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January 17, 1977


The opinion of the court was delivered by: NEAHER


 NEAHER, District Judge.

 Background Facts

 Plaintiff, National Bank of North American ("the Bank"), brings this diversity action to recover on the personal guarantees of defendants Donald Quest and Henry R. Goldfarb for monies lent to Equitable Equities, Inc. ("Equitable"). At the time of the transactions in question, defendants were, respectively, President and Executive Vice-President and registered principals of Equitable, an investment banking organization doing business as a registered broker-dealer in over-the-counter securities.

 The facts which are not in dispute are as follows. In April 1972 Equitable applied to plaintiff for a line of credit. The stated purpose of this application was to have the Bank "assist [Equitable] in clearing certain . . . security transactions." The Bank approved Equitable's application on or about April 28, 1972, when a general loan and collateral agreement was executed by the parties. By another agreement on the same date defendants Quest and Goldfarb personally guaranteed Equitable's debt to the Bank.

 The terms of the agreement were that, pursuant to written instructions from Equitable, the Bank would handle securities and funds for Equitable's account, receiving or delivering specified securities, without or against payment. It was understood that at times it might be necessary for the Bank to advance sums of money so as to facilitate transactions, any such sums to accrue and be payable upon demand. Further, the loan and collateral agreement provided that the Bank could at any time, at its option, apply all or any proceeds to the payment of any of the obligations outstanding.

 For several months the parties functioned under the agreement without complaint. However, in the fall of 1972 a situation arose which caused the Bank to demand payment of the outstanding debt. At that time plaintiff Bank had in its possession, among other collateral, open contracts to deliver 3,000 shares of Power Conversion, Inc. stock to a mutual fund. Following a period in which the price of the stock had sharply increased, Power Conversion, which had been trading at $40 per share, fell 35 points before trading was suspended by the Securities and Exchange Commission. Consequently, the transaction with the mutual fund was never consummated.

 On October 6, 1972, with an outstanding indebtedness of more than $150,000, the Bank, pursuant to the April 28 agreement, exercised its right to demand payment. Following Equitable's inability to meet this demand, the Bank sold all of Equitable's securities of which it had possession, retaining only the Power Conversion stock. The stocks were sold at their then current market value. The Bank now seeks from defendants $36,601.86, plus interest, representing the unsatisfied portion of the indebtedness. *fn1"

 Proceedings To Date

 Plaintiff initially brought this action against defendant Donald Quest solely. Following an answer which denied all of the allegations of the complaint on "information and belief", plaintiff moved for summary judgment. Defendant Quest subsequently filed an amended answer which interposed two defenses to the action. Consequently, the initial motion for summary judgment became moot. At this time defendant Quest joined Henry Goldfarb as a third-party defendant. Plaintiff then filed a complaint against defendant Goldfarb. The two actions were consolidated by stipulation of all the parties.

 The defenses raised by both Quest and Goldfarb were that the loans were made to Equitable in violation of Regulation U, 12 CFR § 221, promulgated by the Board of Governors of the Federal Reserve System pursuant to § 7(a) of the Securities Exchange Act, 15 U.S.C. § 78g(a), and that the Bank did not exercise "good faith" in disposing of Equitable's securities when the Bank's demand for satisfaction of the debt was not met.

 Plaintiff has now filed a second motion for summary judgment pursuant to Rule 56(c) of the Federal Rules of Civil Procedure. Defendant Goldfarb has filed an affidavit in opposition to this motion but none has been received from defendant Quest. Since, however, all previous papers of the two defendants have adopted the same position and a finding of liability would operate jointly or severally against each defendant, the failure of Quest to respond should not deter the court from considering the present motion.

 As the allegation that the Bank did not exercise good faith in disposing of Equitable's securities does not reappear in defendant Goldfarb's affidavit in opposition to the present motion for summary judgment, this defense appears to have been dropped and the court need not consider it in depth. The court notes, however, that the Bank's actions appear to have been consonant with all standards of good faith and commercial ...

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