Fred Stern & Co., an importer of rubber, hired the accounting firm Touche, Niven & Co. to prepare and certify its financial statements. The accountants prepared a balance sheet showing the company had a net worth of over $1 million, when in reality the company was insolvent.

Ultramares Corporation, a factor (a company that purchases accounts receivable), relied on these certified financial statements when deciding to extend credit to Fred Stern & Co. Based on the apparently strong financial position shown in the audited statements, Ultramares loaned substantial sums to the company.

When Fred Stern & Co. went bankrupt, Ultramares discovered the financial statements were materially false and sued the accounting firm for negligence, claiming they had relied on the inaccurate audit to their detriment.

Judge Cardozo, writing for the court, distinguished this case from MacPherson v. Buick, reasoning that different policy considerations apply to professional services versus manufactured products:

• Professional services are different from manufactured goods - they involve judgment and opinion rather than physical products
• Extending negligence liability to all foreseeable third parties would create "liability in an indeterminate amount for an indeterminate time to an indeterminate class"
• The accountants had no knowledge of Ultramares' specific reliance or the particular use to which the statements would be put
• Public policy requires limiting professional liability to prevent crushing liability that would make professional services prohibitively expensive

The court emphasized that while negligence claims require privity or near-privity, fraud claims can proceed against third parties because intentional misconduct deserves broader liability than mere negligence.

Ultramares Corp. v. Touche has had lasting impact on professional liability law:

• The Ultramares Rule: Established the principle that professionals generally owe no duty of care to third parties absent privity or near-privity
• Professional Liability Standards: Created a framework for analyzing when professionals can be held liable to non-clients
• Policy Considerations: Highlighted the need to balance third-party protection with reasonable limits on professional liability
• Distinction Between Negligence and Fraud: Clarified that intentional misconduct receives broader liability than mere negligence
• Influence on Modern Law: Many jurisdictions still follow or reference the Ultramares approach, though some have adopted more expansive liability rules

The case remains influential in professional malpractice law, particularly for accountants, attorneys, and other professionals whose work may be relied upon by third parties.