O'Connell v. Merrill Lynch, Pierce, Fenner & Smith, Inc.

AGEE, J. Plaintiff appeals from a summary judgment in favor of defendant. The facts set forth in the following paragraph are not in dispute.

Defendant is a stockbroker with whom plaintiff maintained a margin account; in early August 1960* defendant sold short for plaintiff’s account 4,000 shares of Studebaker-Packard common stock at $8.50 to $8,625 per share; on August 17 the price of the stock rose to $9.50 per share; under existing regulations, of which plaintiff claims he was then unaware, defendant was required either to obtain additional margin from plaintiff or to liquidate said account to the extent necessary to raise the credit balance in the account to the required level; on August 18 the market opened at $9.75 per share and the short sale could then have been covered for $39,000 ($9.75 X 4,000); on August 31 defendant sent plaintiff a telegram demanding additional margin; on September 1 the market opened at $13 per share and the cost of covering the short sale had accordingly risen to $52,000 ($13 X 4,000); plaintiff seeks damages of $13,000 for this loss of equity in his account ($52,000 minus $39,000) during the period of August 18 to September 1.

The gravamen of plaintiff’s cause of action, as alleged in his complaint, is that defendant’s account executive, one de Urioste, had negligently understated the amount of margin required to be maintained in his account and thereby ‘‘ created in the mind of plaintiff a delusion of safety from forced liquidation of said account”; that defendant “perpetuated the delusion by negligently failing to send plaintiff a demand for additional margin on August 17, 1960, and by continuing to fail to send plaintiff a demand for more margin until August 31, 1960, at which time defendant sent plaintiff a telegram demanding $12,116.00, which telegram was received by plaintiff on the night of August 31, I960”; that his “first opportunity to cover the short sale after receiving said telegram was on the morning of September 1, 1960, when the price of said stock opened on the New York Stock Exchange at $13.00 per share.”

It may be noted parenthetically that defendant wmuld never have had to use any of its own funds in order to cover the sale, since plaintiff had a credit balance of $57,884.66 in his margin account (also $1,832.19 in his cash account) with [635]defendant and the price of the stock did not at any time relevant herein exceed $13,875 per share.

Plaintiff appears herein in propria persona and his pleadings are not very well stated. However,, defendant has not been misled as to the theory of plaintiff’s cause of action. This is indicated by defendant’s statement in its brief to the court below that plaintiff “claims that if he had not been misinformed about the margin requirements, or if he had received notice of the need for margin on 17 August 1960, he would have covered the entire 4000 shares of stock short in his account on 18 August 1960, at a price of 9% per share.”