of bookkeeping as distinguished from mere private memoranda."].) Exhibit A shows, in addition to the delivery invoices contained in exhibit 1, the charges for use of the cardlock system and payments on the account by defendants. Accordingly, we conclude there was substantial evidence of a book account.
A trial court's statement of reasons for its ruling does not control. "'[A] ruling or decision, itself correct in law, will not be disturbed on appeal merely because given for a wrong reason. If right upon any theory of the law applicable to the case, it must be sustained regardless of the considerations which may have moved the trial court to its conclusion.'" (D'Amico v. Board of Medical Examiners (1974) 11 Cal.3d 1, 19.)
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Defendant also contends, however, that even if the evidence established a bookkeeping basis for a book account cause of action, there was no evidence of an agreement to supersede the oral contract between the parties. Plaintiff contends that where the parties have initially entered into an express contract, sums due under that contract do not become a book account in the absence of a contrary agreement between the parties. (See Tsemetzin v. Coast Federal Savings & Loan Assn., supra, 57 Cal.App.4th at pp. 1343-1344.) Tsemetzin was a suit for past-due rent under a written lease. There was no agreement or course of dealing in that case pursuant to which the landlord carried forward an open account for the tenant. (Id. at pp. 1338-1341.) By contrast, the normal book account involves the supply of goods or services on credit, and maintenance of an account balance for sums not paid. A book account can be established by an express contract, such as pursuant to the terms of a credit application, by oral contract, or through a course of dealing between the parties. (See Warda v. Schmidt (1956) 146 Cal.App.2d 234, 237.) Here, even if goods were supplied pursuant to an oral contract in each particular instance (for example, if defendants called to order diesel fuel from plaintiff), the course of dealing between the parties established an implied agreement that plaintiff would maintain a book account for defendants. (In addition to monthly statements received by defendants without protest, defendant made a payment on the open account on April 15, 2004.) This course of dealing is sufficient to establish plaintiff's right to sue on a book account. (Id. at pp. 237-238.)
Finally, defendants contend that even if the evidence established a book account, plaintiff was not permitted to "look behind" the book account and show that the amount due on the account differed from the balance stated in plaintiff's records. Thus, defendants argue, because plaintiff's computer records (exhibit A, the monthly statement for August 30, 2004) show "payment" of the outstanding balance of $129,568.84 on August 12, 2004, plaintiff should not be allowed to prove that such payments did not occur. Defendants contend: "[T]here is not one case - not one - that supports [plaintiff's] assertion that a court is permitted to rely on oral testimony to 'fill in the gaps' in the accounting records in order to decide whether ... the amounts recorded in the purported book account are complete and accurate. Indeed the case law is directly to the contrary," citing Robin v. Smith (1955) 132 Cal.App.2d 288.
Robin v. Smith, supra, 132 Cal.App.2d 288 is inapplicable. In that case, an estate sued the defendant on a book account, contending the decedent had loaned money to the defendant. (Id. at p. 289.) The decedent, however, did not maintain a system of accounts receivable, nor did his records show an account for the defendant. (Id. at p. 291.) The only evidence in the decedent's records of transactions with the defendant consisted of checks payable to the defendant, with no notations or other information on them. (Id. at p. 290.) The estate argued on appeal that the payments "were classified as accounts receivable in the [outside] auditor's working papers which were prepared semiannually" by the decedent's auditor. (Id. at pp. 291-292.) On those facts, the appellate court concluded: "[T]he existence of a book account is not established by extrinsic reference to 'working papers' of an auditor prepared semiannually which are neither introduced in evidence nor form a part of the creditor's bookkeeping system as such. The record of the transaction creating the account between the parties must appear from the account books of the owner of the demand in such form as will show an account was actually being kept. Such was not the case here." (Id. at p. 292.)
In the present case, the book account was maintained by plaintiff in the ordinary course of business and provided a basis from which the amount due on the account could be calculated. Defendants have cited no authority, and we have found none, for the proposition that an error in the statement of account cannot be corrected by the court upon proof that the error changes the balance shown on the face of the account. In Interstate Group Administrators, Inc. v. Cravens, Dargan & Co., supra, 174 Cal.App.3d at page 709, the question was whether the account debtor should be able to contest particular charges or payments on the account. The court held that the debtor was entitled to do so, and upon proof that the book account was in error, the account "should be adjusted to give appellant additional credit for the sums erroneously paid." (Ibid.)
The goal in litigation on a book account is to determine the amount actually owed, not merely to establish the formality of a number on a page (or in a computer memory). We can see no reason in law or logic why a plaintiff should not be entitled to present evidence that an entry in the book account is not as it appears to be on the face of the account. Doubtless, in many instances such testimony would be unconvincing to the finder of fact. Here, the explanation that the computer program would not permit plaintiff to make entries that distinguished between actual payments and write-offs of bad debts was credible. Further, it was believed—in the face of a wholly implausible contrary explanation by defendants—by the trial court sitting as finder of fact. We conclude substantial, admissible evidence supports the judgment.
DISPOSITION
The judgment is affirmed. Plaintiff is awarded costs on appeal.
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DETJEN, J.
WE CONCUR:
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WISEMAN, Acting P.J.
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POOCHIGIAN, J.