In Re H.J. Kristal, Dba Olivet Egg Ranch, Debtor. The Carnation Company v. William Lampi, Trustee, and Bancroft, Avery & McAlister

The Carnation Company appeals a decision of the Bankruptcy Appellate Panel (BAP) holding that Carnation violated California Civil Procedure Code § 726 (West 1980), and therefore its security interest in a promissory note was void. We affirm.

I. BACKGROUND

Since the facts are thoroughly detailed in the opinion below, In re Kristal, 37 B.R. 659, 660-61 (Bankr. 9th Cir.1984), we offer only the following brief background sketch: Dr. Harold J. Kristal was indebted to Carnation and so gave Carnation a note secured by real and personal property. Kris-tal defaulted on the note. Carnation then sued in state court, receiving a money judgment based on the amount due on the note and a judgment for foreclosure on the note security. Carnation, in executing upon the judgment, attempted to reach property that Kristal had not pledged as security for the note. It also sold the real property security.

Kristal filed a Chapter 7 petition in bankruptcy. Carnation commenced an adversary proceeding seeking leave of the bankruptcy court to foreclose on the .note collateral pursuant to the state court judgment. The bankruptcy trustee opposed the foreclosure. The bankruptcy court held that Carnation’s…