If one of your vendors has been overcharging you for a period of time and you have not noticed it and thereafter seek to collect that sum from the vendor, you may find the vendor raising a variety of legal defenses including ratification, waiver, and account stated. Ratification may occur if a party knows about an unauthorized act and makes no objection. The vendor in that circumstance would have to show that you knew it was billing inconsistent with the contract and that you ratified its method of calculating these charges to you. Your mere payment of the bills over time does not show ratification. The critical element of ratification is that you (including any of your employees who are entitled to act on your behalf) must have known of the billing discrepancy and despite that knowledge arranged for the payment of the vendor’s bills.
For a waiver to be a successful defense by the vendor, it must prove that you were aware that the vendor was overcharging you and you intentionally decided not to recover the overpayment thereby allowing it to continue you overcharge these amounts. This argument can be particularly compelling if it could be shown that the vendor could have terminated the business relationship earlier when it learned that you disputed the way it was calculating its charges, but you decided to keep the vendor until it provided all the services necessary.
Lastly, there is the defense account stated. This defense has been recognized in Massachusetts, but not as of yet in New Hampshire. However, that does not mean the New Hampshire state courts will not recognize it when raised. Accounts stated occurs when the parties have not determined how to calculate their obligations towards each other and one side submits a bill which sets forth how it believes the obligation is to be calculated and the other side pays the bill without objection or makes no challenge to the bill’s accuracy. An account stated cannot create a new obligation between the parties that did not exist. Therefore, if the contract itself is unambiguous as to how the charges were to be made, there is a tougher argument for the vendor to raise the defense of account stated. Furthermore, and most importantly, the vendor would have to prove that you were aware of how he was calculating the charge and you continued to pay.
All these defenses are considered equitable defenses and if the vendor is not acting in good faith because it knew its charges to you were inconsistent with the obligations under the contract and did not point that out to you, hoping that you would continue to pay these overcharged invoices, then a court may very well find that the vendor acted in bad faith and therefore had what is considered “unclean hands” and is not entitled to any equitable defenses.
For vendors who find themselves in this situation, if you believed you were billing correctly and the company continued to pay the bills consistent with your billing, the foregoing defenses may be raised.
J. Daniel Marr is a Director and Shareholder at Hamblett & Kerrigan, P.A. His legal practice includes counseling businesses and individuals on a variety of legal issues and advocating on their behalf. Attorney Marr is licensed and practices in both New Hampshire and Massachusetts. Attorney Marr can be reached at [email protected].