Ultramares Corp. v. Touche

Citation. 255 N.Y. 170, 174 N.E. 441

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Citation255 N.Y. 170, 174 N.E. 441

Brief Fact Summary.

A public accounting firm inaccurately prepared financial statements upon which plaintiff, in absence of privity with the accountants, detrimentally relied.

Synopsis of Rule of Law.

Accountants may be held liable for fraudulent misrepresentation for inaccurately prepared financial statements upon which a party, in absence of privity with the accountants, detrimentally relied.

Points of Law - Legal Principles in this Case for Law Students.

Chief Judge CARDOZO said in 1931 that the assault upon the citadel of privity is proceeding in these days apace.

View Full Point of Law

Touche (defendant), a public accounting firm, prepared financial statements for a company, Fred Stern & Company (“Fred Stern”). In its certificate, Touche asserted that their statements presented a true and accurate view of Fred Stern’s condition. However, Touche’s statements were actually inaccurate. Ultramares Corporation (“Ultramares”) (plaintiff), in absence of privity with the Touche accountants, relied upon those statements and made loans to the Fred Stern, who later went bankrupt. Ultramares brought a misrepresentation suit against Touche.

Issue.

Whether accountants may be held liable for fraudulent misrepresentation for inaccurately prepared financial statements upon which plaintiff, in absence of privity with the accountants, detrimentally relied?

Held.

Yes, Touche’s accountants made a false certification of fact related to Fred Stern’s financial condition. Upon plaintiff’s appeal on the second cause of action, the judgment of the lower courts is reversed and a new trial is granted.

Discussion.

While Touche’s accountants are emancipated of negligent misrepresentation, they are not emancipated from liability for fraud. Accountants are not absolved of liability when their audit is so negligent as to justify a finding that there was no genuine belief in its adequacy. Here, Touche’s accountants certified as fact that Fred Stern’s balance sheet was in accordance with the books on their account. In actuality, those statements were inaccurate. Touche’s accountants will not be exonerated just because they believed the certification to be true.