Legal Question in Business Law in California

Re: Assigning of rights

Your situation suggests a third-party plaintiff malpractice action for your firm negligently representing the value of a property to your client, to the third party's ultimate loss. This kind of lawsuit most frequently arises in cases where a CPA firm is sued by a bank that lent money to the CPAs' client in reliance on the borrower's audited financials that later turned out to be erroneous.

In California, a commonly applied rule of law is so-called "specific foreseeability." This means the professional being sued (accountant, appraiser, etc.) is liable to a third party, who was not his client, only if the professional knows that the specific third party plans to rely on the professional's work-product, and it is for a transaction whose nature and extent is known to the professional. [Bily v. Arthur Young & Co. (1992) 3 Cal.4th 370].

So, the Bily case may provide you with a defense if you were unaware of the third party or the intended use by that third party of your report.

Obviously, if you are served with a lawsuit you need to get a lawyer, file an answer, and prepare a defense based on this and other cases and all the facts. Then, I would say you have a good chance of winning.

Re: Assigning of rights

Unfortunately, things are not always quite as simple as we would like. I would need to have more facts before making any conclusive decision. HOwever, there is such a concept as "third party beneficiary" where a contract between two or more parties may be for the benefit of a third (unrelated) party. Under such circumstances the third party MAY be able to assert some rights against one or more of the contracting parties.

Additionally, one party to a contract MAY assign their contractual rights to a third party (depending on the terms of the agreement).

Therefore, you need to sit down with a good attorney and discuss this and review the documentation.

I would be happy to discuss this with you.

Call to schedule an appointment - 805-494-6557 or email me: [email protected]

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