Opinion ID: 488038
Heading Depth: 2
Heading Rank: 2

Heading: The judgment in favor of Walk-In

Text: 24 At the trial of this action, Judge Cedarbaum admitted evidence of custom and usage in the securities industry, as well as evidence of the parties' intent, in order to interpret the phrase adverse market conditions. 25 Evidence of trade usage was properly admitted pursuant to New York Uniform Commercial Code Sec. 2-202, which authorizes the use of such evidence to explain a contract term, whether or not the term has been found to be ambiguous. See id., Official Comment 1(c). Evidence of the parties' subjective intent was also properly admitted, in light of Judge Carter's preliminary determination of ambiguity. See Paragon Resources, Inc. v. National Fuel Gas Distribution Corp., 695 F.2d 991, 996 (5th Cir.1983) (applying New York law) (evidence of subjective intent is admissible only where court has determined that contract is ambiguous); see also Surlak v. Surlak, 95 A.D.2d 371, 375, 466 N.Y.S.2d 461, 466 (2d Dept. 1983). 26 After hearing all the evidence, Judge Cedarbaum found that Breuer had not terminated the underwriting agreement due to general market conditions, but rather due to the decline in price of Walk-In's stock. She observed further that the decline in price of a single stock could not, under any reasonable interpretation, be considered adverse market conditions. Therefore, the district court did not need to define adverse market conditions in this case. 27 There was ample evidence in the record to support a finding that the sharp decline in Walk-In's price was the primary reason Breuer aborted the underwriting. The evidence included Faye Breuer's trial testimony that on January 23, 1984, she received numerous phone calls from individuals who had previously agreed to purchase Walk-In shares. These individuals expressed concern over the declining price of the security, and reluctance to go forward with their purchases. The district judge inferred from this testimony that Breuer was afraid of losing money on the Walk-In deal, and terminated the agreement in order to avert any loss. 28 Furthermore, on January 18, 1984, when the Walk-In agreement was executed, the equity markets were already in a decline, yet Breuer was willing to proceed with the underwriting at that time. The court observed that the drop in the Dow Industrial index between January 18-23 was neither drastic nor extraordinary, and that declines of a similar magnitude had occurred many times in recent years. Indeed, during the period that Walk-In was trading, other equity underwriting was successfully taking place in the over-the-counter market. All these facts, the court concluded, made it more likely that Breuer terminated the agreement because of Walk-In's poor showing, rather than because of generally adverse conditions in the securities markets. 29 Finally, the district court admitted testimony which Mrs. Breuer had given before the Securities and Exchange Commission in February 1984, in connection with its investigation of the Walk-In underwriting. She testified, among other things, that her understanding of the phrase adverse market conditions was a market in which everyone wanted to sell their shares, no one wanted to buy, and everyone was losing money. 30 Mrs. Breuer's understanding of the term was reinforced by George Resch, who testified about a meeting between the parties on August 10, 1983, to discuss the letter of intent, which also contained the phrase adverse market conditions. According to Resch, he asked if the phrase would have encompassed a recent 20-point decline in the market, and Mrs. Breuer assured him that the term referred to a market in which underwriters could not sell their shares. 31 Based on our review of all the evidence, we cannot conclude that the district court's findings of fact were clearly erroneous. The court properly concluded that Breuer terminated the underwriting because of Walk-In's sharp decline, and not because of any general market conditions. Therefore, we affirm the judgment in favor of Walk-In.