John Rowe had been a successful businessman during his lifetime. When he died, he left his business.

John Rowe had been a successful businessman during his
lifetime. When he died, he left his business to his son and daughter and, under
the terms of his will, left his widow, Florence, a life annuity that paid her
$40,000 per year. Florence was quite elderly at the time of her husband’s
death. Her son and daughter concluded that the $40,000 annuity might not be
sufficient for her to maintain her home and cover her living expenses, since
she required a housekeeper to look after the premises. To provide her with
additional income, the two children placed $300,000 in the hands of the family
»

John Rowe had been a successful businessman during his
lifetime. When he died, he left his business to his son and daughter and, under
the terms of his will, left his widow, Florence, a life annuity that paid her
$40,000 per year. Florence was quite elderly at the time of her husband’s
death. Her son and daughter concluded that the $40,000 annuity might not be
sufficient for her to maintain her home and cover her living expenses, since
she required a housekeeper to look after the premises. To provide her with
additional income, the two children placed $300,000 in the hands of the family
stockbroker in their mother’s name. The funds were placed with Margaret Lawson,
an investment advisor with the brokerage firm. She was instructed to invest the
money in the shares of Canadian corporations only, in order to provide Florence
with income and dividend tax credits. No part of the funds was to be placed in
bonds or the securities of foreign corporations. Florence had no investment
experience, and so advised Margaret. She informed Margaret that she intended to
leave the choice of investment with her, as she did not wish to have “the worry
of making investment decisions.” During the next two years, Margaret invested
the funds in the shares of Canadian corporations. The investment income was
approximately $40,000 per year. Florence was pleased with the results and, at
the end of the second year, wrote a note to Margaret that read: “Many thanks
for your hard work and success to date. Invest as you see fit, until further
notice from me.” During the third year, Margaret switched most of the Canadian
shares to bonds, foreign currency holdings, and speculative issues, at a very
high investment turnover rate. The high trading activity resulted in very high
sales commissions for Margaret, but very little in earnings for Florence. By
the end of the third year, Florence’s income was down to $3,000, and the net
worth of her investment fund had diminished to $180,000. At the end of the
third year, Florence notified her son that “something seemed to be wrong” with
her investment income. Her son immediately contacted the investment firm. At
that point, Margaret’s trading practices were discovered, and the value of the
investment fund was determined. On the advice of her son, Florence brought an
action against the stockbroker and Margaret, an employee of the firm. Discuss
the nature of the action that Florence might bring, and the issues involved.
Render a decision.

»

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