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predicted this position). Pennsylvania has adopted a privily only approach, but federal courts disagree whether the early Pennsylvania ease will be followed. Id.

Four states have reached the Ultramares position through legislation: Illinois, Utah, Arkansas, and Kansas. In the Kansas statute, KAN. STAT. ANN., Section 1-402 (Supp. 1987), a third party can recover if the auditor is aware of its reliance and the party has been identified in writing to the auditor and the specific transaction described. The Illinois statute, Ill. ANN. STAT. ch. 111,

    • 5535.1

      (Smith-Hurd Supp. 1987), the Utah Statute, UTAH CODE ANN. Section 58-26-12

  • (1990)

    , and the Arkansas statute, ARK. CODE ANN., Section 16-114-302 (Michie Supp. 1987),

all provide that the auditor can limit its negligence liability to those third parties the auditor identifies in writing to the client.

(n7) The typical scenario involves both trade and financial creditors demanding proof in the form of audited financial statements of a potential debtor's ability to pay. Although the source of the financial information is the business that is seeking credit, the attestation to the information's material accuracy derives from the supposedly rigorous independent audit by outside accountants.

(n8) Creditors seeking additional assurance may demand third party guarantees or may offer inducements in the form of reduced interest if guarantors will sign on the obligations. Presumably, guarantors who rely on audited statements should have a direct right, or a right of subrogation, to sue negligent auditors if the creditors have such rights. See, e.g., Maduff Mortgage v. Deloitte, Haskins & Sells, 779 P.2d 1083 (Or. Ct. App. 1988). In the ease of insolvent savings and loan institutions, the United States government, which acts as a guarantor of the S&L's obligation to depositors (or, more accurately, as a back-up guarantor of the former FSLIC), has moved vigorously under the statutory guarantee to recover its losses from various parties associated with the defunct S&L's including their auditors. Although most of these suits involve allegations of fraud for which defendants have little or no privily protection, suits in negligence are also being maintained by the United States. In general, however, these suits are not brought as third party suits, although we believe they could be. See infra note 186 and accompanying text.

(n9) The status of investors to sue auditors for negligent misrepresentation is somewhat more ambivalent than that of creditors and their guarantors. If the form is corporate, investors are stockholders and thus own the auditor's "client." As noted, infra note 28, the client is the source of the financial information that is audited for accuracy and fairness by the outside accountants. If the information proves to be materially inaccurate, the corporation can sue the auditor for misfeasance or malpractice for negligently failing to discover that the information the corporation provided was false. Presumably, the individual owners of the corporation can also sue the auditors for personal capital losses incurred in reliance on audited financial statements, if, of course, privily rules in the jurisdiction so permit.

(n10) 174 N.E. 441 (N.Y. 1931).

(n11) If liability exists, a thoughtless slip or blunder ... may expose accountants to a liability in an indeterminate amount for an indeterminate time to an indeterminate class. The hazards of a


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