Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

07/01/83 CITIZENS STATE BANK v. TIMM

July 1, 1983

CITIZENS STATE BANK, PLAINTIFF-APPELLANT-PETITIONER,
v.
TIMM, SCHMIDT & CO., S.C. AND GENERAL CASUALTY CO. OF WISCONSIN, DEFENDANTS-RESPONDENTS



Review of a decision of the Court of Appeals. Reversing and remanding Day, J.

The opinion of the court was delivered by: Day

This is a review of an unpublished decision of the court of appeals which affirmed a judgment and order of the Circuit Court for Portage County, Honorable Fred A. Fink, Judge. The judgment granted the respondents', Timm, Schmidt & Company and General Casualty Company, (hereinafter Timm) motion for summary judgment dismissing Citizens State Bank (hereinafter Citizens) negligence cause of action *fn1 in this accountant malpractice case. The order denied Citizens' motions for leave to file a supplemental affidavit and for reconsideration.

The issue considered on review is: May an accountant be held liable for the negligent preparation of an audit report to a third party not in privity who relies on the report?

We conclude that an accountant may be held liable to a third party not in privity for the negligent preparation of an audit report under the principles of Wisconsin negligence law. We also conclude that the information in the record raises a material issue of fact so that the summary judgment motion was improperly granted. We reverse the decision of the court of appeals and remand the case to the trial court for a trial on the negligence cause of action.

From the record, the following facts appear to be undisputed.

Timm is an accounting firm in Stevens Point. For the years 1973-1976, Timm employees prepared financial statements for Clintonville Fire Apparatus, Inc. (hereinafter CFA). These financial statements included: a comparative statement of financial condition, a statement of yearly income, a statement of retained income and a statement of changes in financial position. In addition, for each year except 1973, *fn2 Timm sent an opinion letter to CFA which stated that the financial statements fairly presented the financial condition of CFA and that the statements were prepared in accordance with generally accepted accounting principles.

In November, 1975, CFA obtained a $300,000 loan from Citizens. The loan was guaranteed by the Small Business Administration, a federal agency (hereinafter SBA). Citizens made the loan to CFA after reviewing the financial statements which Timm had prepared. Additional loans, apparently not SBA guaranteed, were made by Citizens to CFA in 1976. By the end of 1976, CFA had a total outstanding indebtedness to Citizens of approximately $380,000.

In early 1977, during the course of preparing CFA's financial statement for 1976, Timm employees discovered that the 1974 and 1975 financial statements contained a number of material errors totaling over $400,000, once all period adjustments were made.

Once these errors were corrected and Citizens, as a creditor of CFA, was informed by Timm of the errors, Citizens called all of its loans due. As a result, CFA went into receivership and was ultimately liquidated and dissolved. As of the date the complaint was filed, the amount outstanding on Citizens' loans to CFA was $152,214.44.

Citizens filed an action against Timm and its malpractice insurance company on September 14, 1979, seeking to recover $152,214.44, the amount due on its loans to CFA.

Timm answered in October, 1979. On March 25, 1980, Timm filed a motion for summary judgment on the grounds that the pleadings and affidavits it submitted with its motion raised no issue of material fact and showed Timm was entitled to judgment as a matter of law. The affidavits submitted with the motion came from every member of the Timm firm who had worked on the CFA account. Each affidavit stated that the affiant had no knowledge, until after the fact, that CFA intended to or had obtained any loans from Citizens. The affidavit of Elmer Timm, president of the firm, also stated that he was never informed by any person that any audit report prepared by his firm for CFA would be used by any lender for the purpose of determining whether or not to make a loan to CFA.

Citizens submitted a number of affidavits in opposition to the motion for summary judgment. The affidavit of Den E. Hood, a certified public accountant, stated that he had examined the audit procedures used by Timm employees in preparing the 1974 and 1975 financial reports. Hood concluded after examining the procedures that the audit examinations had not been conducted in accordance with generally accepted auditing standards. He also concluded that had such standards been complied with, the material errors in the 1974 and 1975 statements should have been discovered and corrected prior to the issuance of each statement.

Citizens also submitted affidavits from its president, Gerald Beier, and a transcript of part of a deposition taken from Elmer Timm. Beier's affidavit contains a reference to a letter in Citizens' files from an employee of SBA "which indicated that they were waiting for more financial information from the accountants for CFA before approving and guaranteeing the loan to CFA, which was ultimately made by [Citizens'] in November of 1975." Beier also stated that Citizens' loans to CFA were made in reliance upon financial statements which had been prepared by Timm. The Elmer Timm deposition includes testimony showing that he knew the audited statement his firm prepared for CFA for the year ending in 1974 would be used by CFA to receive a guarantee on a loan through SBA. In the deposition however, there is a statement suggesting that he misspoke and actually intended to refer to the statement his firm had prepared for the year ending December 31, 1973, instead of 1974. *fn3

Citizens also filed two affidavits from John Dando, CFA's president. The first was filed on October 8, 1980 and was considered by the trial Judge in his original decision. That affidavit recited that Dando believed Timm was aware that statements its employees prepared would be ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.