Brief Fact Summary.
Nycal Corporation (Plaintiff) sued after it relied upon a report prepared by KPMG Peat Marwick LLP (Defendant) in entering into a stock purchase agreement.
Synopsis of Rule of Law.
An accountant is only liable to a third party with whom he has no contract when that party can prove that the accountant knew the party would rely upon his report.Â
In order to recover for negligent misrepresentation, the plaintiff must prove that the defendant (1) in the course of his business, (2) supplied false information for the guidance of others, (3) in their business transactions, (4) causing and resulting in pecuniary loss to those others, (5) by their justifiable reliance upon the information, and that he (6) failed to exercise reasonable care or competence in obtaining or communicating the information.View Full Point of Law
Plaintiff allegedly relied upon an auditors’ report prepared by Defendant in making a decision to enter into a stock purchase agreement. The company whose stock Plaintiff had purchased then became insolvent and Plaintiff sued Defendant for damages and costs resulting from its reliance on Defendant’s report. Defendant moved for summary judgment and the trial court granted it. Plaintiff appealed.
Is an accountant liable to third parties with whom he has no contract where it is not proved that the accountant knew that the third parties would rely on his report?
(Greaney, J.) No. An accountant is only liable to a third party with whom he has no contract when that party can prove that the accountant knew the party would rely upon his report. Defendant did not know or intend for Plaintiff to rely on its report in deciding whether to invest in the company. The Restatement (Second) of Torts Â§ 552 defines negligent misrepresentation committed in the process of supplying information for the guidance of others as: A person who, in the course of their business or employment, or in any other transaction in which he or she has pecuniary interest, supplies false information for guidance of others in their business, is liable for pecuniary loss caused to them by their justifiable reliance on such information for failing to exercise reasonable care or competence in obtaining or communicating the information. However, this liability is limited to losses suffered by the person for whose benefit the guidance is intended to be supplied. Defendant was not aware of the stock purchase agreement until after it was signed. Affirmed.Â
The court here would not extend liability to all possible plaintiffs. Unlike the traditional tort principles applied in personal injury cases, those involving only economic harm limit the scope of a professional’s liability.