SALTER v. ULRICH ET AL (1942)

Conflicting claims between plaintiff and defendant E. W. Ulrich as to ownership of a parcel of real property gave rise to this action, wherein each sought to quiet title as against the asserted claim of the other. Both parties, it was stipulated, derived their claim of title from a common source, it appearing without dispute that one Charles A. Kassell was the record owner of the realty in question, except as his title may have been divested by the foreclosure of a street improvement bond under which plaintiff asserted ownership, or by proceedings in an action in the Municipal Court of the City of Los Angeles under which a marshal's deed on sale under levy of execution was issued to defendant Ulrich.

On April 24, 1929, Kassell, as owner of the property herein involved, encumbered it with a trust deed, in which defendant E. W. Ulrich was named as beneficiary and Bank of Italy as trustee, securing Kassell's promissory note to Ulrich in the sum of $500 with interest. By a complaint filed in the Municipal Court of Los Angeles, March 16, 1934, Ulrich brought suit upon the note against Kassell, who, after being duly served with summons, allowed his default to be entered April 2, 1934. Thereafter judgment was entered April 3, 1934, a writ of execution was issued thereon June 8, 1936, the marshall levied upon the property here in question and sold the same to defendant Ulrich July 7, 1936, for the sum of $250 in partial satisfaction of the judgment which Ulrich had obtained against Kassell. The marshal's certificate of sale was delivered to Ulrich July 7, 1936, recorded July 10, 1936, and thereafter on July 13, 1937, the marshal duly issued to Ulrich a deed purporting to convey to the grantee all the right, title and interest of Kassell in and to the real property here in controversy. It is under that deed, and the proceedings leading up to the same, that defendant E. W. Ulrich in the instant case claims title to the property here involved.

It is to be observed that Ulrich in his action in the municipal court made no mention whatsoever that the promissory note upon which he sued was secured by trust deed, that the security had become worthless or that he waived the security. In that proceeding the only reference to the security is contained in the language of the note itself, which was introduced as an exhibit in the case and which recited: “This note is secured by a deed of trust to the Bank of Italy * * *.”

Plaintiff's claim of title arose from matters connected with a street improvement bond in the sum of $174.22, issued against the property February 4, 1931, pursuant to proceedings regularly had under the Street Improvement Bond Act of 1911. M. E. Oswald, then owner of the bond, commenced action in the Superior Court of Los Angeles County December 9, 1936, to foreclose the lien of the bond. Kassell, the only defendant named in connection with said bond foreclosure, was served and defaulted. Decree of foreclosure was ordered April 22, 1937, and under proceedings regularly had this same property was sold June 1, 1937, by a commissioner to Oswald for $314.76, the full amount due on the judgment under said bond. Commissioner's certificate of sale to Oswald was recorded on the date of sale, and thereafter on June 28, 1938, commissioner's deed was issued to Fred R. Salter, plaintiff herein, as assignee of Oswald, owner and holder of said commissioner's certificate of sale.

With reference to the bond foreclosure proceedings, which are not attacked on the ground of any irregularity affecting the foreclosure itself, it is admitted that Kassell was the sole defendant named and that nothing was alleged and no action taken with reference to the Ulrich trust deed, the Ulrich judgment or the marshal's certificate of sale to Ulrich, all of which matters were of record in the county recorder's office at the time of the suit.

Plaintiff brought this action to quiet title, relying upon his deed obtained through the street bond foreclosure, naming Ulrich and others as defendants. Ulrich in his answer denied that Salter acquired any title under the bond foreclosure, and affirmatively asked that his, Ulrich's, title acquired by virtue of the marshal's deed be declared to be valid and that he be adjudged to be the owner of the property in question. Defendant prevailed, the trial court ruling in favor of Ulrich's contention by adding to the conclusions of law and judgment the following clause: “That at the time said E. W. Ulrich purchased said real estate on July 7, 1936, plaintiff's street bond was a lien on said property, and said E. W. Ulrich took said property by that sale and the subsequent deed aforesaid subject to the lien of said bond.”

Plaintiff appeals, and defendant E. W. Ulrich also objects to the above–quoted portion of the judgment which decreed that the street bond was still a lien upon the property.

Appellant rests his case largely upon the contention that the court proceedings leading up to the marshal's deed under which respondent claims title were invalid. This is so, asserts appellant, because suit was brought upon a promissory note said to be secured by a trust deed; and for such a situation, it is argued, section 726 of the Code of Civil Procedure prescribes that there can be but one form of action, to wit, in accordance with the provision laid down in the chapter relating to the foreclosure of trust deeds and mortgages. Admittedly, the municipal court action upon the trust deed note was not a foreclosure in any sense of the term, but was simply a suit upon a promissory note. It must be conceded that there is an abundance of authority that ordinarily and in the absence of some unusual circumstance an independent action upon a promissory note secured by a trust deed may not be brought by the holder of the note without first exhausting the security in the manner laid down by section 726 of the Code of Civil Procedure. Bank of Italy v. Bentley, 217 Cal. 644, 20 P.2d 940; Unger v. Goldman, 12 Cal.App.2d 129, 54 P.2d 1126; Stark v. Coker, 20 Cal.2d 839, 129 P.2d 390. And although several cases declare that the rule enunciated in section 726 is one designed for the protection of the primary debtor, that in order to avail himself of the provisions of the section it must be pleaded as a matter of defense, and that such defense may be waived by the failure of the debtor to plead it (Martin v. Becker, 169 Cal. 301, 146 P. 665, Ann.Cas.1916D, 171; Crescent Lumber Co. v. Larson, 166 Cal. 168, 135 P. 502; Kempton v. Superior Court, 3 Cal.App.2d 374, 39 P.2d 846), other and later decisions indicate that section 726 declares a public policy of the state enacted for the benefit of the debtor class which cannot be waived even by the debtor himself. Winklemen v. Sides, 31 Cal.App.2d 387, 88 P.2d 147; Unger v. Goldman, supra. Certainly an agreement in advance by the debtor to waive the right of redemption or the waiver by agreement in advance of the rights secured by section 726 must be held to be invalid and of no effect. Security–First Nat. Bank v. Chapman, 31 Cal.App.2d 182, 87 P.2d 724; Winklemen v. Sides, supra, and cases therein cited.

But in the situation here presented the questions of waiver on the part of the trustor or the necessity of proceeding under section 726 in the original action on the note are beside the point. We are confronted here, and the trial court in hearing this matter was confronted simply with a record where, upon a judgment regular upon its face and without any apparent flaw or defect, a sale under execution was duly and regularly had and a marshal's deed was in due course issued thereupon. Quite obviously respondent by that series of legal steps succeeded to whatever interest the predecessor owner had in the property. His levy upon the realty was prior in time to that of appellant, and when appellant brought his proceedings under his street bond he failed to proceed against respondent, who at the time held an outstanding record interest against the land. Therefore, the street bond foreclosure proceedings did not disturb whatever interest respondent had acquired in the property. Neither in the present quiet title action could appellant establish any interest superior to respondent, because he could only rely upon the strength of such title as he had theretofore acquired. 22 Cal.Jur. 167.

We therefore hold that the trial court correctly ruled against appellant's claim of title and in favor of respondent. The declaration in the court's judgment that “plaintiff's” street bond was still a lien on said property at the time of respondent's purchase July 7, 1936, serves only to create an ambiguity and properly has no place and serves no function in the judgment in the present case. In the first place, it must be observed that plaintiff (appellant) never was the owner of the street bond in question; at most he was assignee of the commissioner's certificate of sale on foreclosure of the street bond. Furthermore, the status of the street bond, once foreclosed by its then owner Oswald, was not in issue in the present action, and we are cited to no evidence in the record in support of any finding or judgment that it is a present lien on the realty.

It is ordered that the following portion of the judgment be deleted: “That at the time said E. W. Ulrich purchased said real estate on July 7, 1936, plaintiff's street bond was a lien on said property, and said E. W. Ulrich took said property by that sale and the subsequent deed aforesaid subject to the lien of said bond.”

As thus modified the judgment is affirmed.

I dissent. Defendant Ulrich has not appealed, but the majority ruling in effect modifies the judgment of the lower court in his interest and releases the property from a just claim which is supported by a valid lien. Ulrich in his answer asks that his title be quieted, but he has not complied with the familiar rule that one who seeks equity must first do equity.

GOULD, Justice pro tem.

MOORE, P. J., concurred.