*1
time,
order at
this
limit
to one the
court’s sanction
we
can
the same
appeals
spawned
number
which
be
Dinello,
Surgery,
supra,
action.” Miller Oral
Inc. v.
at
Accordingly,
v. PERELLE, Appellant.
Ira B. LYNCH, SMITH, PIERCE, Appellant, MERRILL FENNER & PERELLE, Appellee.
Ira B. Superior Pennsylvania. Court of
Argued Oct. Aug. 13, Filed *3 (at 706) Jr., E. for Philadelphia, appellant David Sandel (at 759). appellee and for Jr., Baker, Hodgson, Stephen C. Philadel-
C. Clark 706). (at 759) (at appellee for and for phia, appellant ROWLEY, HOFFMAN, Before McEWEN and JJ. McEWEN, Judge: Pierce,
Merrill Smith, (hereinafter Lynch, Fenner & Inc. Merrill Lynch, appellant), a firm brokerage with offices in Philadelphia, against instituted suit Dr. appellee, Ira Perelle (hereinafter appellee), seeking sums allegedly due and ow- ing to Merrill Lynch following liquidation of a account1 by appellee. maintained Appellee counterclaimed inter damages resulting from, alia, an alleged breach fiduciary duty owed Lynch appellee. Trial was held before distinguished Judge Lois Forer sitting without a The jury. court awarded Merrill Lynch $20,191.77, the sum of representing the deficit which result- ed when' appellee’s margin account liquidated, plus interest, $13,715.50 and awarded the sum of appellee his counterclaim for breach of fiduciary duty. These awards resulted in the entry of a final judgment $6,479.27 amount favor Merrill from which parties appealed. both have
Merrill Lynch argues (1) the trial court erred: finding that Merrill a fiduciary duty appel- owed lee; (2) in finding “shingle theory” liability broker applicable; (3) in finding that five days was a “reason- "Briefly, margin buys a is a loan: when one stock on margin, pays only portion one of the total cost of the securities. The puts up money, charging broker the remainder of the the customer a monthly fee on the amount borrowed. purchase margin, (1) requires To stock on the NYSE that the customer *4 stock, put up (2) at equity least 50% of the cost of the and establish an $2,000. equal bought at least Once the customer has stock on margin, requires equity the NYSE that the customer’s in the account always represent least at 25% of the current market value of the stock. require equity. a Most brokers 30% equity (because If a customer’s falls below 30% minimum value), gone stock has down in the customer’s account becomes made, subject to a ‘maintenance call’. When such a call is deposit customer cash must or collateral to maintain the If account. call, the customer is unable to meet a will the broker sell enough in the stock customer’s to meet the 30% requirements." maintenance Co., 677, (9th Cir.1980).
Jablon v. Dean & 614 Witter F.2d 682 n. 10
169 purposes calculating damages appel- time” for of able of fiduciary duty. lee’s counterclaim breach following findings The trial court made the of fact2: Smith, Plaintiff, Pierce, Fenner & Inc. Lynch, 1. Merrill (hereinafter is a Lynch”) registered “Merrill broker-dealer in of engaged purchase the business of and sale securities of on behalf its customers. Merrill is a York with offices Lynch corporation
2. New Philadelphia. in Perelle, “Perelle”) Defendant, (hereinafter B. is a
3. Ira Bronxville, Perelle). of York. of (Testimony resident New April opened 4. On or about Perelle an account Philadelphia by Merrill for the telephone (Exhibit P-1; buying selling and securities. purpose Perelle). Testimony Kirkpatrick friend, Perelle referred to Merrill Dr. Lynch by 5. Bazilian a customer of Merrill Lynch. Stanford who was trading high Both Perelle and Bazilian interested in were (Exhibit P-1, Kirkpatrick risk Testimony investments. Perelle). 1977, In Perelle and Merrill entered into a May, (Plaintiff’s margin agreement. Request for Admissions No. Answer; Testimony Kirkpatrick; 1 Defendant’s Exhibit P-2). margin agreement, supplied by
7. The a form written provided in consideration for Merrill Lynch, agreeing money, partially to lend Perelle secured Lynch’s purchased, securities which he such “securities' ... now by you Lynch] any my or hereafter carried [Merrill for the security accounts ... are to be held as you disagreement parties was considerable between the as to the There preceding liquidation appellee's margin events account. How- ever, findings supported by of the trial court are of fact are, therefore, binding upon Princess evidence and this Court. Hotels 231, 1064, Hamilton, 226, Pa.Super. 473 A.2d International Bank, N.A., (1984); Pennsylvania Pa.Super. Delahanty v. First (1983). 464 A.2d *5 accounts____” payment of any liability you any said (Exhibit P-2).
8. The margin agreement provided further that Merrill “shall the right, your whenever in have discretion you consider it for necessary your protection ... to sell any or contracts, all outstanding all without demand mar- for gin or margin, additional notice of sale or purchase or advertisement, other notice or and such sales purchas- may es be made at your discretion on any exchange or other market where such business is then trans- usually it being acted ... understood that I shall at all further times be liable the payment debit any balance for owing in any my demand, accounts with you upon and that I shall be liable any deficiency remaining in such accounts in the event the liquidation thereof in whole or in part by you or me.’’ by added). (Emphasis
9. The further provided that “monthly in my [i.e., account(s) debit balance shall Perelle’s] charged, be your accordance with Merrill Lynch’s] [i.e. usual custom with interest at a rate which shall include the average rate paid by you general on during period loans by covered such balances respectively, any extra rates by caused market stringency, together charge with a your cover credit service and facilities.” (Exhibit P-2). A margin account is a securities account which a
customer purchases with, securities in part, funds lent the broker. Under the practice parties, when purchases customer securities on margin, he is pay (50%) to the broker fifty percent of the price. The purchase balance of the price is lent to the customer broker, with interest at the (Testi- broker’s call loan rate. mony Kirkpatrick Perelle).
11. A margin account consists of the following three components: market value present
(a) value” —the “long market date, given of a as purchased securities *6 the by the loan made or value of (b) amount “debt” —the margined of the purchase the customer broker securities, and (cash account of the customer’s
(c) value “equity” —the loan margin the amount of the securities) exceeds that Kirkpatrick). of (Testimony date. given as of a Robert by account was handled margin Dr. Perelle’s material times. at all (“Kirkpatrick”) III Kirkpatrick, J. 30, 1978, Dr. times to October prior At all material and main- opening mechanics of general knew the Perelle the downward and the fact that margin a account taining require portfolio might in his positions of the movement did in Dr. Perelle his account. equity of additional deposit mar- know, however, applicable the intricate details not of the mechanics accounts, unfamiliar with and he was gin (Testi- calls. margin maintenance meeting Lynch’s Merrill Perelle). mony Lynch Merrill account with margin
14. Plaintiff’s handled friends of Dr. Bazilian’s group one of a of accounts degree great relied to a These customers Kirkpatrick. Bazilian. advice of Dr. judgments on the investment in favor attorney power did not execute a 15. Perelle for all solely responsible of Dr. Bazilian. Perelle was of Kirk- (Testimony respect to his account. decisions with Perelle). patrick notify Merrill will
16. There are occasions when equity additional of the need for the customer There referred to a “call”. This notification is as account. are: that, requirement of the
(a) T Calls”—notice “Regulation for the custom- securities margined upon purchase the broker account, deposit must er’s the customer in the equity that or securities so sufficient funds (50%) the pur- fifty percent equals customer’s account securities, and margined of the price chase (b) “Margin Maintenance Calls”—notice to the customer equity additional is in his margin account. Margin are generated by maintenance calls when the equity the customer’s account falls below 30% value the securities held the account. (Testimony of Kirkpatrick).
17. The may satisfy customer or meet mainte- nance calls in the following ways:
(a) action, whereby appreciation market in the value of margined securities causes sufficient in long increase value, market
(b) by deposit with broker of funds to the equal call, amount of the (c) by sale in the of securities having value *7 call, three and one-third times the amount of the margin and
(d) by with deposit marginable the broker of securities having a value one and one-third the times amount of the of Kirkpatrick). call. (Testimony 18. The information Merrill only requested with Lynch respect Dr. Perelle’s was application financial status the on which $50,000 Perelle stated that his was per income year. (Testimony P-1). of Kirkpatrick; No. Exhibit In
19. the from of period April through of October 1978, Dr. Perelle actively traded securities his Merrill account, Lynch margin consisting of approximately eighty transactions.
20. Most of investment ideas for the purchase Bazilian; of originated sale with Dr. securities Perelle had a ideas his few of own. No investment recommendation originated Merrill Lynch; Lynch Merrill no carried investment of the opinion any purchased securities sold of (Testimony Kirkpatrick). Perelle.
21. Kirkpatrick’s service to Perelle as to investments was or sell executing buy placed by orders Perelle and as rendering advice to the condition prices of market or Kirkpat- of securities held in the account. of (Testimony rick). In of 1977 period April through
22. from October of faithfully Perelle met promptly ap- each T Regulation calls from Merrill proximately Lynch twelve him to additional in his account. requiring deposit equity of prior Lynch 23. At no time to October did Merrill have occasion to make a maintenance call on Dr. Perelle, to suspect and it had no reason that Dr. Perelle timely would not meet such calls a and faithful any upon fashion if called to do so. 1, 1978,
24. As of Merrill did not ques- tion Dr. Perelle’s financial responsibility. (Testimony Kirkpatrick). During from period May, through October
1, 1978, Perelle made securities on purchases substantial On or margin. component about October debt (i.e., of his amount of loans cumulative Perelle) $80,- made excess Perelle; 11(a)). (Testimony 000.00. Exhibit October, 1978, the mar- During the month of stock experienced period very (Testimony ket severe decline. of Kirkpatrick; Testimony Derbyshire).
27. The decline in the stock market affected adversely *8 the of in Perelle’s (Testimony value the securities account. Perelle). Kirkpatrick; Testimony of of 19, 1978, Beginning following margin 28. on October the maintenance calls were made on Perelle’s account: Originated Date Call Date Call Due Amount of Call $ 2,938.00 10/19/78 10/26/78 10/20/78 10/27/78 16.982.00 10/23/78 10/30/78 14.627.00 10/24/78 10/31/78 19.238.00 10/25/78 11/1/78 18.225.00 10/26/78 11/2/78 25.649.00 10/31/78 11/7/78 12.109.00 of Kirkpatrick). (Testimony
29. in calls were made the The course of busi- ordinary ness Despite and sent mail. testimony Perelle’s that he calls, did not the receive the court finds he did that receive all these calls. (Exhibits
30. Merrill Lynch’s maintenance call record P-5) P-4 and the margin indicates that maintenance calls of October October and October 23 were marked as in having been “met full”.
31. Merrill margin maintenance days, calls be met within seven or five business of days, origination. of (Testimony Kirkpatrick). Lynch’s margin
32. Merrill calls maintenance were cal- following culated New York the close of business on the date of origination of the call. The Philadelphia Office was following notified of the call the morning by high speed printer printed multi-part which on a margin maintenance form, call the customer, name and address of the the amount the call and the date That an origin. day employee Philadelphia margin department refigured amount the call and established the due date for the call. multi-part separated: The form was one form was cashier, delivered one was to the delivered desk of executive, one account was delivered the mail room. The call was also recorded a clerk on a margin procedure maintenance call record. The was observed dur- ing October, 1978. (Testimony Kirkpatrick; Derbyshire).
33. Kirkpatrick’s practice, It time each he was notified of a maintenance call to one directed of his customer, customers, to call that advise him of the call and try (Testi- to determine how matter could be resolved. Kirkpatrick). mony Friday, On October Perelle had a telephone Kirkpatrick
conversation with the status concerning of his light declining prices. market telephone conversation, In the Perelle Kirkpatrick instructed to sell his holdings Community *9 Centers, Mortgage American Investment North Psychiatric Robinteeh. and 1978, the above 20, sold On
36. October Dr. Perelle’s account securities, for producing proceeds $14,000.00. approximately 20, Friday, of business on October of the close
37. As in his account: as follows 1978, positions Perelle had Dr. bonds; (a) Eight Grolier 13% Sciences; Mohawk Data
(b) hundred shares of Sixty-five [ 3 ] Vertipile; and
(c) hundred shares of Forty-four Industries. (d) hundred shares of Wichita Sixty-five 1978, 25, Kirkpatrick Wednesday, 38. On October the condi- telephone concerning conversation Perelle had a generally. and Perelle’s account tion of the stock market he 1978, might 25, knew as of October that 39. Perelle due to equity his account deposit additional be held.[4] securities that he prices declining 27, 1978, Kirkpat- Perelle called Friday, 40. On October his In rick, account. this inquire about the status that he Kirkpatrick Perelle informed telephone conversation afternoon, beginning for the away would be weekend he would gave telephone number where Kirkpatrick staying. be called Sunday, Kirkpatrick
41. On October (Tes- had telephone supplied. number Perelle Perelle at the Perelle). timony of conversation, stated telephone Kirkpatrick
42. In this on and that Perelle’s Friday” that “all hell broke loose (Testimo- liquidated Monday. have on to be would Perelle). ny 4,000 only appears actually It that Dr. Perelle held
3. from record shares Mohawk Data Sciences opinion subsequently its that Dr. Perelle also The court noted trial 1,000 sale, shares Mohawk authorized the on October $8,150.26. Data sum of Sciences *10 Kirkpatrick 43. informed Perelle that liquidation would leave a deficit in balance (Testimony account. of Kirk- patrick). Dr. Perelle Kirkpatrick instructed not to do any- thing until he to spoke him. (Testimony Perelle). Perelle
44. did not indicate any at time a financial inabil- meet ity maintenance calls. (Testimony of Pe- relle). Perelle told Kirkpatrick never he would not pay the due. Perelle). amount (Testimony 45. Perelle, On October before speaking with Kirkpatrick liquidated Perelle’s account.
46. At no time Kirkpatrick did inform Perelle of the precise amounts on the owed account or options by he which could calls or a portion meet save his account. time,
47. At that Perelle $55,000.00 had approximately in Canada, i.e., cash in a Bank of Montreal Certificate of in Deposit the amount $42,000.00, approximately $7,000.00 $8,000.00 in Montreal, four accounts two his name and in the Ltd., two name of Black Rock Perelle’s firm, consulting $5,000.00 approximately depos- cash it in Credit Suisse in Canada which has an office New (Perelle’s York. testimony).
48. liquidation, Within a week after the Perelle bought 800 shares of Wichita Industries stock for cash.
49. Following liquidation account, of Perelle’s the ac- $11,452.05. count (Exhibit showed debit balance of P-13). There remains owing due and to Merrill Lynch the sum of $20,191.77 which upon includes interest as agreed by the parties through March
50. Merrill has demanded that Perelle make pay- ment of the debit unsecured balance but has Perelle refused payment make of the unsecured debit balance.
51. Perelle has counterclaimed breach of fiduciary alleging $36,150.00, duty damages representing the dif- liquidation ference price closing between and the prices of Mohawk Data Sciences and Wichita Industries on March 4, 1982, the date of trial.
177 during the securities liquidated prices The as follows: liquidation were week November 1 November November 3 October 31 DATE [2] WICHITA HIGH 3% 3% 3% 4% INDUSTRIES LOW 2% 3% 3% 38A CLOSE 3% 3% 3% 3% November November November DATE [31] MOHAWK HIGH Th [8] 8V2 8V2 DATA SCIENCES LOW TVs 6% 6Vs 7% CLOSE 7Vs [7] 8% *11 on Octo- liquidation price between The difference 3, as of November price 30, 1978, repurchase and a ber 1982, as follows: is
[6500] 6500 shares Less (high (liquidation shares at 4% price at 3 10/31-11/3) price on 10/30) WICHITA INDUSTRIES $26,812.50 19,500.00 $ 7,312.50 3000 shares at 8V2 2800 shares at 6% [200] And Less (liquidation (liquidation (high shares at 6Y4 price 10/31-11/3) price price on 10/30) 10/30) MOHAWK DATA SCIENCES $25,500.00 17,850.00 1,250.00 $ 6,400.00
$13,712.50 that contention appellee’s found that also The trial court him by sent to call notices receive the did not he period a credence. Over worthy of “not Merrill sent years and one-half one approximately notices, duly were all of which eighty Dr. Perelle some received____ by authorized that the sales also clear It is made 25, 1978 were 20 and October on October Perelle in fact were proceeds arid that margin calls to response 178
applied (Exhibits P-4, P-5).” to satisfy (Tr.Ct. the calls. Opinion, pp. 14-15).
I. The trial court concluded that mainte nance an contract was unambiguous contract which had been entered into two competent parties dealing at arm’s was, therefore, length, according enforceable to the provisions therein. agree. contained We Where lan of a guage contract is clear and a unambiguous, court is give to to Standard Ve language. effect Blind Empire Co., netian Co. v. American Insurance 503 “ 300, 304, 563, (1983). Pa. A.2d 469 566 ‘It is not the province the court alter a contract by construction or to make new contract for the is parties; duty its confined interpretation the one which they have made for ” regard themselves without to its wisdom folly.’ Amo Snyder, co 214, Company Oil 221, 795, Pa. 505 478 A.2d (1984) Steuart v. 45, 798 quoting McChesney, 498 Pa. Pribonic, (1982). 444 Accord Rusiski v. A.2d (1984). Pa.Super. A.2d observed, As agreement heretofore the customer ex granted ecuted Dr. Perelle Merrill Lynch right liquidate Dr. your Perelle’s account “whenever it you necessary discretion consider for your protection ... *12 margin without demand for or additional of margin, notice sale ... or other notice or being advertisement ... it I further understood that shall at all times liable be for the balance, of in payment any owing any my debit accounts demand, I you upon and shall that be liable for any in deficiency account(s) remaining any such in the event of in the thereof or in liquidation part you whole by me....” the
While contract bestowed Merrill upon Lynch right Dr. Perelle’s account without notice to him liquidate any any margin funds, without demand additional and for court Lynch trial found Merrill had and sent Dr. Perelle had margin. received demands for additional failed, however, in Perelle to meet full the outstand- Dr. 30, 27 and October margin calls due on October ing call, observed, first in the amount margin As heretofore 26; call, in $2,938.00, on October the second was due $16,982.00, 27; third due on and the was October amount $14,627.00, call, in the was due on October 30. amount of the sale on October 20 of his shares Dr. Perelle authorized Services, Robinson Technical and Community Psychiatric resulted in a Mortgage yield North American which $14,400.00. However, margin sum served to reduce the this $4,800.00.5 Again, in Dr. account by only deficit Perelle’s 25, the sale of 1000 on Dr. Perelle authorized October resulting yield Data shares of Mohawk Sciences $8,150.26, outstanding margin further reduced his which Thus, $2,716.00. the total sum real- approximately call by $7,516.00, sales, applied approximately ized these deficit, insufficient to outstanding margin reduce the 30, on 27 and meet in full the calls due account, therefore, Perelle’s occurred Liquidation Dr. meet the call out- timely his failure to only after 27,6 necessary proper and was thus standing October agreement granted the terms of the customer which under in the absence of right liquidate Merrill even an call. overdue account, Merrill liquidated Dr. Perelle’s
Having properly
from him the amount of the
was entitled to recover
provided
as
the interest
the customer
deficit well as
Meade,
agreement.
Commodity
Lincoln
Services
See
(8th Cir.1977);
& Company,
558 F.2d
Geldermann
(8th
Inc.,
Cir.1975);
(La.App.1973) 286 So.2d aff'd.
II. trial in re contends that the court erred Appellee Lynch’s alleged to hold that Merrill breach of fiduci fusing to complete was a defense the contract action. ary duty provided has not either the trial court or this Court Appellee of his support position case law but rather any of a argues power party that the references to avoid fiduciary duty a contract for abuse of a contained Sec (Second) tions 380 and 381 of the Restatement of Con his support position. tracts actually applicable The Section of Restatement who is a to a fiduciary duty by party abuse of a one (Second) is 173 of the Restatement contract Section Contracts, provides: which beneficiary
If makes a contract with his fiduciary relating scope fiduciary to matters within the relation, contract un- beneficiary, is voidable less terms,
(a) fair it is on (b) interested manifest assent parties beneficially all understanding legal rights of their and of all with full (Second) provides in Section 380 of the Restatement of Contracts part: relevant by Affirmance § (1) Loss of Power of Avoidance duress, incapacity, power party The of a to avoid a contract for if, fiduciary or abuse of a relation is lost after the undue influence exist, have ceased to circumstances that made the voidable contract party intention affirm it or acts with he manifests to the other his anything respect to he has received in a manner inconsistent with disaffirmance. (Second) provides Section of the Restatement Contracts part: relevant by Delay of Power of Avoidance § 381. Loss duress, (1) power party incapacity, of a to avoid a contract for The if, fiduciary of a relation is lost after the undue influence or abuse exist, that made it have ceased to he does circumstances voidable party a reasonable time manifest to the other his inten- not within tion to avoid it. *14 know, relevant facts that the fiduciary knows should (emphasis supplied).
This section thus makes such a contract voidable under circumstances; however, certain Sections 383 and 384 make clear that a party who seeks to avoid a contract based upon breach of fiduciary duty must avoid the entire con- tract and not simply disaffirm part of the contract that is see Restatement particularly disadvantageous himself, (Second) of Contracts and must return any benefit § which he has received from the other party. See Restate- (Second) ment of Contracts § contend, appellee
As did not either in pleadings his or at trial, that the contract was unfair or that his assent to the contract was improperly procured, the contact is not voida- pursuant (Second) ble to Section 173 of the Restatement Moreover, seeks, Contracts. appellee the relief in- which (a) cludes: the increase in the value of the stocks between trial, (b) the date of liquidation and the funds him loaned to (c) Merrill and Lynch, all interest which would have been Merrill Lynch funds, due on those is not the relief available to a party who seeks to avoid a contract upon based abuse Thus, fiduciary relation. the trial properly court reject- appellee’s ed argument that a breach of fiduciary duty on the part was a complete recovery bar to the action the on contract.
III. appellant appellee Both dispute findings trial court concerning the duties owed Merrill Dr. Perelle the legal as well as effect of a of those breach duties. court,
The trial in awarding damages to Dr. Perelle on his counterclaim, noted that Perelle agree- Dr. “breached [his] ment to supply required margin. Under the terms of agreement Lynch] right had the to sell [Merrill However, any collateral and recover deficit. [Merrill also Lynch] during phone broker ... [Dr. Perelle’s] question calls in on Friday again Sunday, 29, Kirkpatrick was dealing broker, as his [Dr. Perelle] i.e., his agent. His obligations inform, advise and follow terminated____ his principal’s instructions had not We note requiring a broker to inform his client of the exact amount due and other courses of action meeting requirements is not unduly burdensome.” The trial court then concluded that Merrill Lynch, through agent its Mr. Kirkpatrick, had:
(a) keep failed to Dr. Perelle informed of vital informa- tion concerning status of his account in the period *15 from 30, October 19 to 1978; October (b) failed to advise Dr. Perelle that he could ask for and perhaps obtain an extension of time to meet the call;
(c) failed to tell Dr. Perelle in the Sunday, 29, 1978, telephone conversation the precise amount of mon- ey that of him on Monday order to meet the margin call or inform him of other options; and (d) failed to Dr. obey 29, Perelle’s instruction on October to him advise before doing anything. 27).
(Tr.Ct.Opinion, p.
The relationship between a broker and his customer
is
principal
one of
agent by
virtue of which the broker
is subject to certain fiduciary obligations to his client.8 See
Jaksich v.
Securities,
Inc.,
Thomson McKinnon
582
485,
F.Supp.
(S.D.N.Y.1984);
502
Bear,
Schenck v.
Stearns
Co.,
937,
&
484 F.Supp.
(S.D.N.Y.1979);
946
Berkowitz v.
Securities, Inc.,
Mayflower
584,
455 Pa.
317 A.2d
(1974).
585
One of these duties is the
to
duty,
communicate
Lynch argues
8. Merrill
finding
that the trial court erred in
the "shin
gle theory”
liability applicable
of broker
to Merrill
under the
Hughes
circumstances of this case. See Charles
Co.&
v. Securities and
Commission,
(2nd
Exchange
1943),
denied,
183 certain information to the client as outlined in Section 381 (Second) Restatement of Agency: agreed,
Unless otherwise agent an is subject to a to duty use reasonable effort his give principal information which is relevant affairs entrusted him which, as the agent notice, has the principal would desire to have and which can be communicated without violating supe- rior duty to a third person.
See Robinson v. Lynch, Pierce, Smith, Fenner & Inc., 337 F.Supp. (N.D.Ala.1971) aff'd., 453 F.2d (5th Cir.1972).
Other duties owed aby stockbroker to his customer are, in part, determined nature of the contract parties between the as well as by type of account maintained customer. See v. Chipser Kohlmeyer & Company, 600 F.2d (5th Cir.1979). 1066-1067 Where the account is a nondiscretionary account9 such as the account maintained by Perelle, Dr. the duties of the broker include:
(1) duty to recommend a stock only studying after it sufficiently to become nature, informed as to its price and financial prognosis. Co., Cash v. Frederick and (E.D.Wis.1972); F.R.D. 71 S.E.C., 415 F.2d Hanly *16 (2d Cir.1969); (2) the duty carry to out the customer’s orders in promptly a manner best suited to the serve interests, customer’s Shaw, 365, Richardson v. 209 U.S. 512, 28 S.Ct. 52 L.Ed. (1908); 835 Robinson v. Merrill Lynch, 337 F.Supp. (N.D.Ala.1971), 107 453 F.2d aff'd, (5th Cir.1972), 417 therein; (3) cases cited to duty inform the customer of the risks involved purchasing a selling particular security, S.E.C., v. Hanly supra; Co., (4) Cash v. Frederick and supra; the duty to refrain from self-dealing or to refusing disclose any personal interest may broker particular have recom- non-discretionary 9. A is an account in which the customer purchases rather than the broker determines which and sales to make. Pierce, Smith, Lynch, Inc., See Mullis v. Merrill F.Supp. Fenner & 492 1345, (D.Nev.1980); Pierce, 1351 n. 6 Lynch, Leib v. Merrill Fenner & Smith, Inc., 951, (E.D.Mich.1978). F.Supp. 461 952 Co., Barney & security,
mended
Chasins v. Smith
Bureau,
(2d Cir.1971);
Capital
v.
Gains
F.2d 1167
S.E.C.
(1963); (5)
275,
We do not Mr. had through agent Kirkpatrick, its Lynch, that Merrill failing to to inform fiduciary duty appellee by its breached perhaps for and obtain an extension him “that he could ask call.” of time to meet the of the sales permission testified that the Kirkpatrick Mr. order obtain manager manager or office call and meet a maintenance an extension of time to management “Physical included: acceptable that reasons A is out of to circumvent. client reasons that are difficult down, trip he’s on a business town, goes the market margin- circumstances extenuating him. For you get can’t on a granted not granted, they’re call extensions are but for exception an made there must be regular basis and 111.2-112.2). (N.T. granted.” them to be are estab requirements Minimum maintenance exchanges of the various regulations lished the rules and for brokers discipline member empowered which are Witter, 614 F.2d at supra, thereof. See Jablon violations 4; Exchange Act of 15 U.S.C. n. 679-690 Securities found liable 78f(b). A of courts have brokers minority § accounts which have be promptly liquidate failure to of market action. See as a result margined come under *17 Meade, su Services v. Commodity Lincoln compare (Rules Chicago 942 of the 473 928 and 558 F.2d at pra,
185
Exchange);
Company,
Mercantile
Geldermann
Inc.
&
Inc., supra,
(Margin
Lane
N.W.2d Mercantile Exchange; Chicago Trade); Rule 210 Board of Anno., Right Private Federal Against Action Brokerage Firm Violation Exchange Dealer Association Rule, (1981). 54 ALR agreement Fed. The customer into parties provided, entered between the inter alia: “Any constitution, subject rules, transaction shall to the be regu- lations, usages exchange customs and or market (and house, its if clearing any), executed." (empha- where supplied). sis case,
No extenuating circumstances existed in instant as a suggestion by appellee such that an extension was in order necessary to transmit funds or an inability part notify appellee of Merrill to Lynch margin circumstances, call. In the absence of unusual it be to require would unreasonable that brokers routinely to suggest their customers the possibility obtain- extensions ing within which to meet maintenance Moreover, a requirement impose calls. such upon would obligation an inconsistent the terms of with customer as not agreement duty its well as a consistent its obligations applicable exchange Thus, under rules. are constrained find erred in holding we that the court Merrill Lynch fiduciary duty that breached its when it failed he appellee to inform could seek an extension of time which to meet the maintenance calls. within
IV. The trial court also found that Merrill breach fiduciary appellee by failing ed a inform him owed *18 during the Sunday, conversation of October “precise amount of money required that was of him on call____” in order to Monday margin meet Initially, it must noted that the trial be court found as a fact that Dr. Perelle of the margin received each mainte- nance calls mailed to him Merrill by Lynch.10 As heretofore observed, a call was not until seven days due after its issuance. margin Dr. Perelle had received the maintenance calls due on 27 and October October 30 to the prior telephone was, conversation of Sunday, October therefore, “precise aware of the amount of money” that margin to meet the maintenance calls due on Thus, October and October 30. even to were we assume purposes for appeal this that Merrill did breach to duty appellee owed to use reasonable efforts to provide all appellee with relevant information ac- concerning his count, the Mr. Kirkpatrick failure of to tell appellant exact amount of the equity deficit account on Sunday night did not in any damage appellee. result to The margin account was as a liquidated appellee’s result failure to timely outstanding meet the and overdue notices. calls Any issued on October 27 or thereafter not fall would due for days seven thereafter and could have cancelled been in the interim virtue of market by action.11
V. found, well, The trial court as that Merrill Lynch breached its to fiduciary duty appellee when it failed “to Dr. obey Perelle’s instruction on him advise doing anything.” agree. before We cannot The customer agreement granted Merrill Lynch right liquidate time, margin account at any “without demand or sale____” additional notice of the parties While [or] were free to alter by agreement their contract mutual or thought 10. Dr. Perelle testified under cross-examination that he routinely by approxi- notices mailed to him Merrill arrived mately days they one two after were sent. See N.T. 38.2-43.3. did, fact, begin 11. The market rise after October conduct, course of no evidence any modification of the contract was Thus, offered either party. there was no breach of a fiduciary duty Merrill Lynch when it liqui- dated the margin account pursuant to the terms of the customer agreement after appellee had failed to meet a margin maintenance call.
VI. *19 The trial proceeded court to find that Merrill Lynch breached a fiduciary duty owed to appellee it when failed to keep him “informed of vital information concerning the status of his account the period from October 19 to October 1978.”
The trial court accepted the testimony Dr. Perelle and found that no time did Kirkpatrick inform Perelle of “[a]t the precise amounts owed on the account or options by he which could meet the margin calls portion or save a his account.” agree We cannot that Merrill Lynch breached a fiduciary duty as a result of Kirkpatrick’s Mr. failure to inform Dr. Perelle of the precise amounts owed on the or options by which he could meet the margin calls or save a portion of his account.
The trial court found that Merrill Lynch had mailed and Dr. Perelle had received each of the margin maintenance calls issued in October of 1978 as well as all regular monthly statements and confirmations of Dr. transactions. was, therefore, Perelle precise aware of the amount due on October in order to prevent liquidation of his margin account. noted,
As previously Dr. Perelle maintained a nondiscre- tionary account with Merrill Lynch. Due to the nature of account, the services rendered to Dr. Perelle Mr. Kirkpatrick consisted of “executing orders to or sell buy placed by Perelle and rendering advice as to the condition of the market prices of securities held in the account.” Finding # Fact of it all that was Lynch performed Dr. Perelle. Such margin
when it mailed call notices to obligation notification sufficient to its to “use satisfy give principal reasonable effort information ... [its] [it]____” affairs entrusted to Restatement relevant [the] (Second) no 381. Merrill was under Agency, § “precise to inform Dr. Perelle of the amounts duty owed options by margin the account or which he could meet the a of his account.” portion calls or save that Merrill fulfilled its As we have concluded to inform Dr. Perelle of obligation to use reasonable efforts by mailing calls call outstanding him, the conclusion of the trial court reject notices to we fiduciary duty that Merrill owed to Dr. Lynch breached agent, Kirkpatrick: Perelle its Mr. when (a) informa- keep failed to Dr. Perelle informed of vital the status of his account in the concerning period tion 30, 1978; from 19 to October (b) Dr. Perelle he ask for and failed to advise could extension of time to perhaps obtain an meet calc-
ic) Sunday, failed to tell Dr. Perelle amount of mon- telephone precise conversation the him on in order to meet Monday that was of ey options; him of other and call or inform (d) Dr. Perelle’s instruction on October obey failed to doing him anything. to advise before part In of on the of any duty breach absence in the damages to Dr. Perelle Lynch, award $13,715.50 amount of must be reversed.
VII. the court erred argue appellant appellee Both Code, 42 Pa.C.S. the Judicial 8335 of Section applying 8335,12 to determine amount of damages awarded to § appellee his counterclaim for breach of fiduciary duty.13 While we believe that the court properly applied Section Code, 8335 of the fixing Judicial four days as a “reasonable thereunder, time” disposition our appeals these ren- has dered the issue moot.
We, therefore, affirm the judgment in the amount of $20,191.77 entered in favor of Merrill Lynch and reverse the judgment entered in favor of Dr. Perelle on his counter- claim. Jurisdiction is relinquished.
HOFFMAN, J., files concurring opinion.
HOFFMAN, Judge, concurring:
I agree with the majority’s conclusion that judgment entered favor of appellee, Perelle, Dr. on his counterclaim must be reversed. I agree, however, cannot the major- ity’s holding broker, that a as an agent, obligation has an use reasonable client, efforts to inform its the principal, of the precise amount of money due to prevent liquidation of a nondiscretionary margin account. For the following rea- sons, I would hold that no such fiduciary duty exists.
Under Commonwealth,1 law of this a fiduciary rela- tionship exists between a a client. Berkowitz v. broker 12. provides: Section the Judical Code Damages fluctuating § property for conversion of value stocks, bonds, Damages for the conversion of proper- or other like
ty fluctuating value shall be limited to the difference between the commission, proceeds of the portion duly or that paid thereof owner, higher credited to the property may and such value as the have reached within a reasonable time after he had notice of the dispute, conversion. Where the fixed period facts are not in such shall be the court as a matter of law. argued Appellee damages that the correct measure of was the price difference between the market at the time of trial and the $36,150.00. liquidation price, Appellant argued the sum of that the incorrectly days court found four to be a "reasonable time” under *21 Code, Section 8335 of the Judicial 42 Pa.C.S. 8335. § that, "[although 1. The trial court provides found the contract that it is governed [l]aw, to be New alleging York the counterclaim breach fiduciary duty governed by is the law of the forum.” Lower Court 4, Opinion (docketed February 24) February 1983 at 18. Both parties argue Pennsylvania law in their briefs to this Court. See Brief 190 Securities, Inc.,
Mayflower
531,
2,
455
n.
Pa.
533
317 A.2d
584,
(1974)
(citing Butcher v.
585 n. 2
Newburger,
318 Pa.
547,
(1935)).
is,
A.
agent
course,
179
240
An
a fiduciary
only
respect to matters
scope
agency.
with
within the
of its
(Second)
(Restatement)
(1958).
Restatement
of Agency
13§
scope
“The
of affairs entrusted to a
generally
broker is
to the completion
Schenck v.
limited
of a transaction.”
Bear,
Co.,
Stearns &
F.Supp.
(S.D.N.Y.1979).
484
947
Thus,
agency relationship
exists
a
places
when
client
an
sell,
buy
order to
and terminates
when
transaction is
Pierce,
Robinson v. Merrill Lynch,
Fenner &
completed.
Smith,
Inc.,
F.Supp.
(N.D.Ala.1971).
111
The
majority correctly sets forth the duties incident
to such
See
transactions.
Leib v.
majority slip op.
(citing
at 561
Pierce,
Smith, Inc.,
Merrill Lynch,
Fenner &
F.Supp.
(E.D.Mich.1978)).
Here, the claimed
of fiduciary duty
breaches
are not with
to
or sell
respect
buy
placed by appellee,
orders
but rather
respect
Pierce,
appellant’s,
Lynch,
Fenner &
Smith,
Inc.’s,
liquidation
appellee’s
non-discretionary
margin account
to the
pursuant
parties’ margin agreement.
The trial court found that appellant, through
agent,
its
Mr.
fiduciary
had
Kirkpatrick,
duty by
breached its
several
believe,
I
181-182.
how-
to act. See
at
majority
omissions
govern this case.
contract,
principles
not
ever,
fiduciary,
that
Securities, Inc.,
See Berkowitz v. Mayflower
supra, 534-35,
Pa. at
As es- fiduciary n. 1. A at 168 sence, Majority a loan. “act[s] another____” Restatement, primarily for the benefit supra creditor, 13 comment a. In its role as appellant § act for primarily appellee: does not 18; Appellant Appellee at Brief for at 25. I find unnecessary it applied'the consider whether the trial court proper state’s law because my research has disclosed no New York State case that stands for the proposition appellee advances. But see note 3 infra.
191 [M]ortgagees, pledgees, holders, power other similar although having power to sell the property involved un der certain conditions or to subject another to contractual liability, agents are not of the power giver; they have not undertaken to exercise such power primarily the person benefit of they act, whose name formally are they entitled prefer their own interests in dealing with the subject matter. b;
Id. comment see also 14 H. id. That a broker acts § its primarily for benefit in own requiring additional or in liquidating a customer’s account unquestioned. is “House requirements ... are established primarily protect broker assuring sufficient collateral for credit extended to finance speculation____” customer Alt- Paine, Webber, v. schul Inc., Jackson & Curtis 518 F.Supp. 591, (S.D.N.Y.1981). 596 “Stockbrokers carrying marginal accounts do not receive remuneration commensurate with the risk of and hence losses], must act swiftly [excessive such cases.” Burton, Pa.Superior 189 Yohey 393, Ct. 11 (1940). Furthermore, A.2d principal “[a] has the right to control the agent the conduct of respect to Restatement, matters entrusted to him.” supra it cannot Surely be said that customer can control § his or her broker’s conduct when broker seeks to protect itself from losses on its loans.
Here, the margin agreement gave appellant right, in its whenever discretion it considered the exercise such right necessary for its protection, “to sell or all any out- contracts, standing all without demand for or addi- margin, tional notice sale or purchase or other notice or The agreement advertisement----” further stated “it demand, call, understood that a prior or or prior [was] notice of place the time and sale purchase such or shall not considered right be a waiver [appellant’s] to sell or notice____” buy without or demand It may appel- be that lant must exercise its discretion see reasonably, Schenck v. Bear, Co., Stearns supra & at or that other contract principles, such of dealing waiver, as course may be one,2 I to cases like this but would hold that
applicable no here.3 fiduciary principles place have A.2d *23 REIMER, Appellant, Marie TIEN, Capacity and in the as President of the Paul S. Ind. Caribbean, University American of the and American Caribbean, University Appellees. Superior Pennsylvania. Court of 24,
Argued June 20, Aug. Filed only presented appellee at trial was a breach of 2. The claim fiduciary duty Appellee claim. Brief for at 17. 1260, Inc., Forgan 1261-62 see v. duPont Glore 487 F.2d
3. But Gordon Cir.1973) (reverses (5th finding plaintiffs were enti trial court’s fiduciary duty notify them to recover for defendant’s breach of tled that their account they undermargined their because knew of law), denied, action) (Florida no cert. broker's breach and took (1974); Cauble v. Mahon U.S. 94 S.Ct. 41 L.Ed.2d Co., (S.D.N.Y.1984)(under Nugent F.Supp. New & 992-93 law, give fiduciary duty has to use reasonable efforts York broker it; suggest relevant to affairs entrusted to its customer information ing, summary judgment, that a on defendants' motion for notice). liquidated account cannot be without authorization