Question: Garnett Food Service, Inc. owned the building and land that Woods, Johnson and Smith planned to purchase. Prior to putting the property on the market, Garnett hired Lindsey Silver, of the accounting firm of Stevens, Silver and Winters to conduct an audit of the current business located on the property. Silver knew that potential buyers would use the audit report in making their decision to purchase the property. Silver's audit report showed the current restaurant to be profitable.
Woods, Johnson and Smith relied on the accountant's report in agreeing to purchase the property. It was later discovered that Silver made a number of mistakes that overstated the profitability and value of the property. Woods, Johnson and Smith sued Silver and her accounting firm for damages based on negligent misrepresentation of fact. Silver used lack of privity of contract as her defense.