Opinion
No. 22560-3-II
January 11, 1999.
Appeal from Superior Court of Grays Harbor County, No. 95-2-00905-7, Hon. F. M. McCauley, September 29, 1997, Judgment or order under review.
Michael E. Clift, Mason Co Deputy Pros Atty, for Appellants.
Stephen T. Whitehouse, Attorney At Law, for Respondent.
Mason County appeals a summary judgment that declared illegal its Resolution 50-95. Resolution 50-95 imposed a fee upon Rustlewood residents that was intended to recoup the County's past expenditures for Rustlewood's sewer and water system; these expenditures were made from a joint account into which residents of Hartstene Pointe, a separate residential development, had paid a disproportionate share of fees. The trial court ruled that the Rustlewood residents' past payment of their Mason County utility bills constituted an account stated, barring the County's recovery of such funds. Holding that the Accountancy Act, RCW 43.09.210, prohibits the use of Hartstene Pointe's funds to benefit Rustlewood, we reverse.
FACTS
Rustlewood is a planned unit development located in Mason County (the County). The Rustlewood Homeowners Association operated the sewer and water system that serves Rustlewood until 1975, when Mason County assumed operation of the system. Hartstene Pointe and Beard's Cove are two other Mason County planned developments, whose sewer and water systems the County also operates. The County maintained a separate fund for each of the three systems: Rustlewood residents paid into the Rustlewood fund; Hartstene residents paid into the Hartstene fund; and Beard's Cove residents paid into the Beard's Cove fund. Maintenance and operating costs for each system were paid separately from each fund as needed.
In 1980 Mason County adopted Resolution No. 1106, which created a single fund for operating and maintaining the three systems; all revenues from each of the three separate funds were transferred into the new combined fund. The resolution required the County to maintain accounting for all receipts and expenditures and to keep separate subsidiary accounts for each of the three systems. State law also requires that separate accounts be kept for each public service industry, department, or improvement. RCW 43.09.210.
In 1992, Mason County discovered an error. Since 1984, the County had spent more money maintaining and operating the Rustlewood and Beard's Cove systems than it had collected from Rustlewood and Beard's Cove residents, and less money on the Hartstene Pointe system than it had collected from Harstene residents. To remedy this illegal inequity, the County enacted Mason County Resolution No. 50-95 (the Resolution).
The Resolution proclaimed that Rustlewood residents were beneficiaries of $113,557 paid into the fund by Hartstene Pointe residents. Believing that these fees could be used to benefit only the fee payers, the County concluded that Rustlewood owed Hartstene Pointe the overage. To repay the overage, the County imposed upon Rustlewood residents an additional monthly fee of $11.33 for a five year period.
Beard's Cove residents repaid the common fund $35,000, its share of the overage; that claim is not a part of this action.
Rustlewood residents brought suit to enjoin Mason County from enforcing the Resolution and to declare it invalid. They alleged that the County's actions violated state law and 42 U.S.C. § 1983. Rustlewood moved for partial summary judgment on several grounds: (1) The fee was an illegal rate, in violation of RCW 36.94.140 and the Washington State Constitution. (2) The fee was to collect for past due amounts and, as such, was barred by the contract doctrine of account stated based on Sunnyside Valley Irrigation District v. Roza Irrigation Dist., 124 Wn.2d 312, 877 P.2d 1283 (1994). (3) Equitable estoppel barred the County from "assessing higher amounts to recover alleged past due amounts." (4) The statute of limitations barred collection of such past due money. (5) The fee constituted an illegal ex post facto law.
Mason County also moved for summary judgment, arguing: (1) the Resolution did not set a sewer/water system rate because it expressly assessed the recoupment fee in addition to the existing monthly rate; (2) the County had authority to enact the Resolution based on its statutory power to manage utility districts and was required to do so by RCW 43.09.210, the Accountancy Act; (3) even if the Resolution set a retroactive rate, the doctrine of account stated did not apply to this non-contract action, and the statute of limitation applies only to court action, not to County actions to assess fees.
On November 8, 1996, the trial court granted partial summary judgment to Rustlewood. The court ruled that: the law governing an account stated, particularly Sunnyside, precludes defendant from making claims relating to sewer and water bills paid long ago, as was done by Mason County Resolution 50-95; and, therefore, the court need not consider plaintiffs' other legal arguments. The court declared the Resolution illegal and enjoined the County from enforcing it or from assessing plaintiffs for the charges reflected in the Resolution.
On March 24, 1997, Rustlewood amended its complaint, seeking attorney fees under a common fund theory and under 42 U.S.C. § 1983 and 1988. Rustlewood then moved for attorney fees and costs. The court denied Rustlewood's motion, stating there was no common fund preserved nor were public funds protected by the plaintiffs' action. Regarding the §§ 1983 and 1988 claims, the court "did not determine that there was a violation of federal law that would allow the award of attorney's fees."
Mason County appeals the summary judgment order; Rustlewood appeals the denial of attorney fees.
ANALYSIS I. Account Stated
The contract doctrine of "account stated" is a method to determine the amount of a debt, generally asserted as a defense in a contract action. Northwest Motors, Ltd. v. James, 118 Wn.2d 294, 304, 822 P.2d 280 (1992), citing Goodwin v. Northwestern Mut. Life Ins. Co., 196 Wn. 391, 410, 83 P.2d 231 (1938). Typically, periodic residential utility debts do not constitute an account stated because single item liquidated debts for a sum certain do not often qualify for this defense. 6 Arthur Linton Corbin, Corbin on Contracts, § 1304 (1962). An account stated does not discharge any underlying obligations, Corbin, § 1308, whereas an accord and satisfaction, discharges the underlying obligation. Northwest Motors, 118 Wn.2d at 303-04.
The account stated was designed to deal with complex accounting issues; simple sums certain rarely qualify. Corbin, § 1303. Accounts stated concern open accounts, where the amount a party owes at a given moment is difficult, if not impossible, to fix precisely. Corbin, § 1303. When a party in such a financial relationship presents an accounting and the other party assents to its correctness, the accounting is accepted as the debt owed; this agreement, explicit or implicit, constitutes an account stated. Corbin, § 1303. Mutual assent to the accounting is necessary. As explained by the Washington Supreme Court, "{I}t must be mutually agreed between the parties that the balance struck thereon is the correct amount due from the one party to the other on the final adjustment of their mutual dealings to which the account relates." Shaw v. Lobe, 58 Wn. 219, 221, 108 P. 450 (1910).
Arthur Corbin further explains that:
Persons who carry on business with each other often have a series of transactions constituting an open running account with various items of debit and credit. For long periods neither one may know which one is actually indebted to the other. Under such circumstances, they may get together and compare their books and their memories, cast up their mutual accounts, and strike a balance. In Latin phrase, they were formerly said to have accounted together — insimul computassent. Assumpsit lay for the recovery of the balance so found due, before the development of many of the principles of present-day contract law.
. . . .
Common illustrations of such accounts, with recurring debits and credits, are those between banker and depositor, between customer and grocer or department store, between principal and agent, and between partners in business. In all such cases, if the items are liquidated in money, one of the parties is a debtor to the other in an amount that can be determined at any time by an accounting process. The amount of the debt is the balance of debits over credits. The debt becomes due and payable only as the parties may have agreed; this may be in installments or as a whole, at regular intervals or as demanded by the presentation of drafts or statements of account.
Corbin, § 1303 at 234.
The facts of Sunnyside, cited by the trial court, demonstrate how the doctrine of account stated relates to contract actions. In contracts with the United States Bureau of Reclamation, Sunnyside was to perform irrigation construction and rehabilitation work, and Roza was to pay 60 percent of the construction costs. Once the work was completed, Roza was to pay Sunnyside 50 percent of the maintenance costs based on annual estimates. Roza paid the maintenance bills presented by Sunnyside for ten years. Then, after ten years, Roza complained of poor maintenance and excessive costs, and refused to pay Sunnyside. Sunnyside sued Roza in contract; Roza counterclaimed that it had paid excessive maintenance costs. Sunnyside, 124 Wn.2d at 312-14.
A close look at the contract relationship between Roza and Sunnyside demonstrates how account stated was a valid defense against Roza's counterclaim. The amount Roza was to pay Sunnyside was based on yearly estimates. Even though Sunnyside billed Roza for maintenance actually performed, such bills were part of an ongoing open account, the daily balance of which could only be ascertained by accounting procedures. Thus, when Roza assented to the accounting by paying the bills without protest, Roza in effect agreed to Sunnyside's accounting and the doctrine of account stated barred Roza's contract claim to recover alleged excessive costs. The court held that there was no evidence before the trial court that Roza had paid the bills under protest, and thus Roza had constructively assented to the accounting presented by Sunnyside. Sunnyside, 124 Wn.2d at 318.
The contract doctrine of account stated allows the court to impute a debt amount to a contract transaction in lieu of an express agreement by the parties. Sunnyside, 124 Wn.2d at 317-18. The account stated is prima facie evidence of the amount due. Corbin, § 1308; Housing Authority of County of King v. Northeast Lake Washington Sewer and Water Dist., 56 Wn. App. 589, 596, 784 P.2d 1284, rev. denied 115 Wn.2d 1004 (1990).
A. Account Stated Inapplicable
We agree with the County that the doctrine of account stated does not apply in this setting. The facts here differ significantly from the facts in Sunnyside, upon which the trial court relied in reaching its conclusion. First, we analyze the relationship between Mason County and the Rustlewood residents to determine the nature of the transaction. Account stated applies between debtor and creditor; it allows the court to impute a contract debt where none was expressly stated. Sunnyside, 124 Wn.2d at 317-18. With regard to utility bills, Rustlewood residents are debtors, owing monthly sums to the County, the creditor. But the doctrine of account stated is usually asserted as a defense in contract actions; this action is not one in contract but rather is an action challenging the legality of the Resolution that the County enacted. The County is not suing Rustlewood in contract to recover a debt, but instead has enacted a new fee, the legality of which Rustlewood contests.
The transactions between the Rustlewood residents and the County do not constitute an account stated. First, the billing and paying of utility bills is not analogous to an open account: There is no need for complex accounting procedures; the amount due is known by the parties at all times; and the amount due is set by statutory procedure. RCW 36.94.140. Thus, the County is not presenting an accounting to the Rustlewood residents for approval; neither party can dispute the amount, which is fixed by statute, RCW 36.94.140; and there being no dispute, there is no implied consent based on paying the bills and no mutual agreement to constitute an account stated.
In Sunnyside, the creditor presented a monthly bill to the debtor that was based on estimates and work performed, which varied month to month. Sunnyside, 124 Wn.2d 312. That transaction became an account stated because of the complexity of the transaction and the acceptance by the debtor of the creditor's accounting of that complex transaction.
B. No Defense to Errors in Accounting
Mistakes in computation, errors, and omissions can overcome the defense of account stated. Corbin, § 1310. In Plywood Marketing Associates v. Astoria Plywood Corp., we ruled that a debt unknown at the time of mutual agreement constituting the account stated was recoverable because there was no meeting of the minds over the unknown debt. Plywood Marketing Associates v. Astoria Plywood Corp., 16 Wn. App. 566, 574, 558 P.2d 283 (1976). Errors and omissions in the accounting can be asserted and will be corrected unless barred by a statute of limitations. Corbin, § 1304. Thus, even if the contract doctrine of account stated were applicable to the instant case, it would not be a defense to arithmetic mistakes, errors, or omissions, such as the County's claim that it made an accounting error in allocating utility fee proceeds. The County claims its accounting error resulted in an undercharge to the Rustlewood residents and an overcharge to the Hartstene residents.
A unilateral mistake of fact may overcome the prima facie evidence established by an account stated. Northeast Lake Washington Sewer and Water Dist., 56 Wn. App. at 596. If a utility makes a mistake in calculating a utility bill, the customer may not hold up the paid bill as an account stated when the utility sues in contract to recover the difference. Northeast Lake Washington Sewer and Water Dist., 56 Wn. App. at 596. This is true, not only because a unilateral mistake can overcome an account stated defense, but because this type of bill does not constitute the type of transaction that normally is susceptible to the defense of account stated.
The utility bills at issue here are simply re-affirmations of existing debts: the previous promise to pay the rate on a monthly basis. The monthly amount is fixed by the rate commission; the contract debt occurs when the customer agrees to take the service from the County. Thus, there is no need for the court to impute a new agreement to pay an existing debt. Such a re-affirmation confirms the underlying contract, but does not constitute an account stated. Corbin, § 1304. The trial court erred in applying the doctrine of account stated and in granting summary judgment to Rustlewood on this basis.
II. Accountancy Act
The County also argues that the Accountancy Act, RCW 43.09.210, indirectly prevents application of the doctrine of account stated because the law prohibits the County from benefiting one fund at the expense of another.
The Accountancy Act, governs accounting practices for taxing bodies, such as Mason County. It provides in pertinent part:
Separate accounts shall be kept for each department, public improvement, undertaking, institution, and public service industry under the jurisdiction of every taxing body.
All service rendered by, or property transferred from, one department, public improvement, undertaking, institution, or public service industry to another, shall be paid for at its true and full value by the department, public improvement, undertaking, institution, or public service industry receiving the same, and no department, public improvement, undertaking, institution, or public service industry shall benefit in any financial manner whatever by an appropriation or fund made for the support of another.
The terms "department, public improvement, undertaking, institution, or public service industry" are not defined. For guidance we may turn to statutes dealing with the same subject matter to infer the meaning of undefined terms. Slaughter, et al, v. Snohomish County Fire Protection Dist. No. 20, 50 Wn. App. 733, 738, 750 P.2d 656 (1988). RCW 36.94.020 deals with the same subject matter, public undertakings, and states, in pertinent part:
The . . . operation, and maintenance of a system of sewerage and/or water is a county purpose. . . . {E}very county has the power . . . to adopt, provide for . . . establish . . . add to, operate, and maintain a system or systems of sanitary sewers, including . . . facilities and services necessary for sewerage treatment and disposal, and/or system or systems of water supply. . . . Such county . . . shall have the authority to control, regulate, operate, and manage such system or systems{.}
The Attorney General addressed the necessity of establishing separate general plans for sewer/water systems in an interpretation of RCW 36.94.020:
{I}f there is no interconnection between the respective facilities thus established, and the areas served by them do not coincide, it would seem to be a severe strain upon the ordinary definition of the term `system' to describe such facilities as a single `system' for incorporation in a single `general plan.'
AGO 1972 No. 15.
Further, RCW 36.40.220 empowers the state auditor to "make such rules, classifications, and forms as may be necessary to carry out the provisions in respect to county budgets, {and} define what expenditures shall be chargeable to each budget{.}" This statute suggests the auditor has discretion to define the boundaries of separate accounts.
Interdepartmental transfers of funds can occur under specific circumstances. The Attorney General has interpreted RCW 43.09.210 as it pertains to charges between municipal public service utilities and opined that the particular circumstances of each case should be examined, but that interdepartmental transfers would rarely be allowed. The consumer should benefit from any excess payments made, rather than another public service utility. AGO 1915-16 at 379. We agree.
We find no provision of the statute which directly prohibits the loaning of moneys by one municipally owned utility to another. The mere fact, however, that the statute does not expressly prohibit such loans does not warrant the conclusion that they can be legally made. It is a question that might perhaps depend upon the particular circumstances in each case . . . Furthermore, from an examination of the statutes and the decisions of our {S}upreme {C}ourt, we think it is very doubtful whether such a loan can be made under any circumstances. We make this assertion in view of the recognized right of the consumer to have the surplus revenue of such a utility applied to the maintenance and operation thereof and the payment of securities issued against it, to the end that he may secure the service at cost. . . . There might, however, be cause for distinction in this respect between a mere temporary loan to a solvent utility and a long term loan of definite duration. . . . {T}he current rate of interest would have to be charged under any circumstances, as a loan without interest would. . . . constitute an appropriation of the funds of one utility for the financial benefit of another. . . .
We know of no provision of the statute which prohibits a municipally owned public service industry from receiving a gift from any source. We are of the opinion, however, that the city authorities cannot make such a gift. . . .
AGO 1915-16, p. 379-82. (Emphasis added.)
Accordingly, although the County could make transfers between accounts by short-term loans under a very narrow set of circumstances and with further statutory obligations, it could not forgive such loans and thereby make an unauthorized and involuntary gift from Harstene Pointe residents to Rustlewood residents. See AGO 1915-16 at 379. Rustlewood is a separate entity for state accounting purposes; the state auditor has characterized it as such. Harstene Pointe has not made a statutorily sanctioned loan or gift to Rustlewood. The County is required by law to collect from Rustlewood residents fees for services received but erroneously funded by Harstene Pointe residents.
III. Attorney Fees
Because we reverse the trial court's grant of summary judgment to Rustlewood and remand for trial, the issue of whether Rustlewood is entitled to attorney fees is not ripe for review and we do not consider it at this time.
CONCLUSION
The doctrine of account stated does not apply to the payment of utility bills when the rate is fixed by statute. Moreover, the Accountancy Act prohibits Mason County from permanently benefiting the Rustlewood water and sewer systems with monies from other systems, such as Harstene Pointe; therefore, the law requires the County to impose additional fees on Rustlewood to repay the combined fund monies used for the Rustlewood system but not paid for by Rustlewood residents. The trial court erred in invalidating Mason County Resolution No. 50-95 and granting summary judgment to Rustlewood.
Reversed and remanded.
HUNT, J.
SEINFELD, J., ARMSTRONG, J., concur.