Filed 10/24/14




                            CERTIFIED FOR PUBLICATION

             IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                              FIFTH APPELLATE DISTRICT



FIRST CALIFORNIA BANK,
                                                                     F067812
   Plaintiff and Respondent,
                                                            (Super. Ct. No. CV272097)
   v.

MARY ALICE MCDONALD et al.,                                        OPINION
   Defendants and Appellants.



        APPEAL from a judgment of the Superior Court of Kern County. Sidney P.
Chapin, Judge.
        Calfee Konwinski, Christopher J. Konwinski; Wendel, Rosen, Black & Dean,
Charles A. Hansen and Kevin R. Brodehl for Defendants and Appellants.
        Epport, Richaman & Robbins, Steven N. Richman and Renata A. Guidry for
Plaintiff and Respondent.
                                           -ooOoo-
        First California Bank (Bank) filed this judicial foreclosure action to collect a loan
secured by two parcels of real estate. The loan had been made to a husband and wife and,
after the husband died, the loan went into default. Bank and the wife agreed to a private

                               SEE CONCURRING OPINION
sale of one of the parcels that was her separate property. Afterward, Bank filed this
action to foreclose on the remaining parcel and obtain a deficiency judgment.
       Bank successfully moved for summary adjudication of its judicial foreclosure
cause of action. The trial court’s decree of judicial foreclosure stated Bank was entitled
to obtain a deficiency judgment against the representatives of the husband’s estate.1 On
appeal, appellants contend the trial court erred by holding them liable for a deficiency
judgment.
       Generally, a creditor to a loan secured by real property has two potential sources
of repayment if the loan is not repaid and goes into default—proceeds from the sale of the
real property collateral and a personal judgment against a debtor (or what is known as a
deficiency judgment). For policy reasons, resort to real property collateral for repayment
of secured loans is favored, and deficiency judgments are not, and creditors must follow
certain statutory mandates in order to ultimately obtain a deficiency judgment.
       There are two basic statutory requirements under Code of Civil Procedure section
7262 for creditors seeking deficiency judgments: (1) “security first,” which means that a
creditor must first exhaust all real property security to qualify for a deficiency judgment;
and (2) such exhaustion of the real property collateral must be through a single judicial
foreclosure lawsuit. These requirements in section 726 are referred to as the “one form of
action” rule. These statutory protections may be waived by debtors in certain situations.
       Secured creditors are allowed to “exhaust” their collateral to repay secured loans
in ways other than judicial foreclosure, such as nonjudicial foreclosure or private sales.


1      The representatives of the estate are Mary McDonald, Katherine Kelly, and John
P. DeVincenzo, III. They were defendants in the judicial foreclosure action and are
referred to as “appellants” in this opinion. A deficiency judgment was not sought against
the wife because pursuit of a deficiency against her was prohibited by an order entered in
her bankruptcy case.
2     All further statutory references are to the Code of Civil Procedure unless indicated
otherwise.
However, the consequence of not following the dictates of section 726 is a waiver of the
creditor’s right to a deficiency judgment. In order to obtain a deficiency judgment, all
real property collateral must be exhausted in one single action for judicial foreclosure. If
any of the real property collateral is exhausted through any other means, such as a private
sale without the consent of the debtors, a deficiency judgment is barred. Because Bank
failed to follow the requirements of section 726 by disposing of the Shafter Property
outside of judicial foreclosure and without appellants’ consent or waiver, Bank has
waived any right to a deficiency against them.
       We therefore reverse the judgment.
                                          FACTS
       On March 19, 2009, Sally DeVincenzo (Sally) and John P. DeVincenzo (John),
husband and wife, signed a five-year promissory note stating they would pay Bank3 the
principal amount of $1,509,000, with interest. Under the note, monthly installment
payments were due, with the final balloon payment due in April 2014. The note provided
that, upon default, Bank could accelerate the note and declare all monies payable
immediately due and payable. Sally and John secured the note by signing a deed of trust
that granted Bank an interest in real property located in Wasco, California (Wasco
Property).
       Also on March 19, 2009, Sally provided additional security for the note by signing
a deed of trust for a property located in Shafter, California (Shafter Property). The deed
of trust stated Sally was a married woman and described the Shafter Property as Sally’s
“sole and separate property.”
       On a date not specified in the record, Sally sold the Shafter Property. Bank’s
separate statement asserts Sally “requested that First California agree to the sale of the



3     As used in this opinion, the term “Bank” includes First California Bank and its
predecessor in interest, San Luis Trust Bank.
parcel. First California agreed with the understanding that (a) First California would
receive the net proceeds, and (b) the Borrowers would not be released of liability.”
       In September 2009, John died. A probate proceeding was initiated and
appellants—his children—were appointed as the personal representatives of his estate.
       The note went into default when the December 2009, payment was not made. No
further payments were made. As a result of the lack of payment, Bank declared all sums
under the note to be immediately due and payable, with interest and late charges.
       The declaration of Bank’s vice-president of special assets stated that, as of
February 29, 2012, there was due an unpaid principal sum of $1,019,278.98 plus accrued
interest of $158,868.23 and certain late charges, expenses and loan fees.
                                    PROCEEDINGS
       In November 2010, Bank filed a complaint for judicial foreclosure on the Wasco
Property and a deficiency judgment against Sally and appellants. Bank later filed a
second amended complaint, which named appellants only in their capacities as personal
representatives of John’s estate.
       Bank filed the motion for summary adjudication that is the subject of this appeal.
In March 2013, following a hearing, the trial court issued a minute order granting the
motion for summary adjudication of Bank’s third cause of action for judicial foreclosure.
       In June 2013, the trial court signed and filed (1) the formal order and (2) a decree
for judicial foreclosure and order for writ of sale of the Wasco Property. The decree also
stated appellants were liable for the subject debt and that a deficiency judgment could be
entered against them in an amount to be determined after the sale of the Wasco Property.
       Appellants appealed.
                                      DISCUSSION
I.     STANDARD OF REVIEW
       A motion for summary judgment “shall be granted if all the papers submitted
show that there is no triable issue as to any material fact and that the moving party is
entitled to a judgment as a matter of law.” (§ 437c, subd. (c).)
       Appellate courts determine whether a triable issue of material fact exists by
conducting an independent review of “the record that was before the trial court when it
ruled on defendants’ motion.” (Martinez v. Combs (2010) 49 Cal.4th 35, 68.) When
conducting this independent review of the record, appellate courts view the evidence in
the light most favorable to the nonmoving parties, resolving evidentiary doubts and
ambiguities in their favor. (Ibid.)
       Ordinarily, we methodically apply “the required step-by-step evaluation of the
moving and opposing papers.” (Brantley v. Pisaro (1996) 42 Cal.App.4th 1591, 1607
(Brantley).) In this case, however, we will adopt the approach employed by the parties
and move directly to the central issue: Was Bank’s right to collect a deficiency judgment
against appellants dependent upon Bank obtaining their consent to the arrangement in
which Bank released its deed of trust to the Shafter Property? Stated in terms of the
summary adjudication statute, was appellants’ consent a material fact that must be
undisputed for Bank to prevail on its claim for a deficiency judgment? We answer “yes”
to these questions.
II.    NECESSITY OF CONSENT TO PRIVATE SALE OF SECURITY
       A.     Background—The Pleadings and Motion
              1.      Bank’s Complaint
       Bank’s second amended complaint included a cause of action for judicial
foreclosure of the deed of trust. Bank alleged that because of the defaults on the note,
Bank was entitled to enforce the deed of trust by judicial foreclosure on all of the
defendants’ rights in the Wasco Property. Bank’s prayer for relief under its judicial
foreclosure cause of action requested foreclosure against the Wasco Property and a
deficiency judgment against John’s estate.4
              2.     Appellants’ Answer
       Appellants’ answer asserted a number of affirmative defenses. Their seventh
affirmative defense asserted that Bank failed to seek, in this action or in any other single
action, a foreclosure of all the property that was or had been security for the debt, in
violation of the requirements of section 726 and, therefore, Bank’s recovery was barred.
              3.     Summary Adjudication—Bank’s Motion and Separate Statement
       Bank’s moving papers included a separate statement of undisputed facts that
defined the issue to be summarily adjudicated as follows: “There is no triable issue of
material fact as to the third cause of action for Judicial Foreclosure.” Bank’s motion
argued it should obtain a judgment on its third cause of action because (1) it was entitled
to (a) judicial foreclosure on the Wasco Property and (b) a deficiency judgment against
appellants, and (2) appellants’ affirmative defenses had no merit.
              4.     Appellants’ Opposition
       Appellants’ opposition papers asserted Bank’s release and reconveyance of the
deed of trust for the Shafter Property without their consent violated the security first
principles of section 726, subdivision (a) (section 726(a)) and released them from
personal liability for a deficiency judgment. Appellants did not contend the violation
affected Bank’s right to foreclose on the Wasco Property. Supplemental briefing filed by
appellants in the trial court stated Bank remained able to pursue recovery against the
Wasco Property under the deed of trust that remained in effect.




4      Specifically, Bank requested the court to (1) adjudge the deed of trust foreclosed
and the usual judgment be made for the sale of the Wasco Property by the sheriff or court
appointed commissioner and (2) enter a judgment against the “Estate for any deficiency
that may remain after applying all of the proceeds of the sale of the [Wasco] Property.”
       Based on the arguments presented below and on appeal, the question we must
resolve is whether Bank waived its right to a deficiency judgment against appellants by
violating the security first principle in section 726(a). The violation asserted is Bank’s
release of its deed of trust to the Shafter Property without the consent of appellants,
which release of collateral meant Bank was not able to include all of the real property
security in a single judicial foreclosure action.
       B.     Overview of Section 726
       Section 726 governs judicial foreclosures and contains the basic rules of law
applicable to Bank’s claim that is it entitled to (1) a decree of foreclosure and (2) a
deficiency judgment.
              1.      Authorization for Judicial Foreclosure and Deficiency Judgments
       Section 726(a) authorizes the remedy of a judicial foreclosure by stating that a
court may direct both the sale of encumbered real property and the application of the
proceeds from that sale.5
       As to deficiency judgments, subdivision (b) of section 726 (section 726(b))
provides that the decree for the foreclosure of a deed of trust “shall declare the amount of
the indebtedness or right so secured and, unless judgment for any deficiency … is waived
by the judgment creditor …, shall determine the personal liability of any defendant for
the payment of the debt secured by the mortgage or deed of trust and shall name the
defendants against whom a deficiency judgment may be ordered following the
proceedings prescribed in this section.” (Italics added.)
              2.      Debtor Protections Associated with a Deficiency
       Debtors liable for a deficiency judgment are protected from low bids at the judicial
foreclosure auction by the fair value limitation contained in section 726(b). Under that
limitation, the amount of the deficiency judgment is calculated by subtracting the fair

5     Subdivision (a) also sets forth the “one form of action” rule, which is discussed
below in part II.B.4, post.
value of the property from amount of the indebtedness. (§ 726(b).) If the creditor applies
for a fair value determination within three months after the foreclosure sale, the trial court
determines the fair value of the property and calculates the amount of the deficiency to be
awarded. (Bernhardt, Cal. Mortgages, Deeds of Trust, and Foreclosure Litigation
(Cont.Ed.Bar ed. 2014) §§ 3.86-3.87, pp. 3-60 to 3-61 (Bernhardt).)
       A second protection afforded debtors liable for a deficiency judgment is the right
to postsale redemption. (§ 726, subd. (e); Bernhardt, supra, § 3.90, pp. 3-64 to 3-65.)
This statutory right is asserted against the purchaser at the foreclosure sale and allows the
debtor to redeem the property based on the foreclosure sale price, not on the amount of
the secured debt. (Bernhardt, supra, § 3.90, p. 3-64.) Creditors may cut off the debtor’s
redemption rights by waiving their right to a deficiency judgment and having that waiver
clearly reflected in the decree of foreclosure. (Id. at p. 3-65; see Cornelison v. Kornbluth
(1975) 15 Cal.3d 590, 602.)
       These two debtor protections are mentioned here because appellants argue the trial
court’s order effectively allowed the agreement between Bank and Sally regarding the
Shafter Property to deprive them of the protections they would have had if the Shafter
Property had been included in the judicial foreclosure action.
              3.     Creditor’s Waiver of the Deficiency
       Appellants’ challenge to the deficiency judgment is based on the text of section
726(b) that states a creditor’s right to a deficiency judgment can be lost—that is,
“waived.”6 For our purposes, a creditor may “waive” its right to a deficiency by failing
6      As used in section 726(b), the term “waived” has not been construed narrowly to
mean a creditor intentionally relinquished or abandoned a known right. (See In re S.B.
(2004) 32 Cal.4th 1287, 1293, fn. 2 [accurate definition of waiver is an ‘““intentional
relinquishment or abandonment of a known right””’].) Instead, section 726(b)’s use of
“waived” includes the forfeiture or loss of any right to a deficiency that results by
operation of law when a creditor, regardless of its actual intent, acts in a way that violates
the security first principle. (See Pacific Valley Bank v. Schwenke (1987) 189 Cal.App.3d
134, 140 (Schwenke) [creditor who divests himself of the security without the consent of
the debtors “has waived his right to proceed on the note”].)
to follow the mandates of section 726 and not obtaining the consent of the debtor to do
so.
       The consequences of a waiver by the creditor are described in section 726(b) as
follows: “In the event of waiver, … the decree shall so declare and there shall be no
judgment for a deficiency.” Therefore, a creditor seeking to obtain a deficiency judgment
in a judicial foreclosure action will not succeed if the creditor has “waived” its right to a
deficiency.
              4.     One Form of Action Rule
       Here, appellants contend that “Bank waived its right to a deficiency judgment
against Appellants when Bank sidestepped the requirements of section 726 by agreeing
with only one debtor (Sally) on the private sale of the Shafter … Property, and releasing
and reconveying the Shafter Deed of Trust—all without the knowledge and consent of
the co-debtor (Appellants).”
       Appellants’ contention invokes the “one form of action” rule, which is contained
in the first sentence of section 726(a): “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 shall be in accordance with the provisions of this chapter
[governing judicial foreclosures].” (Italics added.)
       The “one form of action” rule has many facets as a result of courts developing
specific principles to address the wide variety of situations that can arise when a debt is
secured by real property. Consequently, our first step in discussing that rule is to define
certain terms used for particular situations. We use the statutory phrase “one form of
action” rule to describe the requirements of section 726 in their broadest form. We
shorten that phrase and use the phrase “one action rule” to refer to the prohibition against
multiple lawsuits or legal actions to collect a debt secured by real estate. (Bernhardt,
supra, § 4.8, p. 4-7 [one action rule prohibits multiplicity of actions].) Thus, for purposes
of this opinion, the “one action” rule is a component of the broader “one form of action”
rule.
        Another component of the broader rule is the “security first” principle or rule,
which requires the creditor to proceed initially against all the real property security, in a
single judicial foreclosure action, before enforcing the underlying debt. (Bernhardt,
supra, § 4.6, p. 4-6.)7 Stated another way, the creditor must pursue all of the security
first in the form of a single legal action for judicial foreclosure.
        When, as in this case, a loan is secured by multiple parcels of real property, the
security first principle and one action rule of section 726(a) have been summarized by a
practice guide as follows:

        “The one [form of] action rule of CCP §726(a), as judicially interpreted,
        generally requires that if an obligation is secured by any real property, all
        of that property must be included in a single foreclosure lawsuit if the
        creditor seeks judicial foreclosure or a personal judgment on the debt.
        [Citations.] Failure to include all the required real property provides the
        defendant with an affirmative defense [citations]; if that defense is not
        timely asserted, a sanction effect is triggered [citations].” (Bernhardt,
        supra, § 9.5, p. 9-8.)8
        This summary reflects the California Supreme Court’s interpretation of the one
form of action provision in section 726(a) to mean:

         “‘When a creditor has more than one parcel of real 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


7      In this case, appellants contend Bank is barred from collecting a deficiency
judgment against them because Bank violated the security first rule. Appellants did not
allege below and do not contend on appeal that Bank violated the one action rule by
pursuing an “action” before filing its judicial foreclosure lawsuit.
8      The sanction aspect of the one form of action rule is not described in this opinion
because appellants have asserted it as an affirmative defense to the claim for a deficiency
judgment. Thus, the principles that define how the one form of action rule is used as a
sanction are not relevant here.
       design or inadvertence, a creditor fails to exhaust all his security in one
       action .... When the creditor tries to recover the balance owing or take the
       remaining security, the following questions arise: [¶] .... Can he take a
       deficiency or personal judgment on the balance owing? ... The answer …
       is “No.”’” (Walker v. Community Bank (1974) 10 Cal.3d 729, 733, fn. 2
       [quoting Professor Hetland], italics added.)
       When a debtor successfully raises section 726 as an affirmative defense, the
creditor will be forced to exhaust the security in one proceeding before being entitled to
obtain a deficiency judgment against the creditor. (Walker v. Community Bank, supra, 10
Cal.3d at p. 734.) If the creditor is unable to include all the real property security in the
judicial foreclosure action, the creditor will be barred from obtaining a deficiency
judgment.
       The purpose of section 726 and California’s antideficiency statues is to (1) prevent
a multiplicity of actions, (2) compel creditors to exhaust all of the security before any
entry of a deficiency judgment, and (3) require the debtor be credited with the fair market
value of the secured property before being subjected to personal liability. (Walker v.
Community Bank, supra, 10 Cal.3d at p. 736.) In addition, the limits on the right of
creditors to recover a deficiency judgment encourage responsible lending practices that
do not overvalue the collateral and, when property values decline during a general or
local depression, prevent the aggravation of the downturn that could occur from large
deficiency judgments. (Roseleaf Corp. v. Chierighino (1963) 59 Cal.2d 35, 42.)
              5.      “Security First” Principle
       Because appellants’ defense against a deficiency judgment is based on the security
first principle in section 726 (not the one action rule), we will discuss that principle in
further detail. The “security first” principle or rule is the fundamental requirement that a
creditor must proceed against the security initially.9 (Bernhardt, supra, § 4.6, p. 4-6.)
9       Professor Richard C. Maxwell described this requirement as the creditor’s “duty to
resort to security.” (Maxwell, et al., California Cases on Security Transactions in Land
(2d ed. 1975) p. 217, capitalization omitted.)
The security first principle has been described as the linchpin of California’s
antideficiency scheme (Bernhardt, supra, § 4.6, p. 4-7) because the creditor must comply
with the principle to obtain a deficiency judgment against the debtor. (Schwenke, supra,
189 Cal.App.3d at p. 140.)
       “Security first” means that a creditor must first exhaust all real property security
through judicial process in the “one form of action” authorized by section 726—that is, a
judicial foreclosure. (Schwenke, supra, 189 Cal.App.3d at p. 140.) This principle is
violated when a secured creditor attempts—by judicial foreclosure or otherwise—to
obtain a personal judgment against a debtor or reach unpledged assets before first
exhausting all the real property security in a judicial foreclosure action. (Bernhardt,
supra, § 4.6, p. 4-7; Thoryk v. San Diego Gas & Electric Company (2014) 225
Cal.App.4th 386, 398 [security first principle requires that all of the security be exhausted
prior to the recovery of a personal judgment against a debtor].)
       To illustrate the application of the section 726’s security first principle, suppose a
debtor raises the principle as an affirmative defense in a judicial foreclosure action. The
creditor can respond in a number of ways, including dismissing the foreclosure lawsuit.
If the creditor decides to maintain the judicial foreclosure action, there are four ways in
which that case might proceed.
       First, if the omitted security still is subject to the creditor’s lien, the creditor could
correct the violation of the security first principle by amending its judicial foreclosure
action to include the omitted security.
       Second, if the omitted security is no longer available, the creditor will not be able
to include (i.e., exhaust) that security in the judicial foreclosure action.10 This inability to
comply with the security first principle is not an absolute bar to a deficiency judgment,
since a creditor might to able to obtain a deficiency by showing that the debtor waived its

10    This is what occurred in this case because Bank cannot include the Shafter
Property in its judicial foreclosure action.
protections under section 726. (Schwenke, supra, 189 Cal.App.3d at pp. 142-143.) The
most common type of debtor waiver occurs when the debtor consents to the arrangement
in which that security was released.11 (See Civ. Code, § 3515 [whoever “consents to an
act is not wronged by it”].)
       Third, the creditor might be able obtain a deficiency judgment by showing one or
more of the various exceptions to the antideficiency protections apply. (See Thoryk v.
San Diego Gas & Electric Company, supra, 225 Cal.App.4th at p. 393.)
       Fourth, if none of these avenues for obtaining a deficiency are available, the
creditor could still proceed with the judicial foreclosure, but without the right to a
deficiency judgment. We note it is unlikely that a creditor would choose this path,
without a deficiency, since it is more expensive than a nonjudicial foreclosure, a process
that also prevents the creditor from collecting any deficiency. (See Bernhardt, supra, §
9.5, p. 9-9.)
                6.   Conceptual Foundation for Security First Principle
       When debtors and a creditor enter into a note and deeds of trust, those documents
constitute one loan contract. (Schwenke, supra, 189 Cal.App.3d at p. 141; 4 Witkin,
Summary of Cal. Law (10th ed. 2005) Security Transactions in Real Property, § 135, p.
934.) By choosing this form of debt instrument, the creditor is consenting to a
relationship that is subject to the rules of law that govern deeds of trust and deficiencies,
including the rules in section 726. (Schwenke, supra, at p. 141.) Similarly, the debtors
are entitled to rely on those laws. (Ibid.) Thus, “the debtor by signing a note secured by
a deed of trust, does not make an absolute promise to pay the entire obligation, but rather
makes only a conditional promise to pay any deficiency that remains if a judicial sale of
the encumbered property does not satisfy the debt.” (Id. at p. 140.)



11     This did not occur in this case because appellants did not consent to the transaction
in which Bank released its deed of trust on the Shafter Property.
       The idea that a debtor may relinquish the protections of section 726—protections
which are made a part of the parties’ contractual relationship by operation of law—is
rooted in the concept that contracts are formed by the manifestation of mutual consent of
the parties. (See Civ. Code, §§ 1550 [consent is an essential element of a contract], 1565
[essentials of consent].) When a debtor consents to an arrangement in which the creditor
releases some of the real property security, the debtor has, in effect, agreed to a
modification of the terms of the original contract, which required the creditor to pursue
that real property security in a judicial foreclosure proceeding before obtaining a
deficiency judgment. An obvious example of this type of arrangement involves a debtor
who wants to sell a parcel that secures a loan and, to accomplish this sale free and clear
of the creditor’s deed of trust, enters into an agreement with the creditor in which the
creditor agrees to release the deed of trust in exchange for something, usually the
application of sale proceeds to the loan balance.
       When one debtor and the creditor agree to the disposition of real property
collateral without the consent of codebtors, their agreement does not amend the
codebtors’ contractual obligations or the conditional nature of the codebtors’ promise to
pay the debt. (See Asmus v. Pacific Bell (2000) 23 Cal.4th 1, 31 [modification of a
contractual obligation requires mutual assent].)
              7.     Schwenke
       The foregoing legal principles regarding judicial foreclosure and a creditor’s
waiver of the right to a deficiency judgment were applied by the court in Schwenke,
supra, 189 Cal.App.3d 134 to protect codebtors on a loan secured by real property.
       In Schwenke, supra, 189 Cal.App.3d 134, a bank filed suit against comakers of a
promissory note, Robert and Ute Schwenke, and sought to collect the balance of that note
from them. After a bench trial, the court found the Schwenkes were liable for the entire
amount of principal and interest due on the note, plus costs and attorney fees. (Id. at p.
140.) The appellate court reversed and directed that judgment be entered in favor of the
Schwenkes. (Id. at p. 146.)
       The issue framed by the appellate court was whether comakers of a promissory
note were entitled to enforce the one form of action rule, even though they were not a
party to the deed of trust securing the debt. (Schwenke, supra, 189 Cal.App.3d at p. 137.)
The court concluded that they were protected by section 726’s one form of action rule.
       In that case, Robert Schwenke and Terry O’Brien were partners engaged in the
business of property development. (Schwenke, supra, 189 Cal.App.3d at p. 137.)
Schwenke and O’Brien, and their wives, signed a promissory note evidencing a debt of
$59,000 to Pacific Valley Bank. The loan proceeds were deposited into the partnership’s
bank account for use in the business. The note stated that it was secured by deeds of trust
on two properties, both of which were owned by the O’Briens. (Ibid.) In other words,
the Schwenkes provided no real property collateral to secure the debt.
       Later, Schwenke and O’Brien agreed to dissolve their partnership and Schwenke,
apparently, orally agreed to assume the partnership loan. In connection with escrows
O’Brien used for the refinancing of his two properties that had secured the $59,000 loan,
Pacific Valley Bank submitted a demand to the escrow agent for payment of a total of
$74,000 and, upon receipt of this amount, delivered to the escrow agent reconveyances of
the deeds of trust on the two properties. These reconveyances released the security for
the partnership loan. (Schwenke, supra, 189 Cal.App.3d at pp. 137-138.) In exchange,
Pacific Valley Bank received $74,000 in proceeds from the new loan and applied those
proceeds to satisfy a separate O’Brien unsecured loan, leaving a balance remaining on the
partnership loan. (Ibid.) The Schwenkes were not aware of the refinance transaction or,
more importantly, that the bank had released the real property collateral that secured the
partnership loan. As the Schwenkes were not aware of the release of the collateral, they
did not consent to it. (Id. at p. 142.)
       Based on these facts, the appellate court concluded that the Schwenkes, as
comakers of the promissory note who had not signed the deeds of trust securing the note,
were protected by the one form of action rule because the security for the debt had been
released without their consent. (Schwenke, supra, 189 Cal.App.3d at p. 146.)
Schwenke’s oral agreement with O’Brien to assume liability for the partnership loan did
not operate as a waiver by Schwenke of the one form of action rule because, in the
court’s view, such a waiver was dependent upon him giving his consent to the bank’s
release of the security. (Id. at p. 145.)
       Here, appellants rely on Schwenke to support their argument that the security first
principle in section 726(a) bars any liability for a deficiency because Bank, without their
consent, released part of the security for the note when it allowed Sally to sell the Shafter
Property in a private sale. Appellants quote the following statement from Schwenke:

       “Schwenke was not notified of, and did not consent to, the reconveyance of
       the deeds of trust securing the promissory note. Therefore, as to Schwenke,
       Bank’s dealings with O’Brien amounted to a unilateral divestment of
       security in contravention of the protections provided in section 726.
       [Citation.] Bank’s release of the security needn’t be characterized as an
       ‘action.’ What is critical is that it was done without Schwenke’s
       knowledge or consent.” (Schwenke, supra, 189 Cal.App.3d at p. 142.)
       Based on this statement, appellants argue that summary adjudication of its liability
for a deficiency judgment was improper because Bank dealt exclusively with Sally on the
private sale of the Shafter Property and released and reconveyed the deed of trust on that
property without their knowledge or consent.
              8.      Conclusion
       Based on the text of section 726, the conceptual foundation for the security first
principle, Walker v. Community Bank, supra, 10 Cal.3d 729, which is mentioned in part
II.B.4, ante, and Schwenke, supra, 189 Cal.App.3d 134, we conclude that Bank was
required to include both parcels of real property security in its judicial foreclosure action
unless Bank can show that all of the debtors consented to the release of the Shafter
Property as security for the loan. We further conclude that Bank’s release of the Shafter
Property without appellant’s consent would operate as a waiver of Bank’s right to a
deficiency judgment under the provision in section 726(b) that provides for such a
deficiency “unless judgment for any deficiency … is waived by the judgment
creditor .…”
       It follows from these legal conclusions that appellant’s consent to the release of
the Shafter Property is a material fact for purposes of Bank’s motion for summary
adjudication.
       C.       Evidence Regarding Appellant’s Consent
                1.    Absence of Consent to Release of Shafter Property
       There is no dispute that the Shafter Property was once security for the note and
that Bank agreed with Sally that she could sell the Shafter Property.
       On the matter of consent, Bank does not assert that it obtained appellant’s consent
before allowing Sally to sell the Shafter Property. Instead, Bank’s assertions of fact
about the Shafter Property and the agreement reached with Sally are limited to the
following:

       “9. Originally, there were two parcels of collateral for this loan. The first
       parcel was sold by Sally DeVincenzo. Defendant Sally DeVincenzo
       requested First California agree to the sale of the parcel. First California
       agreed with the understanding that (a) First California would receive the net
       proceeds, and (b) the Borrowers would not be released of liability.”
       Appellants responded to this assertion of fact by presenting declarations that stated
they did not consent, orally or in writing, to Bank’s release of the security interest in the
Shafter Property. Appellants correctly note that Bank’s moving papers did not establish
how the proceeds from the sale of the Shafter Property were actually applied.
       Therefore, the facts before this court do not establish that Bank satisfied the
consent requirement set forth in Schwenke. By releasing the Shafter Property as
collateral for the loan, without the consent of appellants, and allowing the property to be
sold through a private sale, Bank failed to exhaust all security through the one form of
action authorized by section 726—that is, a judicial foreclosure. (Walker v. Community
Bank, supra, 10 Cal.3d at p. 733, fn. 2 [when a debt is secured by multiple parcels, “‘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’”]; see
Bernhardt, supra, § 9.5, p. 9-8.)12
              2.     Bank’s Arguments Against the Consent Requirement
       Because consent is absent in this case, Bank contends that consent is not a material
fact because Schwenke is bad law or, alternatively, because this court should recognize an
exception to the consent requirement.
       We decline Bank’s invitation to conclude Schwenke is bad law. Schwenke’s
holding that a secured creditor has waived its right to a deficiency when it releases real
property security without the consent of a co-obligor on the debt is consistent with the
statutory language and the concepts underlying the security first principle.
       In addition, Schwenke has been cited by the California Supreme Court for the
more basic proposition that a secured creditor, by its own act, may deprive itself of the
right to an action on the note. (Ghirardo v. Antonioli (1996) 14 Cal.4th 39, 48.) Also,
this court recently cited Schwenke for the proposition that the consent of a debtor to an
arrangement in which the secured creditor relinquishes the security without retiring the
note can take the matter outside the protections of section 726. (Bank of America, N.A. v.
Roberts (2013) 217 Cal.App.4th 1386, 1398-1399 [debtor liable for balance of home
equity line of credit that had been secured by junior deed of trust; lender released the
junior deed of trust in a short sale arrangement approved by the debtor in writing].)
       Furthermore, other courts of appeal have cited Schwenke and referred to its
consent requirement. (E.g., Paykar Construction, Inc. v. Spilat Construction Corp.

12     The dissent’s position that Bank complied with the security first principle is
contrary to the Supreme Court’s interpretation of how section 726 applies to debt secured
by multiple parcels.
(2001) 92 Cal.App.4th 488, 496 [Second App. Dist.]; Bank of America v. Graves (1996)
51 Cal.App.4th 607, 614 [Fourth App. Dist.]; First Nationwide Savings v. Perry (1992)
11 Cal.App.4th 1657, 1668 [Sixth App. Dist.]; see also National Enterprises, Inc. v.
Woods (2001) 94 Cal.App.4th 1217, 1238 [Third App. Dist. stated that a comaker of a
note is entitled to protection of the one form of action rule, but did not mention the
consent requirement]; 4 Witkin, Summary of Cal. Law, supra, § 135, p. 934
[summarizing Schwenke].)
       Lastly, Bank suggests the absence of cases involving loans with multiple debtors
secured by more than one parcel of real property demonstrates the reasoning in Schwenke
is unreliable. We disagree with this inference. Instead, the lack of further appellate
decisions since Schwenke shows that bankers and their lawyers have had little trouble
applying the rule of law that the consent of all debtors must be obtained by the creditor
before releasing any parcels securing the loan. Here, John’s death and the fact that Sally
was not appointed as the representative of her husband’s estate created an unusual
wrinkle. Thus, when Bank released the Shafter Property, it might not have realized
appellants had stepped into John’s shoes as codebtor and, as a result, their consent was
necessary if Bank wished to hold them liable for a deficiency.
       Therefore, we conclude the consent rule adopted in Schwenke remains good law.
       Based on the foregoing and the contractual foundation of the relationship between
Bank and appellants, we also conclude that an exception to the consent requirement is not
justified by the undisputed facts presented in this case. In short, a creditor and one of the
debtors should not be able to modify the contractual obligations of the codebtors without
the codebtor’s consent to that modification.
       Restating these conclusions in the language of the summary adjudication statute,
appellants’ consent was a material fact that Bank needed to show was undisputed to
obtain summary adjudication of its third cause of action and establish its right to a
deficiency judgment against appellants.
       D.     Valueless Security When the Lawsuit is Filed
       Bank presents an alternate argument that does not involve the codebtors’ consent.
Bank contends that “security” for purposes of the “security first” principle is determined
at the time of the filing of the action, not when the loan was executed. Bank supports
their view of the law by citing Bank of America v. Graves, supra, 51 Cal.App.4th 607, in
which the court stated:

               “However, when the value of the security has been lost through no
       fault of the creditor, the creditor may bring a personal action on the debt.
       (Hibernia S. & L. Soc. v. Thornton (1895) 109 Cal. 427, 429 [42 P
       447].)[13] The court in Brown v. Jensen (1953) 41 Cal.2d 193, 195 [259
       P.2d 425] explained, ‘It has been held under [section 726] that where the
       security has been exhausted or rendered valueless through no fault of the
       mortgagee, or beneficiary under a trust deed, an action may be brought on
       the debt on the theory that the limitation to the single action of foreclosure
       refers to the time the action is brought rather than when the trust deed was
       made, and that if the security is lost or has become valueless at the time the
       action is commenced, the debt is no longer secured.’” (Id. at p. 611, italics
       added.)
       The foregoing rule about lost or valueless security does not apply to the facts of
this case for at least two reasons. First, the security for the loan, which included both the
Shafter Property and the Wasco Property, has not been lost or become valueless at the
time Bank commenced its lawsuit. The Wasco Property still secured the loan and,

13      Conversely, when a creditor, “by his own act or neglect, deprives himself of the
right to foreclose the mortgage, he at the same time deprives himself of the right to an
action upon the note.” (Hibernia S. & L. Soc. v. Thornton, supra, 109 Cal. at p. 429
(Hibernia).) In other words, a creditor is not “permitted without the consent of the
mortgagor to release the mortgage for the purpose of bringing an action on the note.”
(Ibid.) When the creditor makes such a release, it cannot comply with section 726’s
requirement to include all of the security in a single judicial foreclosure action. Hibernia
identifies one of the consequences of this inability to comply with section 726—namely,
the creditor is barred from pursuing a personal action on the note. Here, in contrast,
appellants assert Bank’s violation of the requirement to include all security in a single
judicial foreclosure action constituted a waiver of Bank’s right to obtain a deficiency
judgment in the judicial foreclosure action. (See Espinoza v. Bank of America, N.A.
(S.D.Cal. 2011) 823 F.Supp.2d 1053, 1060 [“Hibernia rule is not itself an antideficiency
protection”].)
therefore, a judicial foreclosure action rather than a personal action on the debt was
appropriate.
       Second, the Shafter Property was not exhausted or lost through no fault of Bank.
Instead, Bank was responsible for the exhaustion or loss of that part of the security
because it released its deed of trust on the Shafter Property pursuant to its agreement with
Sally, without the consent of appellants.
       Therefore, we conclude the principles regarding valueless or lost security that are
set forth in Bank of America v. Graves, supra, 51 Cal.App.4th 607 do not apply to the
secured loan Bank seeks to enforce in this judicial foreclosure action.
       E.      Effect of Our Decision
       Pursuant to section 437c, subdivision (f)(1), “[a] motion for summary adjudication
shall be granted only if it completely disposes of a cause of action .…” Here, Bank’s
motion did not completely dispose of the third cause of action for judicial foreclosure
because, despite showing it was entitled to foreclose judicially on the Wasco Property,
Bank did not show it was entitled to recover the deficiency from appellants. As a result
of this partial showing, the motion for summary adjudication of the third cause of action
should have been denied.
       Furthermore, appellate courts are not authorized to summarily adjudicate
subsidiary issues within a cause of action when those issues do not “completely dispose[]
of [the] cause of action.” (§ 437c, subd. (f)(1).) Therefore, we cannot direct the trial
court to grant summary adjudication on the issue of Bank’s right to judicially foreclose
on the Wasco Property and deny summary adjudication as to Bank’s right to a deficiency
judgment.
       On remand, Bank may pursue its right to foreclose on the Wasco Property and
might be able to obtain a deficiency judgment if it can prove appellants consented to the
release of the Shafter Property and the application of the proceeds from that sale. If Bank
believes it will be unable to prove consent, it might decide to pursue a nonjudicial
foreclosure against the Wasco Property. Nothing in this opinion prevents Bank from
choosing that alternate method of foreclosure.
                                      DISPOSITION
       We reverse (1) the order granting the motion for summary adjudication of the third
cause of action and (2) the related decree for judicial foreclosure and order for writ of
sale of real property. The matter is remanded to the superior court with directions to
enter a new order denying the motion for summary adjudication. Appellants shall
recover their costs on appeal.


                                                                 ______________________
                                                                              Franson, J.

I CONCUR:


______________________
Chittick, J.*




       *Judge of the Superior Court of Fresno County, assigned by the Chief Justice
pursuant to article VI, section 6 of the California Constitution.
POOCHIGIAN, ACTING P.J., concurring.
         Code of Civil Procedure section 7261 creates several limitations on the ability of
mortgagees to recover debts secured by a mortgage upon real property. (See § 726,
subd. (a).) Two of those limitations take center stage in this case: The one-action and
security-first rules. As explained below, the bank in this case violated neither.
         However, a third rule – known as the Hibernia rule2 – does defeat the bank’s
position. Therefore, I concur in the judgment.
   A. One-Action Rule
         The one action rule provides that a “secured creditor can bring only one lawsuit to
enforce its security interest and collect its debt.” (Security Pacific National Bank v.
Wozab (1990) 51 Cal.3d 991, 997 (Wozab).) “ ‘The only ‘action’ that is permitted is
foreclosure; any other ‘action’ is a violation of the rule that invokes severe sanctions.”
[Citation.]’ ” [Citation.]” (Ziello v. Superior Court (1995) 36 Cal.App.4th 321, 331,
italics omitted.) “The purpose of the one action rule is to protect debtors from multiple
collection actions .…” (Kinsmith Financial Corp. v. Gilroy (2003) 105 Cal.App.4th 447,
453.)
         Whether a lender’s conduct constitutes an “action” for purposes of the one-action
rule is answered by section 22’s definition of that term. (See Wozab, supra, 51 Cal.3d at
p. 998.) Section 22 provides: “An action is an ordinary proceeding in a court of justice
by which one party prosecutes another for the declaration, enforcement, or protection of a
right, the redress or prevention of a wrong, or the punishment of a public offense.” (§ 22,
italics added.)
         Here, the alleged “action” was the bank’s cooperation in Sally’s private sale of the
Shafter property. This conduct had nothing to do with a “proceeding in a court of

         1   All subsequent statutory references are to the Code of Civil Procedure unless otherwise
noted.
         2   See Espinoza v. Bank of America, N.A. (2011) 823 F.Supp.2d 1053, 1060.
justice” (§ 22) and “was therefore not an action within the meaning of section 22.”
(Wozab, supra, 51 Cal.3d at p. 998.) The one-action rule was not violated.
   B. Security-First Rule
        “Section 726 embodies more than the ‘one-action’ rule.” (Wozab, supra, 51
Cal.3d at p. 999.) The statute also requires a particular “chronology.” (Id. at p. 1004.)
Specifically, the security first rule requires “a secured creditor to proceed against the
security before enforcing the underlying debt. [Citation.]” (Id. at p. 999) The purpose of
this rule is to “require[] a secured creditor to exhaust all security first.” (Walker v.
Community Bank (1974) 10 Cal.3d 729, 736.)
        The chronology in this case is undisputed. First, Sally sold the Shafter property (a
pledged asset) with the bank’s permission. Second, the bank obtained a judicial
foreclosure decree with respect to the Wasco property (a pledged asset). Thereafter, the
bank presumably planned to seek a deficiency judgment against appellants as allowed by
the foreclosure decree.
        This chronology complies with the security-first rule. Assuming the bank was
“proceeding against the security” when it consented to the Shafter property sale, it did so
before seeking to enforce the underlying debt against appellants’ unpledged assets.
Because the bank proceeded against the security before enforcing the underlying debt, it
did not violate the security-first rule.
   C. The Hibernia Rule
        The resolution of this case actually hinges on a third rule: The Hibernia
rule.
        Generally, “a creditor who holds multiple security, including real property, for a
single debt must include all of the security in a single action. [Citations.]” (National
Enterprises, Inc. v. Woods (2001) 94 Cal.App.4th 1217, 1232.) Here, not all of the




                                               2
security was included. Specifically, the Shafter property was omitted because it had been
sold before this suit was filed.
       In some cases, the failure to include all security is excused. For example, when
“the mortgagor’s title to the land has become extinguished subsequent to the making of
the mortgage … the mortgagee need not … foreclos[e] before he can have a judgment on
the note” unless the creditor is responsible for extinguishing the security. (Hibernia Sav.
& Loan Soc. v. Thornton (1895) 109 Cal. 427, 429 (Hibernia).) This is known as the
Hibernia rule. (Espinoza v. Bank of America, N.A., supra, 823 F.Supp.2d at p. 1060.)
       Here, Sally’s title to the Shafter property was extinguished after the deed of trust
was executed. Thus, the omission of the Shafter property from the present suit would
have been excused under the Hibernia rule if the bank had played no part in the
extinguishment of Sally’s title. However, in this case the bank expressly agreed to the
transaction that extinguished Sally’s title (i.e., the short sale). Thus, the bank’s choice to
permit the sale of the Shafter property is the cause of its present inability to foreclose on
all of the real property security in a single lawsuit. As a result, it has lost the right to an
action on the note. (See Hibernia, supra, 109 Cal. at p. 429.)
   D. The Hibernia Remedy is Unduly Harsh Given the Facts of this Case
       I am pleased the majority’s analysis includes discussion of Hibernia, which is the
dispositive authority on these facts. However, the consequence imposed by the Hibernia
rule in this case is “so harsh as to be punitive.” (Wozab, supra, 51 Cal.3d at p. 1006.)
Here, the codebtor who owned the real property security in question consented to its
exhaustion outside the procedure of judicial foreclosure. While there is no evidence that
the nonowner/codebtors (i.e., appellants) consented, all of the proceeds of the sale were




                                                3
applied to the joint debt.3 Thus, it is highly unlikely appellants suffered any prejudice. If
appellants had been aware of the proposed sale of the Shafter property, they either would
have acquiesced or refused consent. If they had consented, the bank would prevail on
appeal today. If they had refused consent, the bank would have foreclosed on both the
Shafter and Wasco properties in a single action. Thus, the lack of notice was
inconsequential because the bank would have obtained a deficiency judgment regardless
of how appellants would have responded. Yet it is that very lack of notice that forever
bars the bank from obtaining a deficiency judgment in this case.
       The only way appellants could have been prejudiced is if the Shafter property was
sold below fair value.4 But there is a remedy for this potential prejudice that is far less
draconian than complete loss of the right to an action on the note. (See Kirkpatrick v.
Westamerica Bank (1998) 65 Cal.App.4th 982, 986 [“Section 726 does not prescribe a
sanction for violation of the one form of action rule. Rather, the courts have fashioned
common law remedies to advance its purposes. [Citations]”].) The law should provide
that when, as here, (1) real property security is exhausted with the owner/codebtor’s
consent but without a nonowner/codebtor’s consent and (2) all proceeds are applied to the
joint debt: the nonconsenting codebtor is not bound by the actual sale price of the
property. The nonowner would be afforded an opportunity to prove the fair value of the
security was higher than the actual sale price.


       3 This is in contrast to Pacific Valley Bank v. Schwenke (1987) 189 Cal.App.3d 134,
where the majority of the proceeds of the nonconsensual transaction were used for the sole
benefit of one codebtor. (See id. at p. 138.)
       4   The majority also notes that debtors generally have a right to postsale redemption.
(Maj. opn. at p. 9, ante.) However, I am aware of no case holding that a codebtor with no
interest in the real property security is entitled to postsale redemption. (Cf. Civ. Code 2903
[“Every person, having an interest in property subject to a lien, has a right to redeem it from the
lien, at any time after the claim is due, and before his right of redemption is foreclosed .…”
(Italics added)].)


                                                 4
       This type of remedy affords the nonconsenting debtor with fair value protection
without penalizing creditors acting in good faith. In the present case, for example, there
is no evidence the bank purposely failed to apprise appellants of the proposed sale of the
Shafter property. The bank may have reasonably assumed that it only needed Sally’s
consent to proceed with the short sale. (See maj. opn. at p. 19, ante.) The bank was
likely unaware of the “unusual wrinkle” that Sally was not appointed as the
representative of her husband’s estate. (Ibid.) Thus, the bank has lost its right to seek a
deficiency judgment despite no showing of bad faith.5
       I urge the Legislature and Supreme Court to consider whether alternate remedies
should be available when a Hibernia violation causes only hypothetical prejudice that can
be cured by a lesser sanction.
       For these reasons, I concur in the judgment.



                                                      _________________________________
                                                      POOCHIGIAN, ACTING P.J.




       5  The majority assures us that bankers and their lawyers have had little trouble applying
the rule of law that the consent of all debtors must be obtained. (Maj. opn. at p. 9.) It should be
noted that not all creditors subject to section 726 are large lending institutions. It is not hard to
imagine an unsophisticated individual creditor mistakenly failing to obtain consent of a deceased
debtor’s heir. Even if that honest mistake caused no tangible prejudice to the heir, the right to a
deficiency judgment would be completely lost.
       The range of available remedies should be broadened so that considerations of prejudice
and bad faith can mitigate the harshness of the one-size-fits-all rule affirmed today.

                                                  5
