Law for Business 12th Edition by James Barnes,Terry Dworkin,Eric Richards

Exercise 3

Harry Tighe opened an investment account with an investment firm, Legg Mason Wood Walker, Inc. Tighe's authorization was required for all investments on his account. One month after opening the account, Tighe discovered that L. Reed Huppman, his Legg Mason broker, had made an unauthorized purchase of units in a limited partnership for more than $220,000. When Huppman came to Tighe's home to explain the situation, he convinced Tighe that he should hold onto the limited partnership units because they were not readily marketable. In reality, they probably were marketable. Despite this unauthorized purchase, Tighe did not close out his Legg Mason account and continued to buy securities through Huppman for over two years. During this time, he received over $52,000 in distributions from the limited partnership units, which were deposited in his Legg Mason account. Tighe finally complained to a Legg Mason compliance officer about the deal and, ultimately, he sued the investment firm for damages. Legg Mason argued that it was not liable because, by his subsequent behavior, Tighe ratified the unauthorized purchase. Did Tighe ratify the unauthorized purchase by his agent?