EPSTEIN v. ENTERPRISE LEASING CORP (1987)

This case involves the remedies available to a creditor whose promissory notes are secured by both real and personal property, in light of the “one form of action” rule of Code of Civil Procedure section 726.¹

The creditor, Enterprise Leasing Corporation (ELC), appeals from a summary judgment in favor of debtor Leonard I. Epstein on Epstein's cross-complaint.   The trial court's summary judgment ordered ELC to pay Epstein the value of his residence which was sold pursuant to a trustee's sale subsequent to ELC's obtaining personal property that secured the same promissory notes as did the real property.

Epstein cross-appeals from the amount of the judgment, contending that the value of the encumbrance on his residence should not have been deducted in determining its value.

The trial court's rulings are correct.   We conclude that ELC's activities in pursuing its complaint for claim and delivery constitute an action pursuant to section 726 and ELC was then barred from resorting to the real property security.   The value of the first trust deed, paid by ELC, was properly deducted from the amount due to Epstein following sale of his residence.

PROCEDURAL HISTORY

Leonard Epstein, owner of Gear Machinery Company, a sole proprietorship, borrowed $78,000 from ELC on May 8, 1981, and $49,210 from ELC on May 17, 1982.   Promissory notes evidencing the indebtedness were secured by equipment designated in security agreements dated May 8, 1981, and May 18, 1982, respectively.   Epstein also signed a deed of trust on May 18, 1982, further securing both promissory notes;  the real property security involved was his residence.

It is undisputed that Epstein made some payments on the notes and then defaulted.

ELC filed a notice of default as to the real property security on February 14, 1983.

After the notice of default but prior to the notice of trustee's sale, on February 22, 1983, ELC filed a complaint for claim and delivery and conversion.   ELC alleged that by virtue of the security agreements, it was entitled to immediate possession of the personal property collateral and sought to obtain the subject equipment.   In the conversion causes of action, which ELC requested to be dismissed without prejudice on June 21, 1983, ELC alleged that Epstein sold the equipment that was collateral without ELC's permission and that punitive damages should be imposed.

Also on February 22, 1983, ELC sought an ex parte order for writ of possession, alleging that the personal property security would otherwise be impaired.   In a declaration in support of the application, Donald Froomer, president of ELC, stated that he believed the subject equipment was worth $100,000.   In a later declaration, the vice president and asset manager of ELC stated that more than half of the collateral was not on the premises;  it had been sold or stripped of its parts.   The order for writ of possession required ELC to file a written undertaking (bond) for $200,000.   In an order dated March 29, 1983, Judge Robert Weil ordered that the Marshall's keeper may repossess the subject equipment.   ELC held an auction on May 17, 1983, and sold the equipment.²  In a notice dated May 17, 1983, Epstein was given notice of the trustee's sale of the residence set for June 24, 1983.

On June 22, 1983, Epstein sought an order to show cause regarding a preliminary injunction and temporary restraining order restraining the trustee's sale of his residence.   He alleged, inter alia, the applicability of section 726.   Epstein further filed a cross-complaint for temporary restraining order, preliminary injunction, damages, declaratory relief, and to quiet title.   The superior court ordered a conditional preliminary injunction;  one of the conditions was that “payment be made within twenty days of August 26, 1983 in the amount of one-half of the accumulated deficiency less all credits resulting from the sale of the personal property.”   The parties agree that Epstein did not fulfill that condition.

The real property security was sold on September 16, 1983, pursuant to the trustee's sale.   ELC bought the property for $5,000 plus the trustee's fees.   ELC sold the subject property on or about April 6, 1984, for $149,000.

ELC brought a motion for summary judgment or for an order specifying issues without substantial controversy on May 4, 1984.   On May 11, 1984, Epstein made a motion for summary judgment on both the complaint and the cross-complaint.   There was extensive briefing below on whether ELC had violated the one-action rule of section 726.   On June 22, 1984, the trial court granted ELC's motion for summary judgment only as to attorney's fees and costs and granted Epstein's motion for summary judgment based on section 726.

Thereafter, Epstein's attorney made a motion to specify damages in order to clarify the minute order of June 22.   Epstein sought the entire $149,000 ELC obtained when it sold Epstein's residence following the trustee's sale.   ELC argued that it realized $59,566.11 from the sale of the residence since it had to pay $73,068.43 for the first trust deed that encumbered the property.³  The court ruled that the payoff of the encumbrance was a proper deduction and awarded Epstein $77,931.57;  the court refused to deduct the costs of selling the real property from Epstein's recovery.

ELC then filed a notice of motion and motion for reconsideration on March 6, 1985;  but before the date set for hearing on that motion, ELC filed a notice of appeal from the judgment in favor of Epstein on the cross-complaint.   Epstein then filed his cross-appeal from the amount of judgment.

CONTENTIONS ON APPEAL

Appellant ELC's contentions on appeal may be summarized as follows:

1. ELC's complaint for claim and delivery does not constitute an “action” within the meaning of section 726.

2. ELC is not in violation of section 726 by virtue of having filed, and subsequently dismissed, its cause of action for conversion.

3. Even if this court finds that “claim and delivery” invokes the operation of section 726, ELC has not violated the provisions thereof because foreclosure proceedings were instituted before any “action” was initiated.

4. The court erred in the relief given to Epstein since he was limited to the affirmative defense aspect only of section 726 and did not have the sanction aspect available.

5. ELC is entitled to recover its attorney's fees.

Respondent and cross-appellant Epstein, in addition to arguing that the trial court appropriately decided that section 726 applied to the facts at bench, argues that Epstein is entitled to the full value of his home and that ELC should not have the benefit of deducting the amount due under the first deed of trust.

DISCUSSION

1. Section 726 Can Be Used by the Debtor Either as an Affirmative Defense or as a Sanction Against the Creditor to Further the Goals of Prevention of a Multiplicity of Suits, to Compel Competitive Bidding to Test the Value of All Security for the Debt, and to Force the Creditor to Look to All Security as the Primary Fund for Payment of the Indebtedness Before Looking to the Debtor

ELC contends that its complaint for claim and delivery did not constitute an “action” within the meaning of section 726 because the purpose of that complaint was not to “enforce the debt” or to seek a deficiency judgment.   Even if this court finds the “claim and delivery” complaint did invoke the operation of section 726, ELC also argues that since it instituted foreclosure proceedings before the claim and delivery complaint was filed, it has followed the proper procedure in going after the real property security by trustee's sale before attempting another remedy.

ELC further contends that the creditor must do more than just file an action but must seek and obtain a deficiency judgment before the debtor can rely on the protection of section 726.   Before discussing appellant's contentions directly, we review the law relating to the application of the one-action rule of section 726.

In Walker v. Community Bank (1974) 10 Cal.3d 729, 732, 111 Cal.Rptr. 897, 518 P.2d 329, the bank's loans to debtor were secured by a chattel mortgage on equipment and trucks and by a second promissory note secured by a trust deed on real property.   When the debtor defaulted, the bank commenced a judicial foreclosure of the chattel mortgage;  following foreclosure and sale of the chattels, the bank recovered a deficiency judgment.

Neither the bank nor the debtor made any mention of the second note or its real property security during the judicial foreclosure of the chattel mortgage.   Before entry of the deficiency judgment, however, the debtor sold the real property securing the second note to a third party.   After the sale of chattels but before the deficiency judgment, the bank commenced foreclosure of the real property by recording a notice of default and election to sell.

The third party, Walker, commenced an action to quiet title in the subject property and to enjoin the trustee's sale.   Our Supreme Court in Walker held that where “there is a single debt secured by both real and personal property and the creditor elects to judicially foreclose only on the personal property, he thereby loses his security interest in the real property as against all parties even though the debtor does not raise the one form of action rule (§ 726) as affirmative defense in the judicial foreclosure proceedings.  [Fn. omitted.]”  (Id., at p. 741, 111 Cal.Rptr. 897, 518 P.2d 329.)

In Walker, supra, Justice Sullivan exhaustively reviewed the law regarding section 726.   The clearest case is “where the creditor sues on the obligation and seeks a personal money judgment against the debtor without seeking therein foreclosure of such mortgage or deed of trust [securing the debt], he makes an election of remedies, electing the single remedy of a personal action, and thereby waives his right to foreclose on the [real property] security or to sell the security under a power of sale.   [Citations.]”  (Id., at p. 733, 111 Cal.Rptr. 897, 518 P.2d 329.)

Salter v. Ulrich (1943) 22 Cal.2d 263, 138 P.2d 7, cited by the court in Walker, involved a situation where a creditor brought suit on the promissory note without making reference to the fact that the note was secured by a trust deed.   The court held that the creditor, by suing on the note instead of foreclosing, made an election of remedies and cannot “now pursue the concurrent remedies of foreclosure by action or by trustee's sale.”  (Id., at p. 268, 138 P.2d 7.)

The situation becomes more complex when there is mixed collateral, that is, both personal and real properties securing the note.   The Walker court addressed the question of the application of section 726 to both real and personal property security by quoting Professor Hetland as follows:  “ ‘Prior to 1963, CCP 726 applied to enforcement of any right secured by mortgage on real or personal property.   With the enactment of the Uniform Commercial Code, however, personal property was omitted from CCP 726.   Clearly the effect of this is to allow the enforcement procedures of the Uniform Commercial Code where the security is entirely personal property.   Where the debt is secured partially by real property and partially by personal property, however, omission of personal property from CCP 726 seems of no significance.  [¶] The reasons underlying both the affirmative defense and the sanction aspect of CCP 726 remain the same when part of the security is personal property, i.e., prevention of a multiplicity of suits, compelling competitive bidding to test the value of all security for the debt, and forcing the creditor to look to all security as the primary fund for payment of the indebtedness before looking to the debtor․  [¶] [T]he creditor may not first have a judicial action to foreclose on any security [either real or personal] without losing the balance of his security, thereby precluding any future nonjudicial sales.’  (Hetland [Cal. Real Estate Secured Transactions (Cont.Ed.Bar 1970) ] § 6.18 at pp. 260–261.)”  (Walker, supra, 10 Cal.3d at p. 735, 111 Cal.Rptr. 897, 518 P.2d 329.) ⁴

“Procedurally, a mortgagor may use the rule both defensively and as a sanction.”  (Nelson & Whitman, Real Estate Finance Law (2d ed. 1985) § 8.2, p. 599.)  “If the debtor successfully raises the section as an affirmative defense, the creditor will be forced to exhaust the security before he may obtain a money judgment against the debtor for any deficiency.  [Citations.]  If the debtor does not raise the section as an affirmative defense, he may still invoke it as a sanction against the creditor on the basis that the latter by not foreclosing on the security in the action brought to enforce the debt, has made an election of remedies and waived the security.  [Citations.]”  (Walker, supra, 10 Cal.3d at p. 734, 111 Cal.Rptr. 897, 518 P.2d 329.)

ELC argues that the language “before he may obtain a money judgment against the debtor for any deficiency” and “action brought to enforce the debt” supports its position in that, section 726 does not apply and ELC could proceed against the real property security because, by bringing the claim and delivery complaint, ELC was not either seeking a money judgment for any deficiency or bringing an action to enforce the debt.

Witkin agrees with appellant's position that section 726 does not apply where the action is not to recover a debt.  (3 Witkin, Summary of Cal.Law (8th ed. 1973) § 89, p. 1561.)   Examples given include unlawful detainer actions for failure to pay rent even though a mortgage or deed of trust has been given as security for such payment (Ashcroft Estate Co. v. Nelson (1915) 26 Cal.App. 400, 401, 147 P. 101;  Willys of Marin Company v. Pierce (1956) 140 Cal.App.2d 826, 829, 296 P.2d 25);  action for a conversion of note (Meyer v. Thomas (1936) 18 Cal.App.2d 299, 302, 63 P.2d 1176);  and action for rescission and damages for fraud (Kass v. Weber (1968) 261 Cal.App.2d 417, 423, 67 Cal.Rptr. 876).   Witkin also mentions that “an action to recover possession of personal property secured by a chattel mortgage did not require foreclosure under the pre-Commercial Code version of C.C.P. 726 (applicable to personal as well as real property).  (See Harper v. Gordon (1900) 128 C. 489, 491 [61 P. 84] ․;  Mills v. Brown (1928) 205 C. 38, 41 [269 P. 636]․)”  (3 Witkin, op. cit. supra, at p. 1561.   But see First Fed. Sav. & Loan Assn. v. Lehman (1984) 159 Cal.App.3d 537, 542–543 [205 Cal.Rptr. 600].)   Witkin emphasizes that section 726 “applies only to an action against the mortgagor, to recover a debt, secured by a mortgage;  and even where all these elements are present certain exceptions are recognized in unusual circumstances․”  (3 Witkin, op. cit. supra, § 87, p. 1560.) ⁵

A recent case relied upon by respondent in contending that ELC's activities amounted to an action under section 726 is Bank of America v. Daily (1984) 152 Cal.App.3d 767, 199 Cal.Rptr. 557.   Mr. and Mrs. Daily owed the bank $340,000 evidenced by a promissory note secured by pledged common stock.   When the stock declined in value and the bank asked the Dailys for additional collateral, they signed a deed of trust encumbering real property.   Several years later, when the note was in default, the bank sold the pledged stock at a private sale and applied the proceeds of the sale to the principal balance of the note and also set off from the Daily's checking account over $10,000 for accrued interest on the debt.  (Id., at p. 770, 199 Cal.Rptr. 557.)   The bank later filed an action to judicially foreclose the deed of trust.

The trial court in Daily determined that the bank's exercise of its right of setoff did not result in a waiver of its recourse to other property and entered a judgment of foreclosure, retaining jurisdiction to determine the amount of any deficiency;  the Court of Appeal reversed the judgment of foreclosure.  (Id., at p. 774, 199 Cal.Rptr. 557.)   The appellate court conceded that “in the classic sense of a judicial proceeding initiated by complaint, a checking account setoff is not an ‘action.’ ”  (Id., at p. 771, 199 Cal.Rptr. 557.)   The appellate court found itself bound by previous Supreme Court rulings holding a bank setoff against a general deposit account is an “action” for the purpose of applying the one form of action rule of section 726.  (Ibid.) ⁶

It is with the above authority in mind that we must determine whether ELC's activities amounted to an action that permits Epstein to use section 726 as a sanction.

II. ELC's Activities in Selling Epstein's Equipment Constitute an “Action” Under Section 726

ELC strenuously argues that its complaint for claim and delivery does not constitute an “action” within the meaning of section 726.   It asserts that, by using the provisional remedy of claim and delivery, ELC was merely protecting the value of the goods given as security and was not pursuing an action to recover the debt or making an effort to get a deficiency judgment.

As stated in 6 Witkin, California Procedure (3d ed. 1985) Provisional Remedies, section 208, page 183, “[a] plaintiff entitled to the possession of personal property held by another may bring an action for specific recovery of the property․  And, if immediate possession is important, he may invoke the provisional remedy of claim and delivery to obtain such possession without waiting for trial and judgment in the main action․  [¶] Thus, the action may be brought and possession recovered in the usual manner by judgment, or the action may be brought and possession recovered by the provisional remedy before judgment.   The provisional remedy cannot be employed independently, but only in the action.   Moreover, the provisional remedy gives only a temporary possession;  title and right to possession are determined by the final judgment․”  (Emphasis in original.)

We are faced here with the question of whether a creditor who files a complaint for claim and delivery, files a writ of possession, and then retains the proceeds of the sale of the personal property as part of the provisional remedy of claim and delivery has maintained an action within the meaning of section 726 that prohibits the creditor from then foreclosing on the deed of trust.

A case most helpful to ELC is Harper v. Gordon, supra, 128 Cal. at pages 491–492, 61 P. 84.   In that case, “it was held that where a chattel mortgage contained a special contract allowing the mortgagee to take possession of the mortgaged chattels after default, such contract might be enforced after default by an action of replevin, the court expressly holding that section 726 of the Code of Civil Procedure did not apply to that case.”  (Mills v. Brown, supra, 205 Cal. at p. 41, 269 P. 636.)   Both Harper and Mills precede enactment of the Commercial Code;  during that period of time, section 726 specifically applied to one form of action for debts and rights secured by mortgages on both real or personal property.   The court in Harper v. Gordon found that the contract provision allowing the mortgagee to be entitled to possession of the personal property in the event of default was “but an incident to the mortgage” (id., 128 Cal. at p. 492, 61 P. 84);  “[t]he action here [in Harper ] is clearly not to recover the debt, nor do we think it an action ‘for the enforcement of any right secured by mortgage,’ in the sense intended by the clause restricting the action, upon a debt secured by mortgage, to foreclose.   The action of replevin determines only the right of possession.”  (Id., at p. 491, 61 P. 84.)

 If ELC had only used the action for claim and delivery as a method of determining the right of possession, the above ruling in Harper v. Gordon might apply.   However, ELC sold Epstein's equipment;  it did not merely seek the property as a method of securing it.⁷  This is distinguishable from the factual situation in Harper v. Gordon, supra, 128 Cal. at page 492, 61 P. 84, where the Supreme Court stated, “The interest of the mortgagee is not enlarged or affected by the fact that he is in possession under the mortgage;  he takes possession for the purpose of increasing his security, and whether he does this by the voluntary act of the mortgagor, or by action upon condition broken, the debt remains unpaid and title still remains in the mortgagor.”

In the case at bench, the debt—or at least a part of it—did not “remain unpaid.”   The action brought by ELC was not, as the case in Harper and Mills, “incidental to the mortgage and ․ for the protection of the security given.”  (Mills v. Brown, supra, 205 Cal. at p. 41, 269 P. 636.)   ELC's activities amounted to an action under section 726, thereby allowing Epstein to invoke the sanction aspect of the one-action rule and prevent ELC from utilizing the trustee's sale to obtain the real property security.

We also reject ELC's contention that section 726 only applies if the action seeks a deficiency judgment.   ELC's argument is not totally without merit in view of the purpose of the anti-deficiency legislation and some of the language quoted from Walker and other cases.   However, the court in Walker, supra, 10 Cal.3d at page 735, 111 Cal.Rptr. 897, 518 P.2d 329, quoted Professor Hetland with approval that “ ‘[t]he creditor may not first have a judicial action to foreclose on any security ․ without losing the balance of his security, thereby precluding any future nonjudicial sales' ”;  and, at page 733, 111 Cal.Rptr. 897, 518 P.2d 329, “ ‘[o]ccasionally, ․ a creditor fails to exhaust all his security in one action, and the debtor fails to compel him to do so by raising his CCP 726 defense.   When the creditor tries to recover the balance owing or take the remaining security, the following questions arise:  [¶] What effect has his failure to exhaust all security in one action had on his right to realize on the additional security? ․  May the creditor bring another action to foreclose on the balance of the security? ․  The answer to each question is “No.” ’ ”

The result sanctioned by the trial court admittedly seems harsh.   Epstein had provided both personal and real property as security for his indebtedness, and ELC had a right to think it could rely on that security upon Epstein's default.   However, pursuant to section 726, the Commercial Code, and various anti-deficiency legislation, the California Legislature has determined that creditors must pursue their security by very specific methods.   The method utilized by ELC, trustee's sale of the real property security following sale at auction of personal property security obtained as part of the provisional remedy for claim and delivery, runs afoul of section 726 as interpreted in Walker, supra, 10 Cal.3d at p. 735, 111 Cal.Rptr. 897, 518 P.2d 329.   ELC did not exhaust all security in one action and may not then try to recover the balance owing or take the remaining security.

 We are also not convinced by ELC's argument that, assuming ELC's activities in the claim and delivery action invoked the operation of section 726, the fact that foreclosure proceedings on the real property were instituted prior to initiation of the claim and delivery lawsuit is sufficient to denominate the nonjudicial foreclosure as occurring first in time, a procedure approved in Walker, supra, 10 Cal.3d at page 736, 111 Cal.Rptr. 897, 518 P.2d 329, where the court points out that the bank in that case could have properly resorted to the real property security first by a private sale and then judicially foreclose the chattel mortgage pursuant to section 9501, subdivision (4), of the Commercial Code.⁸  We find that the mere filing of the notice of default is not sufficient to constitute a nonjudicial sale of the real property that Walker permits prior to judicial action on the personal property.⁹

Neither do we agree with ELC that Epstein was limited to the affirmative defense aspect of section 726 and did not have the sanction available to him since he purportedly used section 726 as an affirmative defense to defeat ELC's attempt to secure a deficiency judgment.   It is true that Epstein's affirmative defenses to ELC's complaint for claim and delivery included an allegation that ELC is precluded from recovering the value of the equipment because it elected to receive the security.   The court was never in a position to consider this defense since ELC, after obtaining a writ of possession, sold the personal property at auction.   There is no indication that ELC attempted to obtain a deficiency judgment in those proceedings, which is actually one of ELC's strongest points in arguing that its activities below did not constitute an action on the debt for purposes of section 726.

Because of our decision that ELC's activities did subject it to the sanction of section 726, we need not decide if filing the action for conversion, which was later dismissed without prejudice, also subjected ELC to section 726.

III. The Trial Court Correctly Deducted the Value of the Encumbrance on the Real Property from the Award to Epstein

The sole issue Epstein raises in his cross-appeal is whether he is entitled to the full value of his residence or whether ELC was entitled to a deduction in the amount of the first deed of trust.   Except for a citation to Bank of America v. Daily, supra,¹⁰ Epstein offers no authority for his position.

 The sanction that the Daily court considered and rejected was to require the bank to refund the money taken from the checking account plus accrued interest as a condition to proceeding with the judicial foreclosure.   The question before us is, in what manner should Epstein be reimbursed for the loss of his residence once the trustee's sale has improperly taken place?   The value to him of his residence did not include the first deed of trust which he was obligated to pay.   Therefore, especially in the absence of any contrary authority, we reject his contention that ELC should have to pay both him and his lender for the encumbrance on the real property that served as security.

DISPOSITION

The judgment is affirmed.   Epstein to recover costs.

FOOTNOTES

1.   Code of Civil Procedure section 726 provides in pertinent part:  “There can be but one form of action for the recovery of any debt or the enforcement of any right secured by mortgage upon real property, which action must be in accordance with the provisions of this chapter․”Hereinafter, all further statutory references are to the Code of Civil Procedure unless otherwise indicated.

2.   The circumstances surrounding the auction were disputed by the parties but are not relevant at this point.   Epstein did not answer certain requests for admissions, and they were deemed admitted pursuant to section 2033.   Epstein's effort to set aside his default was denied in the superior court.   The admissions are evidence of the commercially reasonable manner by which the personal property security was sold.

3.   During argument to the court, counsel for ELC argued that the bid ELC “made with the first mortgage plus the credit of $5,000 was the fair market value of that property, and this should be the only amount that they should recover.”

4.   The Walker court, supra, 10 Cal.3d at page 733, footnote 2, 111 Cal.Rptr. 897, 518 P.2d 329, further quotes what it calls Professor Hetland's “excellent summary” of the one form of action rule:  “ ‘When a creditor has more than one parcel of real property, or a combination of real and personal property, securing a single debt, the debtor may compel the creditor to include all the security he has for that debt in a single judicial foreclosure action by raising CCP 726 as an affirmative defense․  Occasionally, however, either through design or inadvertence, a creditor fails to exhaust all his security in one action, and the debtor fails to compel him to do so by raising his CCP 726 defense.   When the creditor tries to recover the balance owing or take the remaining security, the following questions arise:  [¶] What effect has his failure to exhaust all security in one action had on his right to realize on the additional security?   Can he take a deficiency or personal judgment on the balance owing?   May the creditor bring another action to foreclose on the balance of the security?   Can he foreclose the balance by nonjudicial sale?   If the creditor foreclosed on none of his security but instead took a personal judgment against the debtor, does he retain his former lien priority when he attempts to execute on the real property that previously was his security?  [¶] The answer to each question is “No.” ’ ”  (Emphasis added.)

5.   It has long been established that although the section refers only to “mortgage” it is applicable to a deed of trust as well.  (Walker v. Community Bank, supra, 10 Cal.3d at p. 733, fn. 1, 111 Cal.Rptr. 897, 518 P.2d 329.)

6.   The Daily case has been criticized in the California Mortgage and Deed of Trust Practice (Cont.Ed.Bar 1986) section 4.4, pages 34–35.

7.   The statutes relating to claim and delivery of personal property are in the Code of Civil Procedure at section 511.010 and following.   The statutes set forth the procedure for application for a writ of possession, seizure of the property, and, in limited situations, sale of perishable property.   Subdivision (b) of section 514.030 permits the court to “order that the property be sold and the proceeds deposited in the court to abide the judgment in the action” in situations “where not otherwise provided by contract and where an undertaking for redelivery has not been filed, upon a showing that the property is perishable or will greatly deteriorate or depreciate in value or for some other reason that the interests of the parties will be best served thereby․” (Emphasis added.)   Whether or not such an order was sought, it is clear that ELC and not the court retained the proceeds of the sale of Epstein's equipment.Neither does section 515.010, permitting an undertaking to ensure “return of the property,” empower the creditor to sell the personal property rather than secure it pending determination in the main action for claim and delivery.   ELC filed a bond, but it also sold the personal property at auction, without depositing the proceeds in court or awaiting judgment in the main action.   The cases cited do not permit us to deny that ELC's conduct amounts to an “action” within the meaning of section 726.

8.   We note that the parties to this appeal argue about the very recent amendments to section 9501 of the Commercial Code and their application to the case at bench.   However, both concede that the subject amendments were not affective until January 1, 1986, so we do not discuss the application of the new language to the case before us.

9.   Filing the notice of default is the only step toward the trustee's sale that took place in the case at bench prior to ELC's filing of the complaint for claim and delivery.   Only on the date of the auction of the personal property was there any further activity toward sale of Epstein's residence;  notice of the trustee's sale was dated May 17, 1983, the same day Epstein's equipment was sold at auction.

10.   The court in Bank of America v. Daily, supra, 152 Cal.App.3d at page 772, 199 Cal.Rptr. 557, states:  “Mitigation of harshness, however, may not serve as the rationale for deciding this case.  ‘The classic sanction against the creditor who fails to exhaust all his security for the same debt in a single action is harsh, yet it follows inescapably from the availability of but one action to the creditor—he waives the balance of the security and he waives any claim to the unpaid balance of the debt.   [Citations.]’  (Hetland [supra ] § 6.18, p. 258.)”

LUI, Associate Justice.

KLEIN, P.J., and ARABIAN, J., concur.