MacNerland v. Barnes
| Decision Date | 15 June 1973 |
| Docket Number | No. 47873,No. 1,47873,1 |
| Parties | G. P. MacNERLAND et al. v. J. A. BARNES et al |
| Court | Georgia Court of Appeals |
Syllabus by the Court
1. An accountant is not liable for negligence in the preparation and issuance of an uncertified financial statement, containing an express disclaimer of opinion, to third parties, not in privity, even though their reliance on such statement is known or could be anticipated.
2. An accountant may be liable to such third parties if he agrees to verify certain figures contained in a statement and negligently fails to do so.
Glenn P. MacNerland, Thomas M. Dolan, Jr., Kenneth L. Kemp and Nancy G. Dolan brought suit in the State Court of DeKalb County against James Alva Barnes d/b/a Barnes & Company. Following the filing of a motion to add a party defendant and an order allowing the addition of a new defendant, the plaintiffs filed an amended complaint naming Barnes and Hugh Overbey as defendants. The complaint as amended alleged that the plaintiffs entered into agreement with defendant Overbey whereby he agreed to sell and they agreed to buy 45,090 shares of common stock of Continental Rent-A-Car of Georgia, Inc. d/b/a Airways Rent-A-Car; that as a part of the stock purchase agreement, the defendant Overbey represented and warranted to the plaintiff that the financial statement, books and records of the corporation were complete and correct and fairly represented the financial condition of the corporation, that the records had been prepared and kept in accordance with generally accepted accounting principles, and that there were no liabilities which were not reflected in the financial statement or notes thereto. The complaint further alleged that based on the information furnished them in the financial statement which was prepared by Barnes, the plaintiffs entered into the stock purchase agreement and incurred certain specified obligations and liabilities which were fully set out in the complaint.
It was alleged that the financial statement was prepared by Barnes at the request of the defendant Overbey and the plaintiffs; that they were aware of a disclaimer of opinion by Barnes but that both Barnes and Overbey knew that the plaintiffs were relying on the accuracy of the financial statement in determining whether they should enter into the stock purchase agreement; that the financial statement was incorrect by a total of some $45,000; that the defendant Overbey knew that the accounts receivable were not accurately stated and that certain ones were not collectible in the amount set forth; that the defendant Barnes was negligent in preparing the financial statement when he knew of or should have known of the discrepancies in the accounts receivable; that when the discrepancies were brought to defendant Barnes' attention, he admitted the same resulted from negligence of himself or his employees; that as a result of the plaintiffs' injurious reliance on the negligently prepared financial statement by the defendant Barnes and the defendant Overbey's representation and warranties as to the financial condition of the corporation, the plaintiffs have acquired a company which is worthless and unmarketable. The prayers of the complaint sought recovery of actual damages based on the negligence of the defendant Barnes and the misrepresentation and breach of warranties by the defendant Overbey, and punitive damages.
After filing of responsive pleadings and various depositions, the defendant Barnes filed a motion for summary judgment. The defendant Overbey filed a motion to dismiss based on jurisdictional grounds. After a hearing on the motion for summary judgment and the filing of additional papers and briefs in support and opposition thereto, the trial court entered an order granting and sustaining the defendant Barnes' motion for summary judgment. This order is the subject of the instant appeal.
Skinner, Wilson, Beals & Strickland, John V. Skinner, Paul J. Wagner, Jr., Atlanta, for appellants.
Long, Weinberg, Ansley & Wheeler, Ben L. Weinberg, Jr., J. Kenneth Moorman, Atlanta, for appellees.
1. The appellants have brought a motion to retax a portion of the cost of the record on appeal to the appellee. In Smith v. Top Dollar Stores, 129 Ga.App. 60, 198 S.E.2d 690, we held that a motion of this nature is properly brought in the trial court. See Code Ann. § 6-805(f) (Ga.L.1965, pp. 18, 24).
2. As stated in the brief of the plaintiffs, the basic question presented by the instant appeal is whether an accountant, as a matter of law, is liable for negligence in the preparation and issuance of an uncertified financial statement to parties not in privity but whose reliance is known to or foreseen by the accountant.
The plaintiff purchased stock in the company allegedly in reliance on a financial statement prepared by the defendant who was the accountant for the company. The statement which the accountant prepared was unaudited and contained a 'disclaimer of opinion.'
The general rule is that in the absence of intentional misrepresentation or fraud, an accountant is not liable for negligence to a third party who is not in privity with the accountant. See Ultramares Corp. v. Touche, 255 N.Y. 170, 174 N.E. 441, 74 A.L.R. 1139; Landell v. Lybrand, 264 Pa. 406, 107 A. 783.
The defendant, an accounting firm, introduced statements on auditing procedures by the American Institute of Certified Public Accountants, through its Committee on Auditing Procedures. It showed that the form used by the defendant auditing firm was identical with that recommended in the 'statement on auditing procedures,' for report by a certified public accountant who is not independent. The statement is designed as a red flag that the accountant in question was not independent with respect to the company on which the financial report was prepared and the statements given were not audited by the accountant. As set forth in No. 38 of the Statement on Auditing Procedures 'although the certified public accountant may have prepared, or assisted in preparing, unaudited financial statements, the statements are representations...
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