Question

Sofia tells her Accountant, Luca, to prepare the financial statements of her business and then send them to Chase Manhattan Bank. She tells Luca that she wants to get a loan for her struggling business. Luca prepares the statements and emails them to the Bank. Six months later, Sofia's business files for bankruptcy. Chase files suit against Luca because he prepared the financial statements negligently. He made Sofia's business look better than it really was. If Luca was negligent in preparing the statements, under which rule or rules can he be liable to Chase for negligence?

Answer 1

Luca will be liable to Chase for negligence under the tort laws.

In this case Chase Manhattan Bank is a third party that relied on the financial statements that were prepared by Luca, in his capacity as an accountant of Sofia. The financial statements were prepared in a negligent manner and in a manner that falsely made Sofia’s business and financial condition of the business better than it actually was.

As an accountant Luca owed a duty of care not only to Sofia but also to all third parties who rely on the accountant’s work. Thus Luca will be liable to Chase for negligence under the tort laws and can be sued for negligence in the performance of his duties and for fraud as well (by presenting a false picture of the financial condition of the company).

To claim damages from Luca Chase will have to prove that Luca’s breach of duty was the direct reason for the loss incurred by them.