Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

White v. Merrill

Decided: March 18, 1966.

JOSEPH WHITE, PLAINTIFF,
v.
MERRILL, LYNCH, PIERCE, FENNER & SMITH, INC., DEFENDANT



Civil action. Findings of fact and conclusions.

Schneider, J.c.c. (temporarily assigned).

Schneider

[90 NJSuper Page 566] This is a suit against a stockbroker to recover monies paid for bonds which proved to of questionable value. On February 26, 1963 Joseph White placed an order with his stockbroker, defendant Merrill, Lynch, Pierce, Fenner & Smith, for 670 convertible subordinated debentures of the Continental Vending Machine Corporation. These securities were listed on the American Stock Exchange. The debentures had a face value of $10,000 and a due date of September 1, 1976. The negotiated price

for the debentures was $5,530. The order was filled the same day. Defendant secured the debentures from two other brokerage houses. On the next day, February 27, 1963, the American Stock Exchange suspended trading in the securities of Continental Vending. On March 4, 1963 the ten debentures were tendered to Mr. White and he paid for them, together with a $25 commission fee. It was later ascertained that the prior owner of the debentures was Harold Roth, president of Continental Vending.

A Chapter X proceeding against Continental Vending was filed in the Eastern District of New York, and involuntary bankruptcy was adjudicated on July 12, 1963. However, this proceeding did not render the debentures valueless. On oral argument counsel was unable to state the present or future worth of these debentures. Pursuant to action by the Securities and Exchange Commission, trading of these securities remains suspended down to the present date.

Plaintiff requested an opinion from Continental Vending and was informed the debentures were valid. He filed proof of claim in the bankruptcy court and there has never been any ruling affecting the validity of the bonds.

The facts are not in dispute. Plaintiff does not suggest that defendant knew of Continental Vending's precarious financial condition. Neither is it contended that defendant fraudulently misrepresented Continental Vending's financial condition or that defendant failed to convey good title. Plaintiff admits that the debentures were not purchased upon defendant's recommendation.

Plaintiff contends that defendant was acting as his agent, and that agents are under a fiduciary duty to their principals. The day after the order was placed a "red flag" went up; trading in the debentures was suspended. Defendant, he says, was then under a duty to put its principal's interests before its own and rescind the transaction on the ground that the value of the debentures was now grossly impaired. Only defendant could rescind, and it was under a fiduciary duty to protect its principal

Defendant contends that plaintiff entered into a unilateral contract with his stockbroker; if the broker delivered ten debentures he would pay $5,530. Upon delivery the broker was entitled to the money, and was in fact paid. Secondly, it is undisputed that plaintiff frequently bought and sold debentures. In so doing he implicitly accepted the practice and custom of the trade. The accepted rule of the stock market is that barring fraud or misrepresentation, orders are final once they are placed and filled. Thirdly, the broker argues that any other rule would make the broker a guarantor and insurer of future events. This would necessitate a higher commission rate and greatly complicate the transaction of business -- orders would no longer be final until delivery of the stock. Finally, under the rules of the Exchange, defendant could not simply "rescind" an order which was filled the previous day. Arbitration between the buying and selling brokers would be necessary.

It is beyond dispute that plaintiff is a purchaser of negotiable securities and has acquired the protected status of a holder in due course. N.J.S. 12A:3-302; Morgan v. United States, 113 U.S. 476, 5 S. Ct. 588, 28 L. Ed. 1044 (1884). The broker has thus complied with his contractual obligation of conveying good title to the buyer.

The question before the court, then, is whether defendant was under a legal duty to cancel the order of February 26 upon learning the next day that trading was suspended by the Exchange.

Courts are reluctant to disturb the matrix of rules and practices which form the underpinning for the conduct of business in the commercial community. Traditionally, an effort was made by the courts to accommodate equitable principles of law with commercial practices. In keeping with this tradition, the concept of ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.