Tennessee rules on privity.The Tennessee Supreme Court The Tennessee Supreme Court is the highest appellate court of the State of Tennessee. Unlike those of other states, the Tennessee Supreme Court is responsible for the appointment of the state attorney general. ruled an accountant may be liable both to known parties and to parties the accountant should reasonably expect to receive and rely on the audit report. Bethlehem Steel The Bethlehem Steel Corporation (1857–2003), based in Bethlehem, Pennsylvania, once was the second largest steel producer in the United States (after Pittsburgh, Pennsylvania-based US Steel). Corporation extended credit to W.L. Jackson Manufacturing Company. After Jackson defaulted on the loan, Bethlehem sued Ernst & Whinney (now Ernst & Young), alleging the firm negligently neg·li·gent adj. 1. Characterized by or inclined to neglect, especially habitually. 2. Characterized by careless ease or informality; casual. 3. Law Guilty of negligence. prepared the audit report Bethlehem relied on in extending credit to Jackson. Had it known Jackson's true financial condition, Bethlehem alleged, it would not have extended the loan. The Tennessee Supreme Court weighed various approaches adopted by other states in defining an accountant's duty to nonclients. It rejected the strict privity A close, direct, or successive relationship; having a mutual interest or right. Privity refers to a connection or bond between parties to a particular transaction. Privity of contract is the relationship that exists between two or more parties to an agreement. approach, which holds an accountant may be liable only to those who are in privity of contract PRIVITY OF CONTRACT. The relation which subsists between two contracting parties. Hamm. on Part. 182. 2. From the nature of the covenant entered into by him, a lessee has both privity of contract and of estate; and though by an assignment of his lease he may or near privity of contract with him or her. The court reasoned that the accountants' significant role in business and commerce mandated a greater duty to nonclients. Conversely con·verse 1 intr.v. con·versed, con·vers·ing, con·vers·es 1. To engage in a spoken exchange of thoughts, ideas, or feelings; talk. See Synonyms at speak. 2. , the court also rejected the more liberal interpretation, adopted in a few states, that an accountant owes a duty to all parties that might reasonably be foreseen to rely on the audit. The court reasoned this standard creates an environment of potentially uncontrolled risk for accountants. In adopting a middle ground, an accountant's liability was limited to parties that the accountant intended to rely on his or her report or to parties an accountant knew the client intended to influence with his or her report. (Bethlehem Steel Cornj?oration v. Ernst & Whinney, 822 S.W. 2d 592) |
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