An action for accounting is an equitable action seeking to determine the amount owed to the parties of an action when damages are uncertain. “An accounting is an equitable proceeding which is proper where there is an unliquidated and unascertained amount owing that cannot be determined without an examination of the debits and credits on the books to determine what is due and owing.” (Prakashpalan v. Engstrom, Lipscomb & Lack (2014) 223 Cal.App.4th 1105, 1136-1137, 167 Cal.Rptr.3d 382.) Therefore, when asserting an accounting action, equitable principles apply.
In order to prevail on an accounting claim, a party must prove the existence of a relationship and that an uncertain balance is owed to the plaintiff, which requires an accounting. At the Underwood Law Firm, our attorneys are more than familiar with accounting actions.
Elements of an Accounting Action
For an accounting claim to be available, a litigant must prove two elements: (1) a relationship that requires accounting exists between the plaintiff and the defendant, and (2) that some balance is owed to the plaintiff, which can only be ascertained with an accounting. (Teselle v. McLoughlin (2009) 173 Cal.App.4th 156, 179, 92 Cal.Rptr.3d 696 (Teselle).) Therefore, when a plaintiff is alleging a right to recover a sum of damages that is certain or can be made certain by calculation, an action for accounting is not available. (Id.)
A relationship that requires an accounting need not be a fiduciary relationship. (Id.) A relationship requiring accounting can exist without a fiduciary relationship. (Teselle, 173 Cal.App.4th 156, 179-180.) For example, an accounting relationship exists when a person is obligated to hold money or property on behalf of another. (Id.)
Accounting in Partition Actions
A partition is an action asserted by an owner of a real property seeking to divide the subject property among the co-owners of the property. In every Partition action, there is a final accounting, according to principles of equity, for both charges and credits upon each co-owner’s interest. (Wallace v. Daley (1990) 220 Cal.App.3d 1028, 1035 (Wallace).) In general, the accounting in a partition action must include both charges and credits upon each co-owner’s interest. (Wallace, 220 Cal.App.3d 1035-1036.)
Credits account for any expenses in excess of the co-owner’s fractional interest for necessary repairs, improvements, taxes, payments of principal and interests on mortgages, and other liens, insurance for the common benefit, and protection and preservation of title. (Id.; CCP § 872.140.)
In Wallace, the Plaintiffs and Defendants were all cotenants of a twenty-acre parcel of land located in Colusa County. (Wallace, 220 Cal.App.3d 1028.) During the ownership of the property, the Plaintiffs made several improvements and repairs to the property that essentially enhanced its value of the property. The Plaintiffs sued the Defendants seeking a partition in kind of the property. In turn, the Defendants filed a cross-complaint against the Plaintiffs, seeking a partition by sale. A partition in kind seeks a physical division of a piece of real property into sub-parcels according to the respective interests of the co-owners. A partition by sale seeks the court to order the sale of the subject property and have the proceeds of the sale divided among the respective owners of the property.
The trial court granted a partition by sale to the Defendants and ordered that the property be sold, and the proceeds of the sale are divided among the co-owners of the property. (Id.) However, the court also ruled that the Plaintiff was entitled to credit for improvements made to the property by the Plaintiff and her predecessors in interest. (Id. at 1035) The Defendants appealed, arguing that Plaintiff was not entitled to credits made by her and her predecessors before becoming a tenant-in-common to the property. (Id.)
The Court of Appeals held that the Plaintiff was entitled to credit for improvements made by her predecessor in interest, but not those made before or after acquiring an interest in the property. (Id.) The Court reasoned that when accounting as part of a partition by sale, a party should be credited for improvements. The court stated that under Code of Civil Procedure section 873.220, in a partition action, the property should be divided to allot to party improvements made by the party, and the value of improvements must be excluded from the valuation in making the allotment. (Wallace, 220 Cal.App.3d 1036.)
“Shawn” and “Julie” each own a one-half interest in a three-acre farm in Sacramento, California, as tenants-in-common. Shawn then spends $50,000 to add a home on the farmland, which essentially increases the value of the property. In a partition action, where the court orders for the sale of the farmland, Shawn will be entitled to contribution for the $50,000 advancement he made to build a house on the property. Therefore, before the proceeds of the sale are divided among Shawn and Julie, Shawn will first receive $50,000 from the proceeds of the sale. Therefore, if the farm is sold for $800,000, Shawn will receive the $50,000, and $750,000 will be divided between Shawn and Julie, assuming they have no other expenses to pay for.
How Can the Attorneys at the Underwood Law Firm Assist You?
An accounting action is an equitable action to determine the amount owed to a plaintiff when the amount owed is uncertain. For an accounting action to be available to a litigant, that litigant must show (1) a relationship that requires accounting exists between the plaintiff and the defendant and (2) that some balance is owed to the plaintiff, which can only be ascertained with an accounting. Therefore, if the amount owed to a plaintiff is certain, an accounting action does not apply.
As each case is unique, litigants would be well-served to seek experienced counsel familiar with the ins and outs of accounting and the law surrounding it. At the Underwood Law Firm, our knowledgeable attorneys are here to help. If you believe you have a valid accounting claim, are worried about your ability to establish an accounting claim, or if you just have questions, please do not hesitate to contact our office.
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