Breach of Contract

The purpose of this post is to provide the reader with a general discussion concerning the concept of breach of contract and is not designed to be complete in all material respects. Thus, this post does not focus on the law of any particular jurisdiction or any specific set of facts. This information is being provided for educational purposes only and should not be considered or relied upon as legal advice.

A stand alone breach of contract claim can only be filed in a federal district court, if the federal court has diversity jurisdiction over the parties. In simple terms, this means that all of the plaintiffs have to be citizens of state A, and all of the defendants have to be citizens of a state other than state A. Additionally, the amount in controversy has to at least $75,000.

Generally in alleging a claim for breach of a written contract, the plaintiff must allege the execution of a written contract, the date that it was signed by the parties, the general terms of the contract, performance by the plaintiff and what the breach was by the defendant, which is usually the lack of payment. It is also a good idea for the plaintiff to attach a copy of the a copy of the contract to the complaint.

As with most contractual disputes, the defendant denies liability and raises, in response to the allegations in the complaint, what is legally referred to as affirmative defenses. These affirmative defenses usually reference such things as the statute of limitations, failure or lack of consideration, payment and any other numbers of defenses. One such defense, which is also a rule of evidence, is the “parole evidence rule.”

The parole evidence rule, may affect the terms of a contract or how it is enforced. Stated simply, where the terms of a written contract are being argued in a court proceeding, the parole evidence rule prohibits the introduction of any agreements between the parties which conflict with the written contract and which were made prior to the contract. The court will look to the written contract as containing the full expression of the parties’ agreement as of the date written. Thus, when making contracts it is important to incorporate all the terms of your agreement into the written document.

However, it is important to remember that the parole evidence rule does not apply to subsequent oral agreements between the parties, which can be shown to have altered the original written contract if all legal requirements are present.

As it relates to an oral contract, the plaintiff must allege who the parties to the contract were, the date that it was entered into, what the duties and responsibilities were of the respective parties, and what the breach of the defendant was. In addition, some states, such as Florida have, by statute, placed certain restrictions on the enforcement of oral agreements.

For example, Florida Statute 725, the Florida Statute of Frauds, requires that some contracts must be written and signed to be valid. Also, in Florida, the statute of limitations, relating to an oral contract (the period of time in which you must commence an action) is different from that involving the breach of a written contract.

In many ways, written contracts make the business world function with a relative degree of certainty. This concept is true relative to the relationship between a brokerage firm and its clients. Whether a customer wants to open a cash, margin, option or commodities account, it is necessary for the client to execute various agreements, which set forth the basic relationship between the customer and the firm. Because these documents are prepared by the brokerage firm, it should not be a surprise that when possible the terms of the agreement favor the firm. For example, if you have entered into a margin agreement with the firm, usually the agreement gives the firm the right but not the obligation to sell securities in your account in the firm’s absolute and sole discretion. These types of positions can be construed as ominous for the customer. Luckily for the customer, there are ways to attempt to overcome these contractual provisions.

First of all, most brokerage agreements contain language such as the fact that all orders and transactions executed in the client’s account shall be subject to all applicable federal and state laws and regulations, and the constitution, rules, regulations, customs, usages, rulings and interpretations of the exchanges or market and its clearinghouse where such transactions are executed. Applicable federal and state laws and regulations would include the respective securities laws of each, the rules of FINRA and various exchanges.

Secondly, all brokerage firms dealing with retail customers must be a member of FINRA. As a member of FINRA, these firms and their associated persons are subject to and must comply with FINRA rules and regulations in their dealings with customers.

Most brokerage account relationships are classified as non-discretionary. This means that the client has not executed a limited power of attorney giving the account executive the discretion to make trades in the client’s account without first obtaining the client’s consent. Therefore, the broker attempts to limit its responsibilities under the contract to performing the following duties associated with a nondiscretionary account. Conversely, if the client has not executed a limited power of attorney granting trading authorization to the broker, the client attempts to establish that the account relationship between the broker and the client was more of a hybrid relationship, which takes into consideration more of the true relationship that existed. In order for the customer to establish this later type of relationship, it is important for the client to retain experienced counsel to enhance the client’s ability to prove the existence of this type of relationship and the damages arising therefrom.

With extensive courtroom, arbitration and mediation experience and an in-depth understanding of securities law, our firm provides all of our clients with the personal service they deserve. Handling cases worth $25,000 or more, we represent clients throughout Florida and across the United States, as well as for foreign individuals that invested in U.S. banks or brokerage firms. Contact us to arrange your free initial consultation.