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Chapter 48 Accountants’ Liability and Malpractice

Chapter 48 Accountants’ Liability and Malpractice. Twomey, Business Law and the Regulatory Environment (14th Ed.). Extent of Accountants’ Malpractice Liability [48-1]. Malpractice (Tort). Statutory Violations. Liability for. Breach of Contract. Anyone in Privity of Contract. Client.

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Chapter 48 Accountants’ Liability and Malpractice

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  1. Chapter 48Accountants’ Liability and Malpractice Twomey, Business Law and the Regulatory Environment (14th Ed.)

  2. Extent of Accountants’ Malpractice Liability[48-1] Malpractice (Tort) Statutory Violations Liability for Breach of Contract Anyone in Privity of Contract Client Liability to Beneficiaries of Statutory Protection (Section 11-1933 Act Section 10b-1034 Act) Known-User No Liability to Contacts Foreseeable User Varies According to Court Interloper Differing Decisions Chapter 48

  3. Malpractice: Choice of Remedy[48-2] Tort Action Breach of Contract Plaintiff must show that defendant’s breach was negligent or willful (malpractice) Malpractice claim brought by third person Without malpractice BREACH OF CONTRACT Damages Can Be Greater than Contract Law Damages Limited by Contract Runs from Date when Contract Was Broken Statute of Runs from Date when Harm Was Discovered Limitations Chapter 48

  4. Chapter 48 Summary When a contract requires a party to perform services, the party must perform with the care exercised by persons performing similar services within the same community. If the party negligently fails to observe those standards, there is both a breach of contract and a tort. This tort of negligent breach of contract constitutes malpractice, and the other party to the contract can sue the wrongdoer either for breach of contract or for the negligence involved. Chapter 48

  5. Chapter 48 Summary[2] In the modern view, third persons may also sue the wrongdoer for malpractice. However, when the malpractice suit is brought against an accountant for negligence, courts differ as to when a third person may sue. Some courts refuse to let the third person sue; these courts require privity between the parties. Most courts allow suit by the third person against the wrongdoer but differ over what the plaintiff must show in order to bring such a suit. In New York, the plaintiff must show as a minimum that there was a “contact” with the accountant. Chapter 48

  6. Chapter 48 Summary[3] In some states, it is sufficient that the third person was a known user of the accountant’s information. Other courts go further and allow the third person to sue if it was reasonable to foresee that the third person would make use of the accountant’s information. Some courts limit suit to those nonprivity plaintiffs who were intended to rely on the accounting work. Chapter 48

  7. Chapter 48 Summary[4] When an accountant is guilty of fraud, the intended victim of the fraud may sue the accountant even though privity of contract is lacking. To a limited degree, an accountant is protected from malpractice liability by a disclaimer of liability or by the contributory negligence of the plaintiff. Chapter 48

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