Raritan River Steel Co. v. Cherry, Bekaert & Holland

407 S.E.2d 178 (1991)

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Nature of the Case

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Facts

Cherry (D), an accounting firm, signed an engagement letter with IMC for the examination of their books. Raritan (P) sold raw steel and was a major trade creditor of IMC. In January 1982, IMC had a $1.5 million line of credit with P. P had obtained copies of IMC’s audited financial statements for the years 1978 and 1979 but did not have access to the audited statements for 1981. In January 1982, D issued its opinion concerning IMC’s financial statements for September 30, 1981, which indicated uncertainty as to the outcome of a $20 million dispute with a foreign supplier. P asked IMC twice for copies of the 1981 statements. Its latter request in April 1982 was expressly denied. In February 1982, IMC allowed D&B to review the audited financial statement in IMC’s offices. The summary of the report showed that IMC had net assets of $6,964,475.00. But in fact, the actual net worth was a negative $14.6 million. The D&B report was the only financial information that P had on IMC and in reliance on the D&B report extended credit in excess of the $1.5 million it currently had with IMC. In December 1982, IMC filed for bankruptcy. P was owed $2.2 million. P got $511,143.60. P sued D arguing that if the financial statements had been properly prepared; it should have indicated a substantial negative net worth. P sought recovery on the theory of negligence in that D failed to follow GAAP and also as a third-party beneficiary of the contract between IMC and D. The trial court granted summary judgment to D on both counts. The Court of Appeals reversed. This court reversed the Appeals Court disallowing the negligence claim but sending the contract claim back to the lower court on remand. On remand, the trial court granted summary judgment for D on P’s claim. The Court of Appeals reversed again and D appealed.