1

Filed 5/25/16 Wells Fargo Bank Nat. Assn. v. Rolling Willow LLC CA3

NOT TO BE PUBLISHED

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for 

publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication 

or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

THIRD APPELLATE DISTRICT

(Sacramento)

----

WELLS FARGO BANK NATIONAL 

ASSOCIATION,

Plaintiff and Respondent,

v.

ROLLING WILLOW LLC,

Defendant and Appellant.

C078520

(Super. Ct. No. 

34201000091328CUCLGDS)

“California’s antideficiency statutes [citations], enacted during the Depression, 

limit or prohibit lenders from obtaining personal judgments against borrowers where the 

lender’s sale of real property security produces proceeds insufficient to cover the amount 

of the debt.” (Talbott v. Hustwit (2008) 164 Cal.App.4th 148, 151.) “These protections 

cannot be avoided by artifice or waived through a private agreement.” (CADC/RADC 

Venture 2011-1 LLC v. Bradley (2015) 235 Cal.App.4th 775, 783 (Bradley).)
2

One of the antideficiency statutes is Code of Civil Procedure1section 580d. As 

relevant here, subdivision (a) of that statute provides, as a general rule, that “no 

deficiency shall be owed or collected, and no deficiency judgment shall be rendered for a 

deficiency on a note secured by a deed of trust . . . on real property . . . in any case in 

which the real property . . . has been sold by the . . . trustee under power of sale contained 

in the . . . deed of trust.” Under subdivision (b), however, the bar in subdivision (a) “does 

not affect the liability that a guarantor . . . might otherwise have with respect to the 

deficiency.” Thus, “a lender may recover a deficiency judgment from a guarantor who 

waives his or her antideficiency protections, even though the antideficiency statutes 

would bar the lender from recovering that same deficiency from the primary borrower.” 

(Bradley, supra, 235 Cal.App.4th at p. 784.)

“However, to collect a deficiency from a guarantor, he must be a true guarantor 

and not merely the principal debtor under a different name.” (Cadle Co. II v. Harvey

(2000) 83 Cal.App.4th 927, 932.) “It is well established that where a principal obligor 

purports to take on additional liability as a guarantor, nothing is added to the primary 

obligation. [Citations.] The correct inquiry set out by the authority is whether the 

purported debtor is anything other than an instrumentality used by the individuals who 

guaranteed the debtor’s obligation, and whether such instrumentality actually removed 

the individuals from their status and obligations as debtors. [Citation.] Put another way, 

are the supposed guarantors nothing more than the principal obligors under another 

name? [Citation.] . . . [T]he legislative purpose of the antideficiency law may not be 

subverted by attempting to separate the primary obligor’s interests by making a related 

entity the debtor while relegating the true principal obligors to the position of 

guarantors.” (Torrey Pines Bank v. Hoffman (1991) 231 Cal.App.3d 308, 319-320.) 

 

1 All further section references are to the Code of Civil Procedure.
3

“Where the borrower and the guarantor are the same, . . . the guaranty is considered an 

unenforceable sham.” (Bradley, supra, 235 Cal.App.4th at p. 780.)

In this case, the question is whether the purported debtor -- a limited liability 

company that was formed to serve as a vehicle for the acquisition of a shopping center by 

another limited liability company in a 1031 exchange2-- was nothing more than an 

instrumentality used by the second limited liability company to acquire the shopping 

center, such that the second company’s guarantee of the note secured by a deed of trust 

on the shopping center must be treated as a sham. On the record before us, we conclude 

there is a triable issue of fact on this point. Accordingly, we will reverse the summary 

judgment entered in favor of the lender on the guaranty.

FACTUAL AND PROCEDURAL BACKGROUND

Before the transactions at issue in this case, James and Ruth Ku,3 a married 

couple, jointly owned a limited liability company, defendant Rolling Willow, LLC, 

which in turn owned and operated two sports and fitness clubs, including real property. 

While James did, at times, serve as the managing member of Rolling Willow, mostly it 

was Ruth who filled that role, and in her capacity as managing member Ruth “did the 

accounting, negotiated contracts and oversaw both clubs.”

In or around 2007, tiring from the work load of running two athletic clubs, the Kus 

began considering selling Rolling Willow’s remaining real estate and investing in a 

shopping center they saw for sale on Fair Oaks Boulevard in Carmichael, known as 

 

2 “Through a 1031 exchange, a taxpayer can defer federal taxes on gains from the 

sale of a property by using those gains to purchase a second property. (26 U.S.C. 

§ 1031.)” (Bradley, supra, 235 Cal.App.4th at p. 780.)

3 To avoid confusion, as necessary we will refer to the Kus individually by their 

first names.
4

Carmichael Town Center.

4

 During the investigation into the purchase of the shopping 

center, it came to Ruth’s attention that Rolling Willow could save on capital gains taxes 

from the sale of the athletic club property by entering into a 1031 exchange. 

Ruth conducted research regarding 1031 exchanges and ultimately, through 

Rolling Willow, hired a company that specializes in facilitating such exchanges: Asset 

Protection Intermediary (API). On November 8, 2007, Rhonda Hall of API forwarded to 

the Kus and to Lorraine Lew of Alliance Title Company, which was apparently the 

escrow agent for the purchase of the shopping center, documents necessary for the 

closing of that purchase. Those documents included a statement of closing conditions 

dated November 6, 2007, and an exchange accommodation agreement to be signed by 

Rolling Willow, which API had signed on November 8.

The exchange accommodation agreement -- which bore the subtitle “Transfer of 

Membership Interest in Disregarded Entity” -- was an agreement between Rolling 

Willow (as the “Exchanger”), API, as the exchange accommodation titleholder, and a

new limited liability company -- Carmichael Town Center LLC -- as the “Disregarded 

Entity.” (Bolding omitted.) The purpose of the agreement was to allow Rolling Willow 

to engage in what is known as a “reverse” 1031 exchange, in which existing property 

(referred to as the relinquished property) is exchanged for new property (referred to as the

replacement property), but the replacement property is purchased first and the 

relinquished property is sold later. In such an exchange, “an exchange accommodation

titleholder . . . may temporarily hold the [replacement] property and then transfer it to the 

taxpayer.” (Bradley, supra, 235 Cal.App.4th at p. 780.)

 

4 To avoid further confusion, we will refer to the shopping center as such (the 

shopping center), and we will use the name Carmichael Town Center to refer to the 

limited liability company that was created to take title to the shopping center, as 

described hereafter.
5

Under the exchange accommodation agreement, the reverse exchange of property 

was to be accomplished by API acquiring “ ‘incidents of ownership’ ” of the shopping 

center “by and through its ownership of 100% of the outstanding membership 

interests . . . in the Disregarded Entity,” i.e., the new limited liability company known as 

Carmichael Town Center. A limited liability company with a single member is referred 

to as a “disregarded entity” because, for federal income tax purposes, unless it elects to 

be classified as an association, such a company is “[d]isregarded as an entity separate 

from its owner.” (26 C.F.R. § 301.7701–3(a), (b)(ii) (2012).) Thus, Carmichael Town 

Center was to acquire title to the shopping center, and by owning Carmichael Town 

Center, API would be deemed to own the shopping center. Rolling Willow would then 

have 180 days to sell the athletic club property, at which time API would transfer the 

ownership of the shopping center to Rolling Willow by transferring to Rolling Willow

API’s membership interest in Carmichael Town Center. At that time, as the sole member 

of Carmichael Town Center, Rolling Willow would be deemed the owner of the shopping 

center, and the 1031 exchange would be complete.

The exchange accommodation agreement contained various terms and conditions 

reflecting the fact that Carmichael Town Center, at least while it was owned by API, was 

going to be nothing more than a vehicle for Rolling Willow’s acquisition of the shopping 

center in the 1031 exchange. Those terms and conditions included the following:

1) While an owner’s policy of title insurance was to be issued to Carmichael Town 

Center, Rolling Willow was to advance the premium costs of that insurance. 

2) Carmichael Town Center was to be designated an additional named insured on 

a liability and casualty insurance policy reasonably acceptable to API -- presumably a 

policy obtained by Rolling Willow.

3) Rolling Willow was to be “solely responsible for all purchase money and 

transaction expenses incurred by [API] and/or [Carmichael Town Center] in connection 

with the acquisition of the [shopping center].
6

4) Rolling Willow was to be solely responsible for arranging any third party 

financing necessary for API and/or Carmichael Town Center to acquire the shopping 

center.

5) Neither API nor Carmichael Town Center was to have any obligation to 

advance any sum on behalf of Rolling Willow and could elect to have Rolling Willow 

advance such sums to any third party that might be due payment in connection with 

API’s acquisition of the shopping center. 

6) Any loan obligation of API or Carmichael Town Center was to be nonrecourse 

as to both of them. 

7) Neither API nor Carmichael Town Center was to have any duty to review the 

loan documents prepared by any third party lender for the benefit of Rolling Willow. 

8) During the time that API owned Carmichael Town Center, Rolling Willow was 

to pay on behalf of API and Carmichael Town Center “all of the costs and expenses 

relating to acquiring, holding, operating, maintaining, repairing, managing, leasing, 

improving, constructing or developing the” shopping center. 

9) Rolling Willow was to be “solely responsible for paying any encumbrance 

secured by the” shopping center. 

10) Rolling Willow was to be “solely responsible for maintenance of any policies 

of insurance that m[ight] be required by” API. 

11) API and/or Carmichael Town Center could lease the shopping center to 

Rolling Willow or to a person Rolling Willow designated in writing. 

12) API and/or Carmichael Town Center could contract with Rolling Willow, or 

someone Rolling Willow designated in writing, to manage the shopping center. 

13) Except to the extent the shopping center was leased to a third party, as 

between API, Carmichael Town Center, and Rolling Willow, Rolling Willow was to have 

the right of possession and the use of the shopping center at Rolling Willow’s sole risk 

and expense. 
7

The closing conditions from API included the following:

“In the event [Carmichael Town Center] is requested to sign any financing 

documents, this closing is conditioned upon the Note and/or Deed of Trust/Mortgage 

containing non-recourse language. The following is suggested language for said nonrecourse provision:

“ ‘Lender acknowledges that Borrower will hold title to the Property for purposes 

of facilitating a tax deferred exchange for Guarantor and that Guarantor is the real party 

in interest. In making the Loan, Lender has relied solely on the value of the collateral 

and the financial condition of the Guarantor. . . .’ ” (Italics omitted.)

Acting on behalf of Rolling Willow, Ruth negotiated to obtain a loan from Placer 

Sierra Bank, which was later acquired by defendant Wells Fargo Bank (Wells Fargo), to 

complete the purchase of the shopping center. During those negotiations, Ruth and the 

representative of the bank, Bob Pedersen, discussed Rolling Willow investing 

approximately $2 million from the sale of Rolling Willow’s athletic club property into 

the purchase, and that was ultimately made a condition of the loan. According to Ruth, 

Pedersen “agreed and said the loan was to Rolling Willow,” with Carmichael Town 

Center being “merely a ‘straw dog’ or ‘holding company’ for the 1031 exchange.” 

Ultimately, the purchase of the shopping center closed in December 2007, with a 

representative of API executing on behalf of Carmichael Town Center a promissory note 

to Wells Fargo in the sum of $4.1 million. The note included a nonrecourse provision 

that specified that “there shall be no personal liability on Carmichael Town Center LLC 

to pay the indebtedness evidenced by this Note or any other instrument evidencing or 

securing this Note . . . . Lender and subsequent holders of this Note expressly agree to 

rely solely upon the personal liability of Rolling Willow LLC, Ruth Ku and James Ku 

and any security or collateral which secures this Note for payment of the Note . . . .” 

Commercial guaranties of Carmichael Town Center’s obligation to Wells Fargo under the 

note were executed by Ruth, James, and Rolling Willow. Around the same time, Wells 
8

Fargo and Carmichael Town Center entered into an interest rate swap transaction related 

to the loan. 

In January 2008, Wells Fargo supplied a form entitled “THIRD PARTY 

AUTHORIZATION FOR ACH DEBITS AND CREDITS” to be signed by Rolling 

Willow and Carmichael Town Center. The form authorized Wells Fargo “to initiate debit 

and credit entries for all obligations and liabilities including interest and fees . . . as they 

become due on Carmichael Town Center, LLC’s Interest Rate Swap Transaction . . . to 

and from the account in the name of Rolling Willow, LLC . . . .” A similar authorization 

was signed again in September 2008. 

In April 2008, API and Rolling Willow signed a document assigning API’s 

membership interest in Carmichael Town Center to Rolling Willow. The assignment was 

to be effective upon delivery, but it is not clear when delivery occurred. Ultimately, 

however, it appears Rolling Willow sold its athletic club real estate around the end of 

July or beginning of August 2008. The week after that sale -- at which time API 

presumably delivered the assignment to Rolling Willow, thereby transferring ownership 

of Carmichael Town Center to Rolling Willow -- Pedersen requested information from 

Ruth for the Carmichael Town Center loan file, including a current financial statement 

for Rolling Willow. In connection with that request, Pedersen noted as follows: “We 

understand that Rolling Willow and Carmichael [Town Center] may be combined 

together in one operating entity with the sale of the real estate for the Rollingwood Sports 

Club, so some type of interim [financial statement] that takes this into account may work. 

Let’s discuss.” 

The record does not show that any such combination of Rolling Willow and 

Carmichael Town Center ever occurred. In December 2009, Carmichael Town Center 

defaulted on the loan and the interest rate swap agreement by failing to make the 

payments due under the note and the agreement. The Kus and Rolling Willow also 

defaulted on their guaranties. 
9

On November 2, 2010, Wells Fargo filed a verified complaint for monetary 

damages against Rolling Willow and the Kus (jointly, defendants). Later that month, 

Wells Fargo acquired title to the shopping center with a credit bid of nearly $2 million at 

a trustee’s sale under the deed of trust that secured the promissory note. Thereafter, in 

January 2011, Wells Fargo filed a first amended complaint that alleged causes of action 

for breach of commercial guaranties, money lent, account stated, and unjust enrichment. 

The amended complaint sought recovery from defendants of a principal sum in excess of 

$2 million plus a “Swap Termination Fee” of nearly $700,000, with interest on both 

amounts, plus attorney fees. 

In August 2011, defendants filed their answer to the amended complaint. That 

answer contained four affirmative defenses: failure to state a claim, failure to state a 

cause of action, negligence of third party, and equitable apportionment. 

In early 2013, the parties stipulated that defendants could file an amended answer 

to the amended complaint. Among other things, the amended answer included a new 

affirmative defense that defendants called “ILLUSORY CONTRACT.” In that defense, 

defendants alleged that “the Contract between the parties as alleged is an illusory contract 

in that it seeks to enforce legal obligations on the Guarantors, when the contract explicitly 

states that the plaintiff’s [sic] will not seek to enforce the contractual obligation(s) against 

the contracting party, i.e., CTC . . . . Since the original contract was never intended to be 

enforced against the original contracting party, . . . then any Guarantee on a non 

enforceable agreement is Illusory by application of Law.” 

Based on the parties’ stipulation, in March 2013 the court ordered that the 

amended answer was to be filed forthwith. For some reason, however, it was not -- even 

though it had been submitted to the court with the stipulation. Nevertheless, as they later 

stipulated, the parties conducted discovery “as though the . . . Amended answer had been 

filed” “[a]nd used the language of illusory contract and sham [guaranty] interchangeably 

in conducting discovery on defendant’s [sic] defense in this litigation.” Ultimately, after 
10

the resolution of the summary judgment motion at issue here, the parties stipulated to the 

filing of the amended answer nunc pro tunc to March 2013. 

The case was originally set for trial in March 2013, but Wells Fargo successfully 

moved for a continuance to allow “additional time to conduct discovery, prepare for trial, 

and complete dispositive motions.” Trial was eventually reset for February 2014, but the 

week before trial was to begin, the Kus filed for relief in bankruptcy.

With the bankruptcy stay in favor of the Kus in place and the trial date vacated so 

that Rolling Willow could find a new attorney, in April 2014 Wells Fargo filed a motion 

for summary judgment or, in the alternative, summary adjudication against Rolling 

Willow, which was set for hearing in July 2014. In support of its motion, Wells Fargo 

argued that Rolling Willow had explicitly waived the protections of the antideficiency 

statutes in its guaranty of the debt owed by Carmichael Town Center. 

Rolling Willow opposed Wells Fargo’s motion “on the ground that there [we]re 

triable issues of fact as to what party [wa]s the actual or true obligor under the loan 

agreement with the bank.” In essence, Rolling Willow asserted that its evidence was 

sufficient to show that Rolling Willow, not Carmichael Town Center, was “the true and 

intended obligor” and was “therefore entitled to the protections afforded under 

California’s anti-deficiency statutes.” 

In reply, Wells Fargo argued that Rolling Willow was trying to raise a “sham 

guaranty” defense to the enforcement of its guaranty and that the court should reject that 

effort because Rolling Willow did not plead that defense in its answer. Wells Fargo also 

argued that Rolling Willow had not established that Rolling Willow was the alter ego of 

Carmichael Town Center or that the guaranty was a sham. In addition, Wells Fargo 

offered numerous evidentiary objections to the declarations and exhibits Rolling Willow 

submitted in support of its opposition. 
11

On its own motion, the trial court continued the hearing on the summary judgment 

motion from July to September.5 In August, the court struck Rolling Willow’s separate 

statement for noncompliance with various form requirements and also noted that the two 

declarations Rolling Willow had filed were inadmissible because they were not signed 

under penalty of perjury. The court gave Rolling Willow leave to file an amended 

separate statement and amended declarations before the hearing. Rolling Willow did so, 

and also filed a supplemental declaration, and in response Wells Fargo filed evidentiary 

objections to one of the amended declarations and to the supplemental declaration.

In its tentative ruling on the motion, the court, looking to Rolling Willow’s 

original answer to the amended complaint instead of its amended answer, held that 

because Rolling Willow had not pled the sham guaranty defense, the court could not 

consider the evidence offered by Rolling Willow in opposition to the motion. At the 

hearing on the motion, Rolling Willow pointed out its amended answer and asserted that 

the “illusory contract” defense in that answer was essentially the same as the sham 

guaranty defense on which its opposition to the summary judgment motion was based. 

The court took the matter under submission and ultimately issued its ruling in December 

2014. Disagreeing with Rolling Willow, the court found that Rolling Willow’s 

“affirmative defense of ‘illusory contract’ does not provide a valid basis for [Rolling 

Willow] to oppose the present motion based on the ‘sham guaranty’ defense.” Thus, the 

court held that Wells Fargo’s “objections to the totality of [Rolling Willow]’s evidence in 

opposition (which evidence was offered solely [to] show a ‘sham guaranty’) were 

properly sustained and [the] motion was properly granted as effectively unopposed.” The 

court also went on, however, to hold that even if the court considered Rolling Willow’s 

evidence, that evidence did not raise a triable issue of fact on the sham guaranty defense 

 

5 On our own motion, we take judicial notice of the minute order for this 

continuance, which neither party included in their appendix.
12

because the evidence failed to show: (1) that there was no legal separation between 

Rolling Willow and Carmichael Town Center or (2) that Wells Fargo structured the loan 

in a manner intended to circumvent the antideficiency laws. Accordingly, the trial court 

granted summary judgment in favor of Wells Fargo and entered judgment against Rolling 

Willow for $3,073,590.94.

Rolling Willow timely appealed. 

DISCUSSION

I

The Issues Raised By The Pleadings

On appeal, Rolling Willow first suggests that the trial court erred in concluding 

that Rolling Willow could not rely on a sham guaranty defense in opposing the summary 

judgment motion because Rolling Willow did not plead that defense. According to 

Rolling Willow, Wells Fargo admitted that the parties used the terms “illusory contract” 

and “sham guaranty” interchangeably in conducting discovery on Rolling Willow’s 

alleged defenses; accordingly, Wells Fargo was not prejudiced by Rolling Willow’s 

inartful pleading. 

In response, Wells Fargo contends that “[c]onducting discovery on an issue is not 

the same as placing the matter at issue in pleadings,” and Wells Fargo insists the trial 

court was correct in concluding that Rolling Willow could not rely on a sham guaranty 

defense in opposing the summary judgment motion because Rolling Willow did not plead 

that defense. 

“ ‘The purpose of a summary judgment proceeding is to permit a party to show 

that material factual claims arising from the pleadings need not be tried because they are 

not in dispute.’ [Citation.] ‘The function of the pleadings in a motion for summary 

judgment is to delimit the scope of the issues . . . .’ [Citations.] The complaint measures 

the materiality of the facts tendered in a defendant’s challenge to the plaintiff’s cause of 

action. [Citation.] The answer supplements that measure where the plaintiff is the 
13

moving party and the defendant relies upon an affirmative defense.” (FPI Development, 

Inc. v. Nakashima (1991) 231 Cal.App.3d 367, 381-382.)

“To create a triable issue of material fact, the opposition evidence must be directed 

to issues raised by the pleadings. [Citation.] If the opposing party’s evidence would 

show some factual assertion, legal theory, defense or claim not yet pleaded, that party 

should seek leave to amend the pleadings before the hearing on the summary judgment 

motion.” (Distefano v. Forester (2001) 85 Cal.App.4th 1249, 1264-1265.)

The foregoing rules are nothing more than a specific application, in the summary 

judgment context, of the axiom that “[t]he pleadings establish the scope of an action and, 

absent an amendment to the pleadings, parties cannot introduce evidence about issues

outside the pleadings.” (Emerald Bay Community Assn. v. Golden Eagle Ins. Corp.

(2005) 130 Cal.App.4th 1078, 1091.) Of course, saying that the pleadings establish the 

scope of the action and the parties cannot introduce evidence about issues outside the

pleadings begs this question (which is central here): What issues can the pleadings in a 

particular action be said to fairly raise? With respect to the present case, the trial court 

took a narrow view of the answer to that question, concluding that Rolling Willow’s 

pleading of an “illusory contract” defense was insufficient to allow the introduction of 

evidence relating to a “sham guaranty” defense because the two defenses are “separate 

and legally distinct.” In the trial court’s view, “an illusory contract is an agreement 

which is rendered unenforceable due to the lack of consideration as a result of one party 

having an unqualified right to cancel the contract.” A sham guaranty, on the other hand, 

exists “only were it is shown that (1) there is no ‘legal separation’ between the guarantor 

and the primary obligor(s) on the underlying loan or (2) the lender structured the loan 

(and its related guaranty) in a manner intended to circumvent the anti-deficiency laws.” 

Based on this legal distinction between the two defenses, the trial court found that 

Rolling Willow’s pleading of the former did not allow it to oppose summary judgment 

based on the latter.
14

Whatever merit there may be in the trial court’s articulation of the distinction 

between the two defenses in the abstract, that distinction does not resolve the issue before 

us because of the application of other pertinent rules the trial court did not mention. One

of these is the rule of liberal construction set forth in section 452, which provides that 

“[i]n the construction of a pleading, for the purpose of determining its effect, its 

allegations must be liberally construed, with a view to substantial justice between the 

parties.” Another is the rule that “[t]he court must, in every stage of an action, disregard 

any error . . . or defect, in the pleadings or proceedings which, in the opinion of said 

court, does not affect the substantial rights of the parties.” (§ 475.) In light of these 

rules, the Second District Court of Appeal observed nearly 100 years ago that “[f]or 

sufficiency of the facts pleaded, courts look to substance, not to form. The basic 

principle of the code procedure is that the administration of justice should not be 

embarrassed by technicalities, strict rules of construction, or useless forms.” (Menefee v. 

Oxnam (1919) 42 Cal.App. 81, 96.)

The foregoing authorities suggest that just because “illusory contract” and “sham 

guaranty” may be legally distinct concepts in the abstract does not mean that distinction 

is dispositive of the issue here. What matters here is not whether Rolling Willow 

attached the wrong label to the defense it called “ILLUSORY CONTRACT,” or whether 

Rolling Willow thoroughly and accurately articulated the parameters of the “sham 

guaranty” defense in its answer, but rather whether Wells Fargo understood what Rolling 

Willow meant by the defense it pled, and whether Wells Fargo had an ample and fair 

opportunity to conduct discovery based on its understanding of what Rolling Willow 

meant. If Wells Fargo had such an understanding and opportunity, then neither 

substantial justice nor the substantial rights of the parties would be offended by allowing 

Rolling Willow to oppose Wells Fargo’s summary judgment motion based on the defense 

Wells Fargo understood was at issue.
15

The dispositive factor here is this: Wells Fargo admitted and agreed that it

understood Rolling Willow’s “illusory contract” defense was, in effect, a “sham 

guaranty” defense when the parties stipulated that Rolling Willow’s amended answer to 

the amended complaint should be filed nunc pro tunc back to March 2013, before the 

summary judgment motion was filed and before the parties finished conducting 

discovery. Indeed, Wells Fargo specifically agreed that the parties used the terms 

“interchangeably in conducting discovery on [Rolling Willow]’s alleged defenses in this 

litigation.” Accordingly, we do not see how Wells Fargo could have been surprised by 

the basis on which Rolling Willow opposed the summary judgment motion or prejudiced 

in its ability to reply to that response. Absent any such surprise or prejudice, Rolling 

Willow’s “illusory contract” defense must be liberally construed as adequately raising the 

“sham guaranty” issue, and any defect in Rolling Willow’s inartful pleading of the “sham 

guaranty” defense must be disregarded, so as to achieve substantial justice between the 

parties and to avoid honoring form over substance. Accordingly, we conclude the trial 

court erred in determining that the “sham guaranty” issue was not raised by the pleadings.

II

The Trial Court’s Ruling On The Evidence

As we have noted, Wells Fargo offered numerous evidentiary objections to the 

declarations and exhibits Rolling Willow submitted in support of its opposition to the 

motion for summary judgment. In its appellate brief, Wells Fargo contends that (1) the 

trial court “sustained Wells Fargo’s evidentiary objections to the multiple declarations . . . 

proffered to support Rolling Willow’s [o]pposition”; (2) “[t]he trial court judge’s review, 

analysis and rulings on Wells Fargo’s evidentiary objections were legally sound, well 

considered, and wholly reasonable”; (3) “Rolling Willow has not challenged the trial 

court’s ruling on Wells Fargo’s evidentiary objections”; and (4) “Rolling Willow’s 

failure to challenge the trial court’s evidentiary rulings on appeal requires [this] court to 

exclude Rolling Willow’s evidence.” 
16

In reply, Rolling Willow contends Wells Fargo has mischaracterized the trial 

court’s ruling. According to Rolling Willow, “[t]he trial court never addressed Wells 

Fargo’s evidentiary objections.” Instead, “[t]he trial court determined that Rolling 

Willow’s evidence was inadmissible to defeat Wells Fargo’s summary judgment motion 

because Rolling Willow had not pled ‘sham guaranty’ as an affirmative

defense. And the evidence that Rolling Willow offered in opposition to Wells Fargo’s 

motion was relevant only to a “sham guaranty’ defense.” 

We agree with Rolling Willow on this point. It is true that in its tentative ruling, 

the trial court wrote that Wells Fargo’s “objections to [Rolling Willow]’s evidence are 

sustained.” The trial court, however, did not separately analyze or even refer to Wells 

Fargo’s various objections to various portions of the declarations from Rolling Willow. 

Instead, as Rolling Willow points out, the trial court essentially held that all of Rolling 

Willow’s evidence was irrelevant because (in the trial court’s view) that evidence 

addressed an affirmative defense (sham guaranty) that was outside the scope of the 

pleadings. That this, and not any of Wells Fargo’s individual evidentiary objections, was 

the basis of the trial court’s ruling on Rolling Willow’s evidence was only made more 

clear by the trial court’s submitted matter ruling. There, the trial court first expressly 

found that the illusory contract defense was not a valid basis for Rolling Willow to 

oppose the summary judgment motion based on a sham guaranty. Immediately 

thereafter, the court then stated that “[f]or this reason, [Wells Fargo]’s objections to the 

totality of [Rolling Willow]’s evidence in opposition . . . were properly sustained.” 

(Italics added.) Thus, the trial court excluded Rolling Willow’s evidence on the ground it 

was irrelevant because it pertained to a defense the trial court believed was not alleged in 

Rolling Willow’s answer, not because of any other evidentiary objections Wells Fargo 

offered.

In light of the foregoing, we are confident the trial court never reached, let alone 

ruled on, Wells Fargo’s individual objections to Rolling Willow’s evidence. It is true that 
17

in the absence of any such ruling, those objections were still preserved for review on 

appeal. (See Reid v. Google, Inc. (2010) 50 Cal.4th 512, 534.) Wells Fargo, however, 

did not offer any substantive argument with respect to those objections, instead choosing 

to rest its argument on Rolling Willow’s failure to challenge the purported rulings on 

those objections that the trial court, in fact, never made. In the absence of any pertinent 

argument from Wells Fargo on its evidentiary objections, we find no basis for excluding 

any of the evidence Rolling Willow offered in opposition to the summary judgment 

motion. Accordingly, we proceed to the merits of the sham guaranty defense.

III

The Sham Guaranty Defense

Rolling Willow contends the evidence it offered in opposition to the summary 

judgment motion was sufficient to raise a triable issue of fact as to whether Rolling 

Willow was the true borrower in the transaction and was thus protected by the 

antideficiency statutes from any liability on its purported guaranty. For the reasons that 

follow, we agree.

In Bradley, the appellate court explained the pertinent rule as follows: “A 

guaranty is an unenforceable sham where the guarantor is the principal obligor on the 

debt. This is the case where either (1) the guarantor personally executes the underlying 

loan agreements or a deed of trust or (2) the guarantor is, in reality, the principal obligor 

under a different name by operation of trust or corporate law or some other applicable 

legal principle. The legislative purpose against deficiency judgments may not be 

subverted by use of a borrowing entity with the true principal obligor relegated to the 

position of guarantor.” (Bradley, supra, 235 Cal.App.4th at pp. 786-787.) Or, as stated 

in Torrey Pines, “[t]he correct inquiry set out by the authority is whether the purported 

debtor is anything other than an instrumentality used by the individuals who guaranteed 

the debtor’s obligation, and whether such instrumentality actually removed the 
18

individuals from their status and obligations as debtors.” (Torrey Pines Bank v. Hoffman, 

supra, 231 Cal.App.3d at p. 320.) 

In examining the evidence to see if Rolling Willow raised a triable issue of fact as 

to whether Carmichael Town Center was a mere instrumentality of Rolling Willow for 

purposes of determining the enforceability of Rolling Willow’s guaranty of what 

purported to be Carmichael Town Center’s debt, we are bound by the following rules:

“When a summary judgment motion prima facie justifies a judgment, . . . 

[c]ounter-affidavits and declarations need not prove the opposition’s case; they suffice if 

they disclose the existence of a triable issue.” (AARTS Productions, Inc. v. Crocker 

National Bank (1986) 179 Cal.App.3d 1061, 1065.) “There is a triable issue of material 

fact if . . . the evidence would allow a reasonable trier of fact to find the underlying fact 

in favor of the party opposing the motion in accordance with the applicable standard of 

proof.” (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850.) 

Additionally, in ruling on a summary judgment motion, the court must consider all 

of the evidence, and all inferences reasonably drawn from that evidence, in the light most 

favorable to the party opposing the motion. (Aguilar v. Atlantic Richfield Co., supra, 25 

Cal.4th at p. 843.) “All doubts as to whether there are any triable issues of fact are to be 

resolved in favor of the party opposing summary judgment.” (Zelda, Inc. v. Northland 

Ins. Co. (1997) 56 Cal.App.4th 1252, 1259.)

With the foregoing rules in mind, we conclude the evidence was sufficient to raise 

a triable issue of fact as to whether there was “significant identity” between Rolling 

Willow and Carmichael Town Center, such that the latter company “should be deemed to 

be a ‘mere instrumentality’ [citation] through which [Rolling Willow] operated, but 

which never served to remove [Rolling Willow] from the status of primary obligor[].” 

(Torrey Pines Bank v. Hoffman, supra, 231 Cal.App.3d at p. 321.)

The evidence introduced by Rolling Willow revealed that Carmichael Town 

Center did not exist until the Kus conceived the idea of exchanging Rolling Willow’s 
19

athletic club property for the shopping center after which Ruth ultimately named the new 

limited liability company. More importantly, the evidence supports the reasonable 

conclusion that the sole purpose of creating Carmichael Town Center was so that the new 

company could serve as a vehicle for Rolling Willow to acquire ownership of the 

shopping center in a manner allowing Rolling Willow to defer capital gains taxes on the 

disposition of the athletic club property.

There is no evidence that Carmichael Town Center was capitalized so that it could 

function as a bona fide company, rather than as merely a shell for completion of the 1031 

exchange by Rolling Willow. Indeed, reasonable inferences from the evidence lead to 

the conclusion that it was not capitalized, because the original owner of the company --

API -- owned the company only for the purpose of facilitating Rolling Willow’s 1031 

exchange, and there was no reason for API to put any capital into the new company. 

Moreover, there is no evidence that Rolling Willow provided capital to Carmichael Town 

Center at the outset, or had any reason to, because the exchange accommodation 

agreement between API and Carmichael Town Center on the one hand and Rolling 

Willow on the other essentially provided that Rolling Willow would be directly 

responsible for all financial obligations that Carmichael Town Center otherwise 

reasonably could have been expected to pay if Carmichael Town Center had been 

anything other than a shell. Specifically, under the agreement, Rolling Willow was 

responsible for: (1) the premium costs of a title insurance policy on the shopping center;

(2) the cost of maintaining any other policies of insurance API might require; (3) all 

purchase money and transaction expenses incurred by API and/or Carmichael Town 

Center in connection with the acquisition of the shopping center; (4) “all of the costs and 

expenses relating to acquiring, holding, operating, maintaining, repairing, managing, 

leasing, improving, constructing or developing the” shopping center; and (5) “paying any 

encumbrance secured by the [shopping center].” 
20

In addition to excusing Carmichael Town Center from any financial responsibility 

in connection with the purchase of the shopping center, the exchange accommodation 

agreement shifted to Rolling Willow other obligations that Carmichael Town Center 

reasonably could have been expected to perform if it were a bona fide company seeking 

to purchase the shopping center and not just a mere shell used to facilitate Rolling 

Willow’s purchase of that asset. Specifically, Rolling Willow was solely responsible for 

arranging any third party financing necessary for Carmichael Town Center to acquire the 

shopping center, and Carmichael Town Center had no duty to review the loan documents 

prepared by any third party lender for the benefit of Rolling Willow. 

Also, the exchange accommodation agreement essentially vested the right to 

operate the shopping center in Rolling Willow, rather than in Carmichael Town Center. 

Specifically, Carmichael Town Center could only lease the shopping center to Rolling 

Willow or to a person Rolling Willow designated in writing and could only contract with 

Rolling Willow or someone Rolling Willow designated in writing to manage the 

shopping center. And except to the extent the shopping center was leased to a third party, 

as between API, Carmichael Town Center, and Rolling Willow, Rolling Willow was to 

have the right of possession and the use of the shopping center at Rolling Willow’s sole 

risk and expense. 

Finally, it is worth reiterating that in the conditions API required to close the 

purchase of the shopping center, API suggested a nonrecourse provision for the 

promissory note that would have made it clear that Carmichael Town Center would hold 

title to the shopping center solely for purposes of facilitating the 1031 exchange for 

Rolling Willow, and Rolling Willow was “ ‘the real party in interest.’ ” (Italics omitted.)

Taken together and construed in the light most favorable to Rolling Willow, 

Rolling Willow’s evidence was sufficient to support a finding by a reasonable trier of fact 

that Carmichael Town Center was nothing more than an instrumentality used by Rolling 

Willow to complete a 1031 exchange that did not remove Rolling Willow from its status 
21

as the true owner of the shopping center and the true borrower under the promissory note 

to Wells Fargo. If the trier of fact were to make such a finding, then Rolling Willow 

would be entitled to the protection of section 580d and a judgment against Rolling

Willow on its guaranty for the deficiency owed on the shopping center would be 

prohibited. Accordingly, the trial court erred in granting summary judgment to Wells 

Fargo.

As a closing note, it is worthwhile to explain how this case differs from Bradley,

which also involved an asserted sham guaranty arising out of a 1031 exchange. In that 

case, like this one, a limited liability company (Nohea) was created to serve as a vehicle 

for a 1031 exchange by another company (No Boundaries), which was a corporation. 

(Bradley, supra, 235 Cal.App.4th at pp. 780-782.) The difference in Bradley was that No 

Boundaries, the corporation completing the exchange, did not guarantee Nohea’s 

obligation on the loan used to secure the replacement property. Instead, the guaranties at 

issue came from the two individual defendants who owned all of the stock in No 

Boundaries. (Ibid.) The individuals “argued the guaranties were shams, and therefore 

unenforceable, due to their close relationship with” Nohea. (Id. at p. 779.) A jury 

agreed, but the court of appeal did not. (Id. at p. 780.) In explaining its decision, the 

court wrote as follows: “Here, defendants do not have a direct ownership interest in 

Nohea. The company was originally owned by an [exchange accommodation titleholder]

and later transferred to No Boundaries. Moreover, No Boundaries, not defendants, made 

Nohea’s payments under the loan. Defendants contend direct ownership is not required, 

pointing out that they own No Boundaries with their wives, and that Bradley made the 

initial down payment on the Napa property. But even if Nohea is merely a shell 

controlled by No Boundaries and alter ego principles allow for the simultaneous piercing 

of two corporate veils, defendants still need to establish that we should disregard No 

Boundaries’s corporate form. They have failed to do so. The evidence shows No 

Boundaries observed the necessary formalities, including passing corporate resolutions, 
22

holding corporate meetings, and maintaining separate bank accounts and assets.” (Id. at 

p. 789.) Thus, in Bradley, the individual defendants could not claim their guaranties were 

shams because whether Nohea was a mere instrumentality used by No Boundaries to 

complete the 1031 exchange, it was clear that No Boundaries was not itself a mere 

instrumentality of its shareholders.

Bradley and the present case might be comparable if here the Kus, rather than 

Rolling Willow, were seeking to invalidate their guaranties, but that is not the case. The 

issue here is whether there was sufficient legal separation between Rolling Willow and 

Carmichael Town Center to validate Rolling Willow’s guaranty of Carmichael Town 

Center’s purported debt. We have found a triable issue of fact on that point. 

Consequently, reversal is required. 

DISPOSITION

The judgment is reversed. Rolling Willow shall recover its costs on appeal. (Cal. 

Rules of Court, rule 8.278(a)(2).)

/s/ 

Robie, Acting P. J.

We concur:

/s/ 

Mauro, J.

/s/ 

Duarte, J.