Raritan River Steel Co. v. Cherry, Bekaert & Holland
| Decision Date | 14 August 1991 |
| Docket Number | No. 15A91,15A91 |
| Citation | 407 S.E.2d 178,329 N.C. 646 |
| Court | North Carolina Supreme Court |
| Parties | RARITAN RIVER STEEL CO. v. CHERRY, BEKAERT & HOLLAND, a General Partnership; Gary J. Wolfe; S. Donald Blanton; Herman O. Coleman; C. Cline Comer; W. Douglas Serriss; Joe R. Nantz; Clarence Eugene Williams, Sr.; Preston Clark; Howard J. Kies; Harrace M. Rolnick; Peter A. Caprise; Jerry P. Fox; Eric C. Pressley; R. Turner Rivenbark; Wayne Comstock; Tony W. Warfford; Wit Brown; Louis Eddie Dutton; William Lanier, Jr.; David Whaley; T. Ernest Sievelkorn; James Laney; Harold B. Henderson; Albry Shaw; J. Arley Rowe, Jr.; William Blankenship; Robert Holman; Don Holland; Anthony G. Campas; John Compton; Donald Leonard; Michael Newhouse; Charles Weathersby; Wallace Permenter; Clyde Fussell; Wayne Busey; Jerry Lloyd; David Bolton; John Cordell; Ralph Davis; Harry Stolte, Jr.; Charles Brown; Wayne Grier; Harry Griggs, Jr.; Ralph Harold; Frances Koger; Kenneth Litton, Jr.; Charles Young; Bobby Black; William Flurry; Jack Moody; Rudolf Ohme, Jr.; E.A. Thomas, Jr.; Raymond Warco; E.C. Blackburn; Anthony Morris; W.H. Peterson; J. Dominquez; Robert Harter; Lloyd Brammer; Henry Colbreth; Patrick Callen; W.H. Huff; Jeffry McClanathan; Richard Roberts; Wilburn Robertson; George Tornwall; and Robert White, partners. |
Appeal as of right pursuant to N.C.G.S. § 7A-30(a) from the decision of a divided panel of the Court of Appeals, 101 N.C.App. 1, 398 S.E.2d 889 (1990), reversing the judgment of Sanders, J., issued 8 November 1989, nunc pro tunc to 27 October 1989, in Superior Court, Mecklenburg County. Heard in the Supreme Court
Grier and Grier, P.A., by Joseph W. Grier, III, and J. Cameron Furr, Jr., Charlotte, for plaintiff-appellee.
Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan by James G. Billings, Mark A. Ash, and Michael D. Hill, Raleigh, for defendants-appellants.
The issue we are presented with in this case is whether a trade creditor to a closely held corporation is a third-party beneficiary to the corporation's contract with an accounting firm for the performance of an audit. The accounting firm agreed to perform an audit "in conformity with generally accepted auditing standards," and furnished the audit to the corporation. The trade creditor did not see the audit but reviewed a summary of it published in a Dun & Bradstreet report, which apparently overstated the corporation's actual financial position. Allegedly on the basis of the Dun & Bradstreet summary of the audit, the trade creditor extended additional open credit to the corporation, which later filed for bankruptcy. Much of the trade credit was subsequently discharged in the bankruptcy proceeding. The trade creditor sued the defendant auditing firm for damages alleging, inter alia, that it was a third-party beneficiary of the auditing contract. The trial court granted summary judgment for the defendants. The Court of Appeals reversed the entry of summary judgment for the defendants. We now reverse the decision of the Court of Appeals and remand the case for reinstatement of the trial court's order of summary judgment for the defendants.
Cherry, Bekaert & Holland and its partners (hereinafter the "accounting firm"), defendants herein, signed an engagement letter dated 22 June 1981 with Intercontinental Metals Corporation (hereinafter "IMC"). IMC is a holding company which, on 30 September 1981, had five shareholders, some of whom were officers of the company. The engagement letter provided:
We will examine the consolidated balance sheets of Intercontinental Metals Corporation and Intercontinental Metals Trading Corporation at September 30, 1981 and the related consolidated statements of earnings, retained earnings, and changes in financial position for the year then ended, for the purpose of expressing an unqualified opinion on the fairness of the presentation of these financial statements in conformity with generally accepted accounting principles applied on a consistent basis. If we discover that we cannot issue an unqualified opinion, we will discuss the reasons with you before submitting a different kind of report....
As you know, management has the primary responsibility for properly recording transactions in the records, for safeguarding assets and for preparing accurate financial statements. Our basic audit function is to add reliability to those financial statements.
Our examination will be conducted in accordance with generally accepted auditing
Raritan River Steel Company, the plaintiff herein, sold raw steel and was a major trade creditor of IMC. In January 1982, IMC had a $1.5 million line of credit with plaintiff, which had obtained copies of IMC's audited financial statements for the years 1978 and 1979 prepared by the accounting firm but did not have access to the audited statements for 1981, the year in question.
In January 1982, the accounting firm issued a qualified opinion concerning IMC's financial statements for the period ending 30 September 1981 (the 1981 financial statements), which indicated uncertainty as to the outcome of a $20 million dispute with a foreign supplier. Although the plaintiff asked IMC twice for a copy of IMC's 1981 financial statements, once in February and again in April or May of 1982, its latter request was expressly denied. However, in February 1982, IMC, as was its previous policy, allowed Dun & Bradstreet to review its audited financial statements in IMC's offices. The ensuing summary reports published by Dun & Bradstreet in April and May of 1982 provided in pertinent part as follows:
Fiscal Fiscal Fiscal
Consolidated Consolidated Consolidated
Sep 30 1979 Sep 30 1980 Sep 30 1981
. . .
Worth 3,129,325 4,693,000 6,359,369
. . . .
Submitted FEB 25 1982 by Wilburn V Robinson, V Pres & Treas. Prepared
from statement(s) by Accountant: Cherry, Bekaert & Holland, CPA.
The Dun & Bradstreet report, which also contained other summarized financial information, was the only access that plaintiff had to IMC's 1981 financial statements. After reviewing the Dun & Bradstreet report, and allegedly in reliance on IMC's financial condition as reported therein, the plaintiff extended additional open credit to IMC in excess of its previously established limit of $1.5 million.
In December 1982, IMC filed for bankruptcy protection. At that time, plaintiff was owed $2.2 million by IMC. From the bankruptcy proceedings, the plaintiff received only $511,143.60 and argues that the financial statements, if properly prepared, should have indicated a substantial negative net worth for IMC on 30 September 1981.
The procedural history of this case is as follows. The plaintiff filed suit in Superior Court, Mecklenburg County, on 13 February 1985, alleging two theories of recovery. First, it contends that the accounting firm "failed to use the ordinary, usual and reasonable standard of care and competence exercised by members of the accounting profession ... and were grossly negligent and careless in failing to protect the interests of IMC and of its creditors, in violation of a duty owed to IMC, plaintiff and other creditors." By its second theory, the plaintiff contends that it is a third-party beneficiary to the contract between the accounting firm and IMC and is entitled to recover for damages that were sustained as a result of the breach of that contract. On 9 May 1985, the trial court granted the defendants' motion to dismiss both claims for failure to state a claim upon which relief can be granted. The Court of Appeals reversed the trial court. Raritan River Steel Co. v. Cherry, Bekaert & Holland, 79 N.C.App. 81, 339 S.E.2d 62 (1986) ("Raritan I "). On appeal, this Court reversed the Court of Appeals, effectively holding that the plaintiff had not stated a claim for relief on its negligence theory, but declined to review the plaintiff's claim on its contract theory. Raritan River Steel Co. v. Cherry, Bekaert & Holland, 322 N.C. 200, 367 S.E.2d 609 (1988). On remand, the trial court granted summary judgment for the defendants on the plaintiff's contract claim on 8 November 1989, nunc pro tunc to 27 October 1989. The Court of Appeals again reversed, with Judge Duncan dissenting. Raritan River Steel Co. v. Cherry, Bekaert & Holland, 101 N.C.App. 1, 398 S.E.2d 889 (1990) ("Raritan II"). The defendants appeal to this Court as of right from the dissenting opinion.
In this case, we are reviewing the trial court's grant of a motion for summary judgment in favor of the defendants. Summary judgment is only proper where there is no genuine issue of material fact, and the movant is entitled to judgment as a matter of law. N.C.G.S. § 1A-1, Rule 56(c) (1990). On appellate review of the order for summary judgment, we take the evidence in the light most favorable to the nonmoving party. Hinson v. Hinson, 80 N.C.App. 561, 343 S.E.2d 266 (1986). After reviewing the forecast of evidence in the record, and for the reasons that follow, we agree with the trial court that there is no genuine issue of material fact present in this case and hold that the plaintiff was not an intended third-party beneficiary of the contract between the accounting firm and IMC.
This Court has said the following about the rights of a third party to recover under a contract:
North Carolina recognizes the right of a third-party beneficiary [sic] to sue for breach of a contract executed for his benefit. Vogel v. Supply Co., ...
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