Author Question: An exculpatory agreement is one in which: a. one party can sue another in case of an injury caused ... (Read 91 times)

Evvie72 · **on:** Jun 24, 2018

An exculpatory agreement is one in which:
a. one party can sue another in case of an injury caused by a tort or some other event
b. an employee agrees not to leave and go into competition against the employer or go to work for a competitor for a certain time
c. an employee agrees not to recruit fellow employees for another company when they leave their current place of employment
d. an employee agrees not to use illegal substances e. none of the other choices are correct

Question 2

Accountant's Liability to Third Parties. Credit Alliance Corp is a major financial ser-vice company engaged primarily in financing the purchase of capital equipment through installment sales and leasing agreements. As a condition of extending additional major financing to L. B. Smith, Credit Alliance required an audited financial statement. Smith provided Credit Alliance with an audited financial statement prepared by the accounting firm of Arthur Andersen & Co Later, on Smith's petitioning for bankruptcy, it was discovered that Smith, at the time of the audit, had been in a precarious financial position. Credit Alliance filed suit against Arthur Andersen, claiming that Andersen had failed to conduct investigations in accordance with proper auditing standards and that Andersen's recklessness had resulted in misleading statements that caused Credit Alliance to incur damages. In addition, it was claimed that Andersen knew, or should have known, that Credit Alliance would rely on these statements in issuing credit to Smith. Discuss whether Credit Alliance, as a third party, could hold Arthur Andersen liable in a negligence action.

reelove4eva · **Reply #1 on:** Jun 24, 2018

Answer to Question 1

e

Answer to Question 2

Accountant's liability to third parties
The court had to choose between the Ultramares rule and the Restatement (Second) of Torts in dealing with the rights of third parties against accountants when there is no privity of contract. Under the Restatement, the third party becomes an intended beneficiary when the accountant knows or should have known that the work done by the accountant was being performed for the benefit of a third person who would rely upon the accountant's work. Under Ultramares, the third party must establish that: (1) the accountant was aware that the financial report was to be used for a particular purpose or purposes, (2) a known third party (or parties) was intended to rely on the financial report, and (3) the accountant's conduct revealed that he or she knew of the third party's reliance. The court chose Ultramares. Because Arthur Andersen did not have any direct dealings with Credit Alliance, nor had it specifically agreed to provide Credit Alliance with the audited financial statements, Arthur Andersen could not be held liable for negligence.