The principal issues in this case are (a) whether The Mechanics National Bank of Worcester (bank) violated its contractual obligations to Thomas F. Killeen (Killeen) when, on June 25, 1974, it foreclosed on 28,500 shares of stock (stock) in Certain-Teed Products
We must also decide the validity of a mortgage on the Killeens' home, given to the bank as additional security by Killeen and his wife (Killeens) on June 19, 1974. The Killeens argue that the bank violated G.L.c. 93A and G.L.c. 140C in the course of obtaining that mortgage. We agree with the judge below that the Killeens are not entitled to relief under either G.L.c. 93A or G.L.c. 140C.
The basic facts found by the judge are as follows. On June 25, 1974, Killeen, who had borrowed funds from the bank over the previous fifteen years, was indebted to the bank on three notes, each of which was a renewal of an earlier note. The first note, in the principal amount of $10,630.29 and bearing interest at the rate of 9.5% a year, was given on February 19, 1974, and due on August 19, 1974. The second note, in the principal amount of $176,770.92, with interest at the rate of 10.5% a year, was given on April 30, 1974, and due on July 30, 1974. The third note, given on June 5, 1974, was in the principal amount of $152,974.82, bore interest at the rate of 11.5% a year, and was due on December 5, 1974. The total obligation on these three notes at their respective maturities was approximately $355,000. Each of these notes was secured by the stock and by other shares of stock, having a relatively low value, in another company.
Shares of stock in the company had been selling on the New York Stock Exchange at more than $15 a share at the end of April, 1974, and the collateral pledged by Killeen was then worth more than $500,000. In the early part of June, 1974, however, the market price of the company's stock had fallen to just over $11 a share and the value of the collateral was less than $390,000. During the middle of June, the company's stock was selling at approximately $9 a share.
A day or two before the execution of the renewal note of June 5, 1974, Killeen had a conversation with a Mr. Kettell (Kettell), a vice president of the bank, who was in charge of the bank's loans to Killeen. He told Killeen that the bank was concerned by the declining market value of the stock. The bank, however, did renew an earlier loan on June 5, 1974. (third note).
Kettell had a further conversation with Killeen on June 10, 1974, at which time the value of all the security pledged to the bank was less than the obligations at maturity of the three notes. Kettell stated that the bank was feeling insecure with respect to the pledged collateral. He demanded additional security and said the bank would need a mortgage on the Killeens' home. Killeen pleaded for a ten-day delay, which was granted. There was no discussion of the sale of the pledged collateral.
On June 24, 1974, the bank's loan committee decided to sell the stock. The judge found that the bank "was feeling insecure." On June 25, 1974, Kettell advised the Killeens that the bank was selling all the stock. On June 24 and 25, the stock was selling at a slightly higher price than on June 19, the day the mortgage was given. Kettell did not tell Killeen that the bank had accelerated the due dates of the notes. He did not tell Killeen that the notes had become due and payable. He did not demand payment of the notes. During the afternoon of June 25, 1974, the bank placed an order with a broker to sell the 28,500 pledged shares. These securities were sold, as the judge ruled, in a commercially reasonable manner, in various blocks during June 25, 26, 27, and 28, yielding net proceeds of approximately $238,000. The highest price at which the company's stock sold on June 25, 1974, was $10 a share, and the lowest was $9 3/8 a share. The highest price per share paid for any share sold for the bank was 9 5/8, obtained on the first sale of 100 shares in the afternoon of June 25. The bank applied the proceeds first toward the satisfaction of all obligations then alleged to be due under the third note, the one with the highest interest rate, and then toward the principal obligation under the second note.
The dispute between the bank and the Killeens came to litigation in the following fashion. On July 17, 1974, the Killeens wrote the bank purporting to cancel the mortgage. On July 22, 1974, counsel for the Killeens sent the bank a demand letter under G.L.c. 93A, demanding rescission of the mortgage and damages for the wrongful sale of the stock. Four days later, the bank filed a complaint for declaratory relief in the Superior Court, seeking a determination that the Killeens had no right on July 17, 1974, to rescind the mortgage and that the mortgage remained in full force and effect. The Killeens counterclaimed, alleging violations of G.L.c. 93A and G.L.c. 140C, and seeking damages for the wrongful sale of the stock, rescission of the mortgage, and other relief. The bank then counterclaimed for the balance due on the first and second notes.
The judge ruled that the bank violated its contract with the Killeens by selling the stock as it did. He assessed damages based on the fair market value of the stock determined by the price per share (9 5/8) at which the first block of shares was sold on June 25, 1974. He ordered the entry of judgment for the bank based on the balance of Killeen's obligations to the bank reduced by (a) the value of the shares of stock on June 25, 1974, as determined by him,
Killeen argues that the bank exceeded its rights in foreclosing on the stock on June 25, 1974. He challenges the judge's implied finding that the bank in good faith deemed itself insecure. He argues further that the maturity dates of the notes were not accelerated, and that, in any event, he was not in default on any obligation because he had no reasonable opportunity to make any payment to the bank. The judge ruled that Killeen was not in default on the notes when the bank foreclosed on the stock. We agree with that conclusion.
By the terms of the notes, Killeen's obligations were not accelerated automatically when the bank deemed itself insecure. See Grozier v. Post Publishing Co., 342 Mass. 97, 105-107 (1961). The bank had to perform some positive act if it wished to accelerate those obligations. See Wilshire Enterprises, Inc. v. Taunton Pearl Works, Inc., 356 Mass. 675, 678 (1970). The bank asserts that it satisfied this requirement by telling Killeen that it was going to sell the stock and by foreclosing on it. In the view we take of this case, we need not decide whether the bank properly accelerated the maturity dates of the notes. Nor do we have to determine whether acceleration of the due dates of the notes could be effective only on notice to Killeen or whether the statement that the stock was to be sold was somehow adequate notice of acceleration.
Even if we assume that the bank in good faith deemed itself insecure and that it accelerated the maturity dates of the notes, the bank had the right to foreclose on the stock only in the event of a default by Killeen. See G.L.c. 106, §§ 9-501, 9-504(1). The essential question is whether, on June 25, 1974, when the bank foreclosed on the
The rights of the parties are determined by the contractual agreement between them. See Cassiani v. Bellino, 338 Mass. 765, 768 (1959). The notes, which could have been controlling in this respect, did not explicitly define a default. See 2 G. Gilmore, Security Interests in Personal Property § 43.3, at 1193, 1195 (1965). The terms of the notes did not provide that accelerating the maturity dates of Killeen's obligations was a default.
Certainly, Killeen could not read the bank's corporate mind and know that the notes were due. He was entitled to some notice that the were due, and not simply a statement that the stock was to be sold. After such notice, Killeen was entitled further to a reasonable opportunity to satisfy his obligations. That opportunity extended at least through the bank's business day on June 25, 1974, and perhaps beyond.
We stress again that, in the absence of statutory restrictions, the rights of the parties to secured transactions are controlled by the agreement between them. Under a different form of note, the course followed by the bank would have been permissible, subject to any statutory provisions governing that relationship.
Before determining what damages, if any, Killeen is entitled to for the bank's breach of contract, we consider the Killeens' claim that they have certain statutory rights in the circumstances.
Relief under G.L.c. 93A and G.L.c. 140C
The Killeens are not entitled to relief under either G.L.c. 93A or G.L.c. 140C. The judge was correct in finding and ruling that the bank did not engage in an
The judge properly ruled that, on the facts found by him, the bank did not commit a deceptive act under G.L.c. 93A, § 2(a), in selling the stock. The judge did not find, as Killeen argued, that the bank obtained the mortgage by representing that the stock would not be sold. On the contrary, he found that an agent of the bank told Killeen that the bank could give no such assurance. The judge thus was not plainly wrong in finding that the bank's sale of the stock was not deceptive. Kileen misconstrues our role in arguing that we should reach factual conclusions in disregard of the judge's factual findings against him.
The bank's sale of the stock, in the erroneous belief that it had the right to sell it, does not constitute an unfair act within the meaning of G.L.c. 93A, § 2(a). Just as every lawful act is not thereby automatically free from scrutiny as to its unfairness under c. 93A (see Schubach v. Household Fin. Corp., 375 Mass. 133, 137-138 ), so not every unlawful act is automatically an unfair (or deceptive) one under G.L.c. 93A. "The circumstances of each case must be analyzed, and unfairness is to be measured not simply by determining whether particular conduct is lawful [or unlawful, we now add] apart from G.L.c. 93A but also by analyzing the effect of the conduct on the public [or the consumer]." Schubach, supra. In interpreting the meaning of the words "unfair or deceptive acts or practices" in G.L.c. 93A, § 2(a), we are instructed to be guided by interpretations of similar language in the Federal Trade Commission Act. Id., § 2(b). No interpretation of that language by the Federal Trade Commission or by any court has been brought to our attention in connection with acts similar to those involved in this case. The absence of such an interpretation involving a bank is understandable because the Federal Trade Commission Act does not apply to banks. 15 U.S.C. § 45(a)(2)
Analyzing the situation as a whole, we see no unfair act or practice in the bank's sale of the stock. Killeen knew that the bank was concerned about its security. That concern was reasonable. The bank had no knowledge of any substantial assets available to Killeen other than those which the bank held as security. As he testified, however, Killeen had approximately $53,000 in cash immediately available to him on the day the bank started selling the stock, and he had had those funds available for a considerable period of time. Killeen also had available securities, other than those pledged, worth at least $10,000, and a coin collection worth about $15,000. Balancing the equities in the relationship of the parties, a major factor in determining unfairness under G.L.c. 93A, § 2, we conclude that the bank's conduct was not unfair. We discern neither an over-zealous seller taking economic advantage nor a defenseless consumer. We need not reach the question whether for other reasons relief would not be available under § 9 of G.L.c. 93A.
We reject the Killeens' argument that they are entitled to relief because the bank violated certain provisions of G.L.c. 140C. We assume, without deciding, that Mrs. Killeen was a "customer" entitled to relief under G.L.c. 140C. See G.L.c. 140C, § 1(n). One of the two statutory forms of notice required by G.L.c. 140C, § 8(b), as to a mortgage on a borrower's principal residence, did not have the bank's name on it. Although handwriting recorded through carbon paper onto all copies of the form, a stamp with the bank's name on it did not. The Killeens claim that the mortgage therefore must be forfeited. This omission was insignificant and unintended. The Killeens knew who the lender was, and they did not undertake
The only other violation of G.L.c. 140C asserted by the Killeens is based on the fact that the mortgage referred to the interest rates of the loans in terms of "the small business prime rate in effect from time to time" at the bank, increased by.75%.
Killeen is entitled to recover the fair market value of the stock at the time of its sale by the bank. Hall v. Paine, 224 Mass. 62, 64-71 (1916), cert. denied, 248 U.S. 581 (1918). See George v. Coolidge Bank & Trust Co., 360 Mass. 635, 641 (1971); Somerville Nat'l Bank v. Hornblower, 293 Mass. 363, 370 (1936). The breach of contract occurred on June 25, 1974, when the bank wrongfully foreclosed on the shares with the intent to sell them and placed an order for their sale.
The only question is which of the prices at which the stock sold during June 25, 1974, should be used in computing Killeen's damages. In certain circumstances, such as in the valuation for tax purposes of stock traded on a stock exchange, the mean between the high and the low of the day's selling prices is the appropriate measure. See, e.g., Massachusetts Inheritance and Estate Taxes Procedural Manual, § 4 (a), printed in 1 G. Newhall, Settlement of Estates 122 (4th ed. 1958, Cum. Supp. 1978); Treas. Reg. § 20.2031-2(b)(1), T.D. 7327, 1974-2 C.B. 294, T.D. 7432, 1976-2 C.B. 264. The stock sold for as high as 10 and as low as 9 3/8 on June 25, 1974. The judge selected the sale price first obtained by the bank when it sold 100 shares at $9 5/8 a share.
We, therefore, accept Killeen's contention that, at the least, he is entitled to the value of his stock measured by the highest price for which shares of that stock sold during June 25, 1974.
The wrong was committed when the bank foreclosed on all the stock at one time, by determining to sell all the stock and placing an order for its sale. On remand, a judgment shall be entered to reflect Killeen's damages based on a valuation of the stock at $10 a share.
The bank challenges the judge's determination to reduce Killeen's obligations to the bank as of June 25, 1974, by the fair market value of the stock on that date. It argues that Killeen's entire obligation to it should have continued to bear interest at the rates stated in the notes
The judge was correct in reducing Killeen's obligations to the bank as of June 25, 1974, by the fair market value of the stock. If Killeen had made payment to the bank on that date in a like amount, his obligations to the bank would have been reduced immediately to that extent. The bank is hardly in a position to claim that the result should be otherwise, when it foreclosed on the stock to pay itself in advance of the due dates of the notes and in violation of its contractual obligations to Killeen.
The judgment is vacated, and the case is remanded to the Superior Court for the entry of a judgment consistent with this opinion.