Reasonable-Basis Suitability

How to Recover Damages for Securities Breach of Contract

When brokerage firms and financial investors want you to invest with them, they make many promises. But on many occasions, some or even a substantial number of these promises turn out to be false. On such occasions, you may be able to hold them liable for securities breach of contract. Promises made by a financial advisor or brokerage firm to an investor are considered important. If they have made promises that your account will be handled in a certain manner, a contract can crystallize. This means that if your financial advisor made promises to you regarding how they will help you trade your stock but broke their promises, they may be liable to you.

The basis of this rule is that promises made at the time of entering an agreement may form obligations under the agreement. And if your financial advisor fails to live up to to their promises, you may be able to seek damages against them. Determining if a breach of contract has occurred is not always straightforward though. It will often require a thorough analysis of the unique facts and circumstances of your case. In order to do this properly, and make the best of your shot at compensation, you will need the services of a qualified securities attorney like Irwin Weltz. Attorney Weltz has extensive experience in securities law cases. Get in touch with Weltz Law today to understand if you have a claim for securities breach of contract.

Formation of a Contract With a Financial Advisor

Brokerage firms and financial advisors are just like any other party you enter into a contract with. When somebody offers you their service and says they can provide you with a benefit, you reasonably expect that you will get what they have promised. And if you pay money in exchange for those promises, a contract comes into being.

In much the same way, a brokerage agreement between you and your broker or financial advisor amounts to a contract. When they promise to administer your account in a certain way, their promises may become contractual obligations that they are bound to deliver on. Itt does not matter that they only orally made those promises. Contracts may be oral or written. They may even be implied from the actions of the parties involved in the transaction. Based on these principles of contract, any promises, whether express or implied that were made between the parties, have binding quality. You can sue on them if the financial advisor breaches those promises.

Important Elements of a Securities Breach of Contract Claim

Securities breach of contract claims are used to hold brokerage firms and financial advisors to their promises. The position that they occupy in relation to investors is one where they must act with care. They have to provide you with full and accurate information about your proposed investment. If they have made promises they cannot deliver on or if they fail to deliver on those promises, you have a right to remedy.

Recovering compensation will however depend on adducing proof that a breach of contract has occurred. In providing this proof, there are four important elements to be aware of. They are the existence of an enforceable agreement, performance by the plaintiff, breach of the agreement and damage due to the breach. Let us examine each of these.

Existence of an Enforceable Agreement

This is usually the most difficult aspect of proof for securities breach of contract claims. Apart from the fact that you must show the agreement was enforceable, the case would also require proof of the specific terms of the contract. This would obviously be difficult in cases of an implied or oral contract and proof will depend on the specifics of your case.

Generally, an enforceable contract will be seen to exist in four instances. First, when investment accounts are opened, a new account agreement is usually signed. This agreement will ordinarily be written and it will contain terms that constitute obligations under the contract. If your case is that one of these terms was breached, then you have a straightforward means of proof. The second instance occurs when an investor opens an account with a brokerage firm and is led to believe their account will be handled in a certain manner. If promises are made or implied around this fact, they may constitute enforceable obligations under the contract. These will often be in addition to the written account agreement already signed. Third, brokers and their firms are often required to enter into contracts with regulatory organizations like FINRA. These contracts are usually required for the brokers and their firms to become registered representatives and member firms of FINRA.

The contracts also generally require specific ethical and professional conduct on the part of the brokers and firms. As an investor, you are a third-party beneficiary of these contracts and you may be able to bring actions under them as well. The fourth instance concerns a theory known as the “shingle theory”. The theory holds that once a brokerage firm “hangs its shingle” i.e. commences business, it is bound to the rules and regulations of the industry. This means that the brokerage firm is bound by all relevant codes of conduct and it has a duty to investors by reason of that obligation.

Performance of the Agreement

Your case will also require proof that you have performed your own part of the agreement. This is based on the principle that a party alleging breach of a contract must not be culpable for breach as well. You should approach the court with “clean hands”.

Breach by the Defendant

If the broker or their firm has failed to live up to their promises under the contract, this would constitute a breach. But determining whether a breach has occurred or not will depend on the facts of the case. Weltz Law and its securities attorney will be able to help you find and adduce those facts that show the defendant’s breach.

Damage Caused by the Breach

The final element you need to prove to be entitled to compensation is damage. You must have suffered damage arising from the breach for you to be entitled to compensation. Damage may be in the form of a lost opportunity to sell your stocks at profit. It could also rise from losing more money on your stock holdings than you would have if your broker was prudent. Proof of damage will also depend on the facts of your case.

What Damages can You Recover?

Depending upon successful proof of your claim, you may be able to recover direct and indirect damages for the breach of contract. Direct damages are linked directly to the breach by the defendant. They constitute compensation for the loss you have actually incurred due to the breach.

For instance, if your broker failed to monitor your account as per your agreement and this caused you to lose $10,000 on your shares, this will be your direct damages. The rule in computing this category of damages is that you would be entitled to the value of your stocks “as of the date of the breach”.

Indirect damage may also be assessed against the defendant. This category of damages will cover any consequential losses caused to you by the breach of the contract. It can include out of pocket expenses incurred due to the breach. Although, the rule is that the damage resulting in those losses must have been reasonably foreseeable.

Suitability Supervision?

Contact a Seasoned Securities Arbitration and Litigation Attorney

Investors often face substantial losses due to a breach of contract by the broker or brokerage firm. If you suffered financial harm due to a breach of contract, it is vital to confer with a securities attorney regarding whether you may be able to recover compensation. New York based attorney Irwin Weltz at Weltz Law has represented parties in securities litigation and arbitration hearings for more than two decades. Attorney Weltz will work tirelessly to help you pursue compensation for your losses. You can contact us at 877-935-8952 or through our online form to set up a conference to discuss your case.

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