Bily v. Arthur Young & Co.

Brief Fact Summary.

Bily sued Arthur Young and Company when Young misrepresented Osborne’s financial status in audit opinions.

Synopsis of Rule of Law.

A supplier of information is liable to a third party if the information is being supplied for the benefit of one or more third parties in a particular transaction classified to the supplier.

Facts.

Osborne Computer Company (Osborne) hired Arthur Young and Company (Arthur) to audit Osborne’s financial statements. Young filed audit opinions on Osborne’s finances for 1981 and 1982. Bily invested in Osborne based on Young’s audit findings. However, Osborne was liable for $3 million greater than what Young reported. Bily brought suit against Young. The jury found for Bilyunder general negligence instructions and Young appealed.

Issue.

Whether a supplier of information is liable to a third party if the information is being supplied for the benefit of one or more third parties in a particular transaction classified to the supplier?

Held.

Yes. The judgment of the trial court is reversed. The trial court incorrectly applied the general-negligence standard when the negligent-misrepresentation standard should have applied.

Discussion.

The negligent-misrepresentation standards holds that a party is liable for injury to a third party if the supplier of information provides false information that is relied on by the third party.