In 1924 auditors Touche Niven gave the rubber importer, Fred Stern and Company, an unqualified audit certificate, having failed to discover that management had falsified entries to overstate accounts receivable.

On the faith of one of those copies, given to it on its demand, the plaintiff, Ultramares Corporation, lent Fred Stern and Company money.

The judge set this finding aside based on the doctrine of privity, which protects auditors from third party suits.

Cardozo, C.J., held that the claim in negligence failed on the ground that the auditors owed the plaintiff no duty of care, there being no sufficiently proximate relationship.

A sketch, however, there must be, at least in respect of some features of the audit, for the nature of the fault, when understood, is helpful in defining the ambit of the duty.

On Sunday, February 3, 1924, he had finished the task of posting, and was ready the next day to begin with his associates the preparation of the balance sheet and the audit of its items.

Siess when he resumed his work saw the entries thus added, and included the new item in making up his footings, with the result of an apparent increase of over $700,000 in the assets of the business.

He says that in doing this he supposed the entries to be correct, and that his task at the moment being merely to post the books, he thought the work of audit or verification might come later, and put it off accordingly.

The December entry of accounts receivable was not the only item that a careful and skillful auditor would have desired to investigate.

The pledges did not diminish the value of the assets, but made in such circumstances they might well evoke a doubt as to the solvency of a business where such conduct was permitted.

If the defendants owed a duty to the plaintiff to act with the same care that would have been due under a contract of employment, a jury was at liberty to find a verdict of negligence upon a showing of a scrutiny so imperfect and perfunctory.

All this is to be weighed by a jury in applying its standard of behavior, the state of mind and conduct of the reasonable man.

Even so, the adverse verdict, when rendered, imports an alignment of the weights in their proper places in the balance and a reckoning thereafter.

The hazards of a business conducted on these terms are so extreme as to enkindle doubt whether a flaw may not exist in the implication of a duty that exposes to these consequences.

We put aside for the moment any statement in the certificate which involves the representation of a fact as true to the knowledge of the auditors.

The case was submitted to the jury and the verdict was returned upon the theory that even in the absence of a misstatement of a fact there is a liability also for erroneous opinion.

Or does it go farther and involve the assumption of a liability for any blunder or inattention that could fairly be spoken of as negligence if the controversy were one between accountant and employer for breach of a contract to render services for pay?

How far the inroads shall extend is now a favorite subject of juridical discussion (Williston, Liability for Honest Misrepresentation, 24 Harv.

The promise must be such as to "bespeak the assumption of a duty to make reparation directly to the individual members of the public if the benefit is lost" (Moch Co. v. Rensselaer Water Co., 247 N. Y.

Even so, the question is still open whether the potentialities of danger that will charge with liability are confined to harm to the person, or include injury to property (Pine Grove Poultry Farm v. Newton B.-P. Mfg.

We are now asked to say that a like liability attaches to the circulation of a thought or a release of the explosive power resident in words.

Three cases in this court are said by the plaintiff to have committed us to the doctrine that words, written or oral, if negligently published with the expectation that the reader or listener will transmit them to another, will lay a basis for liability though privity be lacking.