Court Case Of Fred Stern & Company, Inc.

Shani Davis
11/23/16

Fred Stern & Company, Inc.
(Ultramares Corporation v. Touche et al.)

Fred Stern & Company, Inc. was a company in which self-serving attitude prevailed. In March 1924, Stern took a $100,000 loan from a finance company, Ultramares Corporation. Touche, Niven & Company had been Stern’s independent audit since 1920 and issued an audit report which allowed them to take out a loan. Touche knew that Stern intended to use the audit reports to retrieve external debt financing but was unaware of the banks or finance companies that received the audit reports. Fred Stern & Company declared bankruptcy by January 1925. Stern’s accountant who only identified himself as Romberg in court records, covered Stern’s bankrupt status from the

The Plaintiff counsel demonstrated that just by looking at the invoices, one would have revealed that they were fake. The invoices lacked shipping numbers, customer order numbers, and other information. The court ruled that given the suspicious nature of the large December sales entry recorded by Romberg, the court stated that Touche should have especially reviewed the December sales invoices. Touche auditors found many errors, while company’s inventory, that collectively caused the inventory account to be overstated by more than $300,000, an overstatement of 90%. The juror’s rules that the company’s attorney failed to establish that the audit firm had intentionally fooled Ultramares. Regarding the negligence charge, the jury ruled in favor of Ultramares and ordered Touche to pay the company damages of $186,000. However, the judge overturned the jury’s ruling explaining his decision, that the jury overlooked the long-standing legal doctrine that only a party in privity could sue and recover damages resulting from a defendant’s negligence. Ultramares’ lawyers quickly appealed the trial judge’s decision. In a 3 to 2 vote, the appellate division decided that the trial judge erred in reversing the jury’s verdict on the negligence