Limitation of Actions

An accountant is liable for his professional malpractice.  When there is a professional malpractice, the period of limitation starts depending on whether the cause of action is brought in contract or tort[i].  If cause of action arises from breach of promise, the action is contractual in nature and if it arises from breach of a duty it is a tort[ii].  When the cause of action is contractual in nature, courts apply contract statute of limitation[iii].  When the cause of action is a tort, courts apply tort statute of limitation.

Limitation starts to run in civil actions on contracts from the time the agreement is breached, and not from the time actual damages are caused as a consequence of the breach.

Under tort actions, generally the limitation starts to run when damages incurred and not when it is discovered[iv].  Similarly when there are two or more statutes of limitations in state, courts consider the statute with the longest limitations period.

However, some courts are of the view that limitation period begins to run from the date the negligent act comes to the knowledge of person injured.  In Schrader v. Scott, 8 Cal. App. 4th 1679 (Cal. App. 4th Dist. 1992), the court held that limitation period against an accountant for negligently preparing tax returns accrues when the person injured receives a notice of penalty from the government.

In some states, the limitation period for accounting malpractice accrues when accountant discontinues his service to injured person in a professional capacity for the reason of discovery of malpractice[v].  When the cause of action arises because of misrepresentation, the limitation period starts when the person injured discovers the misrepresentation[vi].

[i] Sato v. Van Denburgh, 123 Ariz. 225 (Ariz. 1979)

[ii] ibid

[iii] L. B. Laboratories, Inc. v. Mitchell, 39 Cal. 2d 56 (Cal. 1952)

[iv] Ohio Farmers Ins. Co. v. Shamie, 243 Mich. App. 232 (Mich. Ct. App. 2000)

[v] Gleason v. Ernst & Young, 2002 Mich. App. LEXIS 212 (Mich. Ct. App. Feb. 19, 2002)

[vi] NCNB Nat’l Bank v. Deloitte & Touche, 119 N.C. App. 106 (N.C. Ct. App. 1995)

Inside Limitation of Actions