Question

Liability of auditors has evolved over the past 80 years through many changes in legislation brought on by the cycle of fraud over the years and by many court cases that broadened the scope of auditor liability.

Discuss the Restatement (Second) of the Law of Torts. Include in your discussion who established this Restatement, how it used, and what impact it had on third party liability.

Answer 1

A restatement of the law is a compilation of legal rules, principles and premises that is written by law professors, judges and other legal professionals. A restatement of the law is designed to give a complete picture of the rules guiding a given area of the legal system. Restatements are not laws themselves, but are simply guides to the laws that are in existence.

Within common law systems, such as the United States and the United Kingdom, laws come from several different sources. Laws can be made by legislatures, if formal bills or statues are passed. Laws also come from constitutions. Finally, laws come from case law or common law, which refers to judge made law. If a judge hears a case and decides an issue a certain way, the decision and the principles in that case become binding legal precedent and in a sense become the law.

As such, knowing exactly what the law is on a given issue can be confusing. If, for example, a person wanted to understand how the language of a contract should be interpreted, he might have to consult a statute, such as the Uniform Commercial Code. He might also have to consult numerous judicial cases in which judges have made rulings on how to interpret words within a contract.

Who Established this restatement:

The American Restatement of Torts, Second is a treatise issued by the American Law Institute.[1] It summarizes the general principles of common law United States tort law. The volumes covering torts are part of the Second Restatements of the Law series.

It includes four volumes, with the first two published in 1965, the third in 1977 and the last in 1979.

Section 402A of this Restatement, discussing strict liability for defective products, is by far the most widely cited section of any Restatement.[2] It gave birth to such an enormous body of case law that an entirely new Restatement of Torts, Third: Products Liability was published in 1997 to supersede Section 402A and related sections.

Established this restatement (second)

Restatement of Torts, Second is a written summary of the common law of tort as it has developed in the American courts, adopted and promulgated by the American Law Institute.

In 1952, the Institute started the Restatement Second — updates of the original Restatements with new analyses and concepts with and expanded authorities. (A Restatement on Foreign Relations Law of the United States was also undertaken.) The Second Restatement of the Law was undertaken to reflect changes and developments in the law, as well as to implement a new format that provided more expansive commentary and more meaningful illustrative material, affording fuller statements of the reasons for the positions taken. For example, the volumes generally included a set of Reporter's Notes that detailed the reasons on which the principles and rules stated were based and the authorities that supported them. And for the convenience of legal researchers, the second series of volumes also provided cross-references to the key numbers of the West Publishing Company's Digest System and to the A.L.R. annotations of the Lawyers Cooperative Publishing Company. In addition, appendix volumes included digest paragraphs of decisions of state appellate courts and federal courts citing the Restatements on each subject.

Each Restatement section includes a black letter principle, comments and illustrations, and, in the form of reporters' notes, a detailed discussion of all the cases that went into the principle summarized in that one section. By citing a Restatement section in a legal brief, a lawyer may bring to the attention of a judge a carefully studied summary of court action on almost any common law legal doctrine. The judge can then consider the Restatement section and make an informed decision as to how to apply it in the case at hand. While courts are under no formal obligation to adopt Restatement sections as the law, they often do because such sections accurately restate the already-established law in that jurisdiction, or on issues of first impression, and are persuasive in terms of demonstrating the current trend that other jurisdictions are following.

Restatements are rare in common law jurisdictions outside of the United States[2], where Law reports are more frequent[3]. Former Justice of the High Court of Australia William Gummow attributes the requirement for Restatements in the United States to the lack of a nationwide court of final common law adjudication.

The Restatement of the Law is one of the most respected and well-used sources of secondary authority, covering nearly every area of common law. While considered secondary authority (compare to primary authority), the authoritativeness of the Restatements of the Law is evidenced by their acceptance by courts throughout the United States. The Restatements have been cited in over 150,000 reported court decisions.

How it is used:

a.  The interest protected by the rule stated in this Section is the interest of the individual in the exclusive use of his own identity, in so far as it is represented by his name or likeness, and in so far as the use may be of benefit to him or to others. Although the protection of his personal feelings against mental distress is an important factor leading to a recognition of the rule, the right created by it is in the nature of a property right, for the exercise of which an exclusive license may be given to a third person, which will entitle the licensee to maintain an action to protect it.
b.  How invaded.  The common form of invasion of privacy under the rule here stated is the appropriation and use of the plaintiff's name or likeness to advertise the defendant's business or product, or for some similar commercial purpose. Apart from statute, however, the rule stated is not limited to commercial appropriation. It applies also when the defendant makes use of the plaintiff's name or likeness for his own purposes and benefit, even though the use is not a commercial one, and even though the benefit sought to be obtained is not a pecuniary one. Statutes in some states have, however, limited the liability to commercial uses of the name or likeness.

There are good things to say about going with the Second Restatement – not only is harmony v. discord among the states a plus, but going to the Second Restatement rule allows you to plug into caselaw from other jurisdictions – it may not be Maine precedent, but there's a body of law out there to look at for guidance. And if you are going to change the law, there aren't a lot of other resources except the Second Restatement, which has the test of time in its favor and had the goal in the first place of identifying existing law, and not attempting to change that law (in contrast with, e.g. the Third Restatement)

One downside may be in thinking that the Second Restatement is more than it is. There are areas in which the language of the Second Restatement rule is pretty fuzzy, and it's important to understand that broad language doesn't mean that it's an "anything goes to the jury" tort; rather, the rule must be examined in the context of the other common law in that jurisdiction to impose some parameters.

The Second Restatement rule on public nuisance (section 821B) is a classic example. The rule has vague language about how the tort requires "unreasonable interference." Hmm – unreasonable – doesn't that mean when I'm the one who wants relief? That's not a very workable test.

Well, go read the fine print (you're a lawyer, right, isn't that what we do?) If you look at all the Second Restatement's text on public nuisance, you will see that it (like many other sources, e.g Prosser) says that public nuisance law is a big mushy mess. Instead of trying to fix this mess, comment e to Section 821B says that "if interference with a public right is not within the traditional common law, the court is acting without an established standard." Translation – if you want to have any limits to the tort, you'd better apply some from your jurisdiction's common law.

In sum, the Second Restatement isn't necessary a replacement for a jurisdiction's common law; it may simply help inform it.

Impact:

The Restatement of the Law is one of the most respected and well-used sources of secondary authority, covering nearly every area of common law. While considered secondary authority (compare to primary authority), the authoritativeness of the Restatements of the Law is evidenced by their acceptance by courts throughout the United States. The Restatements have been cited in over 150,000 reported court decisions.

This Restatement covers the topics of unintentional infliction of economic loss, including professional negligence, negligent misrepresentation, negligent performance of services, and public nuisance. It also addresses fraud, breach of fiduciary duty, interference with contract, unjustifiable litigation, and civil conspiracy.

“Recovery in tort for economic loss has been a growth area in American law over the last few decades,” said ALI Project Reporter Ward Farnsworth, Dean of the University of Texas School of Law. “There has been a lot of judicial commentary and a lot of scholarly commentary on when it ought to be possible to recover in tort for a pure economic loss. Our goal in this Restatement has been to capture the best insights of the commentary while staying true to where the case law has been going.”

Several torts in this project were covered in the Second Restatement of Torts but required revision because of developments in the law. In addition to updating the economic torts covered in the Second Restatement, this Restatement addresses some topics not covered in prior Restatements. These include the economic-loss rule outside the area of products liability, exceptions to the economic-loss rule, bad-faith breach of contract as a tort, and the application of principles of comparative responsibility to economic torts.