## Facts

- Robert H. Taylor (a contractor) and West Bay Building Co. owed Sondgroth Brothers about $54,000 on an open book account, backed by Taylor’s continuing guaranty.
- Kaiser Industries Corporation purchased Sondgroth Brothers’ assets, including Taylor’s indebtedness.
- After the account became delinquent, Kaiser asked Taylor to execute a promissory note and provide real property security.
- The parties executed (1) a promissory note dated January 1, 1967, for $64,828.19 payable to Kaiser, and (2) a letter of instructions dated January 19, 1967, signed by Taylor and a co-owner, directed to a title company holding title to “Western Hills Ranch/Hie Away Ranch” under joint instructions.
- The letter instructed the title company that the owners’ interest in the ranch property could not be transferred or encumbered without Kaiser’s consent until the note was paid in full.
- Taylor defaulted on the note; Kaiser sued for a money judgment on the note (not foreclosure), seeking the balance and attorney’s fees.
- Taylor contended the instruction letter created an equitable mortgage on the ranch, triggering Code of Civil Procedure § 726 and requiring foreclosure as the exclusive remedy.

## Issues

1. Whether the instruction letter, read with the promissory note, created an equitable mortgage or other real property security interest for Kaiser.
2. If so, whether Code of Civil Procedure § 726 barred a direct action on the note and required Kaiser to proceed by foreclosure.

## Decision

- The Court of Appeal affirmed judgment for Kaiser on the promissory note.
- The instruction letter did not create an equitable mortgage or other lien-like security interest in the ranch property.
- Because no real property security existed, Code of Civil Procedure § 726 did not apply, and Kaiser could sue directly on the note.

## Legal Principles

- An equitable mortgage requires a clear intent that specific real property stand as security for a debt, creating a recognizable lien or charge on the property.
- A document that merely restricts transfer or further encumbrance without a creditor’s consent is a negative covenant; without language granting a right to enforce against the land (e.g., sale/foreclosure/application of proceeds), it is not a mortgage or equivalent lien.
- Code of Civil Procedure § 726 applies only to debts actually secured by a mortgage, deed of trust, or equitable equivalent; when no such security interest exists, the creditor may bring an ordinary action on the promissory note.

## Conclusion

Because the title-company instruction letter imposed only a consent-to-transfer restriction and did not grant Kaiser an enforceable lien or foreclosure right in the ranch property, the debt was not “secured by mortgage” for purposes of Code of Civil Procedure § 726, and Kaiser properly obtained a money judgment on the note.


Kaiser Indus. Corp. v. Taylor, 17 Cal. App. 3d 346 (Ct. App. 1971)