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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.
In many ways written or oral contracts make the business world function with a relative degree of certainty. Generally, contracts exist between and cover relationships with:
It is important to bear in mind that it is usually much easier to enforce an unambiguous written contract than an oral contract. Many times In actions involving oral contracts, the dispute relates to exactly what the terms of the oral agreement were. This situation does not exist with an unambiguous written contract. Moreover, there are certain legal impediments that must be over come in enforcing an oral contract, which include, in Florida, the statute of frauds. If the written contract has ambiguities in it, as with oral contract disputes, extrinsic evidence is required to support the each parties position. Consequently, it is important to hire qualified and experienced counsel to enhance your chances of success.
Because the majority of this website deals with relationships between a brokerage firm and its clients, the following discussion will focus on a breach of contract action between those two parties.
Whether a customer wants to open a cash, margin, options or commodities account, it is necessary for the client to execute various written 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 when the terms of the agreement favor the firm. For example, if you have entered into a margin agreement with the firm, 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 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 nondiscretionary. 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 those associated with this type of 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 the hybrid relationship and the damages arising therefrom.
Simplistically, to state a cause of action for other types of contract disputes, the complaining party must alleged the execution of the written contract (or the specific oral terms thereof), its performance and the breach by the defendant, which is usually nonpayment.Contact Us
With extensive courtroom, arbitration and mediation experience and an in-depth understanding of breach of contract and securities law matters, 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.