## Facts

- Defendants executed a promissory note to the plaintiff bank in 1923, secured by a deed of trust on Stanislaus County real property with a power-of-sale clause; the note matured one year later.
- On February 11, 1928, shortly before the four-year limitations period would have expired, the bank filed a complaint seeking judgment for the note in the usual form and did not allege the security was valueless.
- A notice of breach under the deed of trust was recorded, and on June 8, 1928, the trustee conducted a nonjudicial sale under the power of sale.
- After the sale, the bank filed an amended complaint again seeking judgment for the full amount of the note, interest, costs, and attorney’s fees, without mentioning the trustee’s sale and without framing the case as an action for a deficiency.
- The parties stipulated the real property had substantial value.
- Defendants admitted execution and nonpayment but asserted the action was premature because the bank sued on the note while the security had not been exhausted.
- The trial court entered judgment for defendants, concluding a creditor cannot sue on a note secured by a deed of trust until the security is exhausted.

## Issues

1. Whether a creditor may maintain an action directly on a promissory note secured by a deed of trust on real property without first exhausting security that has substantial value, absent allegations that the security is valueless.
2. Whether a nonjudicial foreclosure sale occurring after suit is filed cures the prematurity of the action or permits recovery on the pleadings as though seeking a deficiency.

## Decision

- The California Supreme Court affirmed the judgment for defendants.
- The court held the action was premature because the note was secured by valuable real property and the bank neither exhausted the security before filing nor alleged the security was valueless.
- The post-filing trustee’s sale did not save the case where the amended complaint did not plead the sale or seek recovery as a deficiency.

## Legal Principles

- A creditor holding a note secured by a deed of trust on real property generally must first exhaust the security before suing on the debt in personam when the security is of substantial value.
- A creditor may sue directly on the note only if it pleads and proves that the security has become valueless (or otherwise legally inadequate) so that resort to the security would be futile.
- A deed of trust is treated like a mortgage for purposes of the rule requiring pursuit of the security before a personal action on the underlying obligation.
- Events occurring after filing (such as a trustee’s sale) do not retroactively supply a ripe cause of action where the pleadings continue to seek recovery on the note without alleging exhaustion of security or stating a deficiency claim.

## Conclusion

The court held that a lender cannot bypass valuable real-property security by suing on a deed-of-trust-secured note as though unsecured; the creditor must first realize on the security (or plead and prove its worthlessness), and a later trustee’s sale does not cure a prematurely filed, non-deficiency pleading.


Bank of Italy Nat'l Tr. & Sav. Ass'n v. Bentley, 217 Cal. 644 (1933)