Ultramares Corporation v. Touche
Court of Appeals of New York
174 N.E. 441 (N.Y. 1931)
Touche (defendant), a public accounting firm was hired by Fred Stern & Co. (Fred Stern) to audit its records and prepare and certify a balance sheet showing the condition of its business as of December 31, 1923. Touche was aware that this balance sheet would be shown by Fred Stern to banks, creditors, stockholders, purchasers, and sellers as the basis of financial dealings. When Touche completed its audit, it certified Fred Stern had greater assets than liabilities and that the company’s net worth was $1,070,715.26. This statement was false in all regards, as Touche’s auditors had been provided false statements of income and expenses prepared by Fred Stern’s officers. At the time of the audit, Fred Stern was actually insolvent. Unaware of this fact, Touche provided Fred Stern thirty-two copies of its balance sheet for use in business dealings. Fred Stern said nothing to Touche about the particular institutions which would be shown the balance sheet or in what types of transactions it would be used. Specifically, no mention was made of Ultramares Corporation (Ultramares) (plaintiff), a business with limited prior dealings with Fred Stern. Relying on Touche’s balance sheet, Ultramares made several loans to Fred Stern. Fred Stern collapsed a year later, and Ultramares was left with unpaid loans. Ultramares brought suit against Touche for negligent misrepresentation and false certification of the truthfulness of the audit. At trial, the jury awarded Ultramares $187,500 in damages. However, the trial judge entered judgment for Touche on the ground that Ultramares failed to state a cause of action. The appellate division reversed, and Touche appealed.
Rule of Law
Holding and Reasoning (Cardozo, C.J.)
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