James v. P. C. S. Ginning Co.

Decision Date03 September 1969
Citation276 Cal.App.2d 19,80 Cal.Rptr. 457
CourtCalifornia Court of Appeals Court of Appeals
PartiesMervin E. JAMES and Thelma P. James, Plaintiffs and Respondents, v. P.C.S. GINNING COMPANY, Inc., Defendant and Appellant. Civ. 1099.

STONE, Presiding Justice.

Defendant appeals from a judgment quieting title in plaintiffs to real property upon which their home was located. The quiet title action was instituted to enforce a homestead filed prior to a personal judgment defendant obtained against plaintiffs and enforced by an execution sale of the real property.

The transaction began in 1965, when plaintiffs obtained financing from defendant gin to carry on their farming operations. They executed a promissory note and a crop mortgage to secure the financing. As additional collateral, they executed security agreements which were, in effect, personal property mortgages covering farming equipment; listed along with the equipment was an item 'Equity in House $8,000.' In 1966, plaintiffs again financed with the gin and executed similar documents, reflecting the equity in the house at $10,000. Both financing statements were recorded.

Thereafter, on September 20, 1966, plaintiffs filed a declaration of homestead covering their residence at 720 Washington Street, Delano.

Plaintiffs failed to meet their payments. In February 1967, the gin filed an action against them, alleging the execution of the promissory notes secured by the two agreements, and the default in payments. The gin sought possession of the items of personal property and the equity in the house, but did not allege that the language 'Equity in House' created an equitable lien nor seek to have the description made certain. A default judgment was entered March 21, 1967, in favor of the gin, for the sum of $131,167.28, attorneys fees of $15,000, and $38.50 costs. The judgment decreed that the gin have immediate possession of the farming equipment and 'Equity in House $10,000.00.' Since the 'equity' was real property, the order as to it was a legal nullity.

To enforce the order, the gin obtained a writ of possession for the specifically described personal property and, to reach the 'equity' in the house, obtained a writ of execution on the money judgment and levied against plaintiffs' equity in the real property. At an execution sale held November 30, 1967, defendant gin purchased what purported to be plaintiffs' equity in the real property.

In the meantime, on June 14, 1967, plaintiffs filed voluntary bankruptcy proceedings, claiming their residence to be exempt by virtue of the homestead. The referee approved the claim, set aside the real property as exempt, and discharged plaintiffs in bankruptcy. On September 26, 1967, plaintiffs filed this action to quiet title against defendant's judgment and execution sale, by reason of the homestead which predated the judgment. The matter was submitted to the trial court, sitting without a jury, upon stipulated facts. The court upheld the validity of the homestead.

Preliminarily, it is arguable that the description, 'Equity in House $10,000.00,' does not describe specific property and is therefore too vague to create a valid mortgage of real property. This point would be of great significance were an innocent purchaser for value involved, but no third parties are concerned; the controversy is between the debtors and the mortgagee. There was no misunderstanding; both the gin and plaintiffs intended the equity in the home to be security for the loan. Under the rationale of Coast Bank v. Minderhout, 61 Cal.2d 311, 314, 38 Cal.Rptr. 505, 392 P.2d 265, a valid equitable lien was created between the parties even though the description of the property was vague and indefinite.

Since there was a valid, equitable lien, the question narrows to whether the gin, by electing to file a personal action and reduce the indebtedness to a personal judgment, made an election of remedies that, by operation of law, waived its equitable lien priority over plaintiffs' subsequent declaration of homestead. Code of Civil Procedure section 726 provides that

'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. * * *'

Since there can be but one form of action, under section 726, the courts have established that where a creditor elects to obtain a personal money judgment rather than enforce his mortgage, the effect of the election is to waive the right to foreclose on his security. (Roseleaf Corp. v. Chierighino, 59 Cal.2d 35, 38, 27 Cal.Rptr. 873, 378 P.2d 97; Salter v. Ulrich, 22 Cal.2d 263, 268, 138 P.2d 7, 146 A.L.R. 1344; 1 Witkin, Summary Cal.Law, Security Transactions in Real Property, p. 745; Mortgages and Trust Deeds: Enforcement of a Secured Debt in California, 31 Cal.L.Rev. p. 429.)

Defendant argues that even though it lost the right to foreclose on the property by not proceeding to foreclose according to section 726 of the Code of Civil Procedure, its judgment and execution take precedence over the homestead by reason of section 1241 of the Civil Code, which provides:

'The homestead is subject to execution or forced sale in satisfaction of judgments obtained;

'* * *mes

'4. On debts secured by encumbrances on the premises, executed and recorded before the declaration of homestead was filed for record.'

The equitable lien was executed and recorded before the declaration of homestead was filed for record, so the question that emerges is whether the gin, by failing to enforce its equitable lien pursuant to section 726, forfeited the lien priority over the homestead that is provided by Civil Code section 1241. The landmark case, Salter v. Ulrich, Supra, 22 Cal.2d 263, 138 P.2d 7, 146 A.L.R. 1344, holds that a creditor who choses to disregard his security and sue on the indebtedness must rely on the title obtained through an execution sale. But this leaves unsettled the effect of the election of remedies upon the prior lien which appears of record and clouds title to the property. In short, does the title of the gin, obtained by purchase at execution sale, relate back to the date the lien was recorded, by reason of section 1241 of the Civil Code?

The language of Salter has been interpreted to mean that when the creditor elects to recover a personal judgment 'he loses all right to his security, thereby relegating himself to the position of an ordinary judgment creditor.' (31 Cal.L.Rev. pp. 429, 431.) We...

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  • In re Lua, Case No.: 2:11–bk–41173–DS
    • United States
    • United States Bankruptcy Courts. Ninth Circuit. U.S. Bankruptcy Court — Central District of California
    • May 1, 2015
    ...See, e.g., Jefferson v. Tom, 52 Cal.App.2d 432, 438, 126 P.2d 387 (Cal.Dist.Ct.App.1942) ; see also James v. P.C.S. Ginning Co., 276 Cal.App.2d 19, 24, 80 Cal.Rptr. 457 (Cal.Ct.App.1969) (recognizing the application of equitable estoppel to exemptions but declining to apply equitable estopp......
  • In re Gilman, Case No.: 1:11-bk-11603-VK
    • United States
    • United States Bankruptcy Courts. Ninth Circuit. U.S. Bankruptcy Court — Central District of California
    • September 25, 2019
    ...four California cases. Id. (citing Jefferson v. Tom , 52 Cal.App.2d 432, 126 P.2d 387 (Ct. App. 1942) ; James v. P.C.S. Ginning Co. , 276 Cal.App.2d 19, 80 Cal.Rptr. 457 (Ct. App. 1969) ; Viotti v. Giomi , 230 Cal.App.2d 730, 41 Cal.Rptr. 345 (Ct. App. 1964) ; and In re Cecala's Estate , 10......
  • Nevada Wholesale Lumber Co. v. Myers Realty, Inc., 7821
    • United States
    • Supreme Court of Nevada
    • January 23, 1976
    ...judgment herein properly quieted title in defendant (Ulrich) subject to that lien.' 138 P.2d at 9--10. In James v. P. C. S. Ginning Co., 276 Cal.App.2d 19, 80 Cal.Rptr. 457, 460 (1969), it was held that a defendant by electing to file a personal action and reducing the indebtedness to a per......
  • O'Neil v. General Security Corp., D013286
    • United States
    • California Court of Appeals
    • March 11, 1992
    ...726. We therefore conclude Judgment Creditors must forfeit their security interest as a matter of law (James v. P.C.S. Ginning Co. (1969) 276 Cal.App.2d 19, 22-24, 80 Cal.Rptr. 457) unless the waiver is enforceable against II. Rancho's Purported Waiver of Section 726 Is Invalid Against Refi......
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