Question

Sara and Sally rely on the statements of Alice, an accountant. In a lawsuit brought by...

Sara and Sally rely on the statements of Alice, an accountant. In a lawsuit brought by Sara and Sally against Alice for fraud, Alice seeks to avoid liability based on the fact that neither Sara nor Sally was in privity of contract with Alice. Alice knew Sara might rely on the financial information provided, but Alice did not know of Sally or anyone in her position. Can Sara and Sally recover against Alice?

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Answer #1

Privity of contract protect accountant for any third-party user of the financial information. But if the user if foreseen, then privity of contract does not apply.

Sara can recover from Alice because Alice knew that she will be a user of the financial statements. However, principles of privity of contract will apply in the case of Sally as she was not the foreseen user of the financial statements.

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