United States: The New Normal For Distressed Energy Companies

Part One — Vendors at the Gates

A. Introduction

As sub-$30 oil prices continue to place mounting pressure on struggling energy companies, we are seeing a steady uptick in claims by unpaid vendors and suppliers. Creditors that historically may have been amenable to extended payment terms for preferred customers — and would have never thought twice about the possibility of suing a customer — are becoming increasingly more aggressive. Some have started to turn to litigation for recourse.

These claims can take a variety of forms and, in Texas, are typified by three primary causes of action: (1) suit on sworn account, (2) breach of contract and (3) quantum meruit. In addition, especially aggressive creditors, under the right circumstances, can seek to force a debtor into involuntary bankruptcy under Section 303 of the U.S. Bankruptcy Code (the "Code").

This article is intended to be the first in a series of topics relevant to distressed energy companies in the current economic climate. The following focuses on debt collection actions brought under Rule185 of the Texas Rules of Civil Procedure, frequently called a "suit on sworn account." This type of claim may not be as well-known as a typical breach of contract or an equitable "quantum meruit" claim. However, what is significant about these types of claims is not only the higher pleading standard required to both file and answer these claims, but also the expedited litigation process for such claims. The following provides a brief overview of the law, as well as practical considerations.

B. Overview of Rule 185 Claims

Rule 185 is a procedural tool that limits the evidence necessary to establish a prima facie right to recovery on certain types of accounts. Williams v. Unifund CCR Partners Assignee of Citibank, 264 S.W.3d 231, 234 (Tex. App. — Houston [1st Dist.] 2008, no pet.). However, this procedure is not available for all types of claims. Specifically, Rule 185 applies only to (1) transactions between persons, (2) where there is a sale on one side and a purchase on the other, (3) whereby title to personal property has passed from one person to the other, and (4) where the relation of the debtor and creditor is created by a general course of dealing. Id.

a. Plaintiff's Elements

To prevail on a suit on sworn account, a plaintiff must show three elements: (1) that there was a sale and delivery of the merchandise or performance of the services; (2) that the amount of the account is just (i.e., prices were charged in accordance with the agreement or, in the absence of an agreement, are usual, customary and reasonable prices for the merchandise or services); and (3) that the amount is unpaid. Worley w. Burler, 809 S.W.2d 242, 245 (Tex. App. — Corpus Christi 1990, no writ). Further, a petition for suit on sworn account must contain a systematic, itemized statement of the goods or services sold; reveal offsets made to the account; and be supported by an affidavit stating that the claim is within the affiant's knowledge, and that it is "just and true." Powers v. Adams, 2 S.W.3d 496, 498 (Tex. App. — Houston [14th Dist.] 1999, no pet.). General statements without a description of specific items are insufficient. Mega Builders Inc., v. American Door Prods., (Tex. App. — Houston [1st Dist.] 2013, no pet.) (mem. op.). In addition, the account must include specific facts regarding how the figures were established. Dibco Underground, Inc. v. JCF Bridge & Concrete, Inc. (Tex. App. — Austin 2010, no pet.) (mem. op.).

b. Answering a Claim

As a general rule, defendants involved in Texas litigation will typically file a general denial under Rule 92 of the Texas Rules of Civil Procedure. However, a defendant challenging a suit on sworn account must strictly comply with the requirements of Rule 185, "or he will not be permitted to dispute the receipt of the services or the correctness of the charges." Panditi v. Apostle, 180 S.W.3d 924, 927 (Tex. App. — Dallas 2006, no pet.); see also Vance v. Holloway, 689 S.W.2d 403, 404 (Tex. 1985) (per curiam). Specifically, Rule 185 requires a defendant to "comply with the rules of pleading" and "timely file a written denial, under oath," or else the defendant "shall not be permitted to deny the claim, or any item therein." Tex. R. Civ. P. 185; Panditi, 180 S.W.3d at 927 (Rule 185 requires a sworn denial to be written and verified by affidavit). This "verified denial" is required by Rule 93 of the Texas Rules of Civil Procedure. See, e.g., Huddleston v. Case Power & Equip. Co., 748 S.W.2d 102, 103 (Tex. App. — Dallas 1988, no writ); see also Tex. R. Civ. P. 93(10) ("A pleading setting up any of the following matters, unless the truth of such matters appear of record, shall be verified by affidavit[:] A denial of an account which is the foundation of the plaintiff's action . . . .").

c. Consequences of Failing to File a Proper Verified Denial

Importantly, a verified denial must be included in a defendant's answer; a sworn denial made in a response to a summary judgment motion is too late and does not satisfy Rule 185. See Cooper v. Scott Irrigation Constr., Inc., 838 S.W.2d 743, 746 (Tex. App. — El Paso 1992, no writ); see also Rush v. Montgomery Ward, 757 S.W.2d 521, 523 (Tex. App. — Houston [14th Dist.] 1988, writ denied). If the defendant fails to file a verified denial to the sworn account, the sworn account is received as prima facie evidence of the debt, and the plaintiff, as summary judgment movant, is entitled to summary judgment on the pleadings. Nguyen v. Short, How, Frels & Heitz, P.C., 108 S.W.3d 558, 562; see also Livingston Ford Mercury, Inc. v. Haley, 997 S.W.2d 425, 430 (Tex. App. — Beaumont 1999, no pet.) (holding that, when plaintiff files a proper sworn account petition but defendant does not comply with Rule 185, the petition will support summary judgment and "additional proof of the accuracy of the account is unnecessary"). In other words, a defendant's noncompliance with Rule 185 conclusively establishes that there is no defense to the suit on the sworn account. Nguyen, 108 S.W.3d at 562; see Whiteside v. Ford Motor Credit Corp., 220 S.W.3d 191, 194 (Tex. App. — Dallas 2007, no pet.) ("When the defendant fails to file a sworn denial and the trial court enters summary judgment on a sworn account, appellate review is limited because the defendant will not be allowed to dispute the plaintiff's claim.").

C. Practical Considerations

a. When is a general denial sufficient?

In the event that a plaintiff's suit on a sworn account was not properly pleaded pursuant to Rule 185, a defendant is not required to file a sworn denial — rather, a general denial will suffice. Panditi, 180 S.W.3d at 927; Tex. Dep't of Corrs. v. Sisters of St. Francis of St. Jude Hosp., 753 S.W.2d 523, 524 (Tex. App. — Houston [1st Dist.] 1988, no writ).

b. How are facts put at issue?

As mentioned above, a verified denial should place one or more of the facts alleged in the petition on sworn account at issue. As a practical matter, a defendant can do so by providing, for example, a verified denial that attests to one or more of the following facts:

  1. That the alleged account(s) do not, in fact, exist and the debtor does not have knowledge of those accounts;
  2. That the amounts alleged are not due and owing as alleged in the petition in view of applicable payment terms and conditions (e.g., purchase orders, master agreements, nonreceipt of conforming goods or services, or similar deficiencies);
  3. That all setoffs have not been appropriately applied;
  4. That interest or similar charges have not been properly calculated; and/or
  5. That the overall amounts alleged have not been properly calculated.

c. What is the timing for judgment on suits on sworn accounts?

Those generally familiar with the litigation process typically associate claims brought in Texas district courts with a 12- to 18-month trial horizon. However, the time frame associated with a suit brought under Rule 185 can be far more aggressive. In the absence of a timely filed verified denial that puts one or more of the alleged facts at issue, a plaintiff can move for a summary judgment on the verified petition without discovery. Under Rule 99(b) of the Texas Rules of Civil Procedure, a defendant's answer is due the first Monday after the expiration of 20 days of service of process. Also, under Rule 21a, a summary judgment motion may be heard on 21 days' prior written notice. Thus, a plaintiff can potentially obtain a judgment in less than two months after service of process. A short time later, this judgment will become final and will allow for recovery against a defendant, which can include seizure of assets to satisfy a judgment. Accordingly, these types of claims should be treated seriously even if the amount in dispute may be relatively low.

d. How can involuntary bankruptcy be avoided?

Another important consideration in managing these types of claims is avoiding a situation whereby a company can be forced into bankruptcy. Specifically, under Section 303 of the Code, a group of creditors can force a debtor into involuntary bankruptcy. 11 U.S.C. § 303 (2016). Where a debtor has 12 or more creditors, an involuntary bankruptcy petition requires (a) three or more creditors, each of whose claims are not contingent as to liability or subject to a bona fide dispute as to either liability or amount to file the petition, and (b) that those qualifying claims aggregate at least $10,000 more than the value of any lien on the debtor's property securing claims held by the holders of such claims. Id. In contrast, if the company has fewer than 12 creditors, excluding any employees and insiders of such person and any transferee of a transfer that is voidable under the Code, an involuntary petition can be filed by one or more of such creditors whose claims aggregate at least $10,000 of such claims. Id.

If the debtor timely objects to the filing of a petition for involuntary bankruptcy, in order for the debtor to be placed in bankruptcy, the debtor also must (1) generally not be paying its debts as they become due (unless those debts are subject to a bona fide dispute as to liability or amount), or (2)have had a custodian appointed within the past 120 days to take possession or control of substantially all of its assets. Id.

As a practical matter, however, the potential liability to a creditor for costs, attorney's fees, damages and possibly punitive damages makes involuntary petitions one of the lesser-used creditor tools. Involuntary bankruptcy is most often used when unsecured creditors suspect fraud on the part of a debtor, or for some other extraordinary reason. Otherwise, creditors will typically pursue collection of their own claims directly, including through litigation. While such a tactic might end up effectively "forcing" a debtor into bankruptcy, it technically would nonetheless be considered voluntary bankruptcy.

Regardless, in order to avoid a situation where a company is forced to defend against an involuntary bankruptcy petition and incurring fees and expenses in doing so, a company should be proactive and strategic in managing vendor claims. These claims should be considered in a company's overall analysis of restructuring strategies, including considerations with respect to whether and when to file for protection (whether under chapter 7 or chapter 11) of the Code, as well as whether the claims present compliance issues under the company's debt instruments and commercial contracts.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.