Filed 11/25/13 Cal. Bank & Trust v. Lawlor CA4/3

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

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 This opinion has not been certified for publication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

FOURTH APPELLATE DISTRICT

DIVISION THREE

CALIFORNIA BANK & TRUST, etc.,

 Plaintiff and Respondent,

v.

DAVID LAWLOR et al.,

 Defendants and Appellants.

G047899 (consol. w/ G047910)

(Super. Ct. Nos. 30-2010-00379838

& 30-2010-00389709)

O P I N I O N

CALIFORNIA BANK & TRUST, etc.

 Plaintiff and Respondent,

v.

COVENANT MANAGEMENT GROUP, 

LLC, et al.,

 Defendants and Appellants.
2

Appeal from judgments of the Superior Court of Orange County, William 

M. Monroe, Judge. Affirmed.

Grobaty & Pitet, Christopher L. Pitet and Erica P. Herczeg for Defendants 

and Appellants.

Bryan Cave, Ren R. Hayhurst, H. Mark Mersel and Lana Encheff for 

Plaintiff and Respondent.

* * *

Defendants and appellants appeal from the deficiency judgments the trial 

court entered after it granted plaintiff and respondent’s motions for summary adjudication 

on their breach of guaranty claims.1 In opposing those motions, Defendants did not 

dispute any of the facts offered to establish the underlying loans, the guaranties 

Defendants signed, the loan defaults, Defendants’ refusal to pay under the guaranties, or 

the amounts due and owing after California B&T nonjudicially foreclosed on the real 

property security for the loans. Instead, Defendants argued their close relationship with 

the borrowers made Defendants primary obligors on the loans rather than true guarantors, 

and therefore California’s antideficiency law prevented California B&T from obtaining 

deficiency judgments against Defendants. In granting the summary adjudication motions, 

however, the trial court refused to consider Defendants’ “sham guaranty” defense 

because Defendants failed to allege it as an affirmative defense in their answers.

We affirm because Defendants failed to present sufficient evidence to 

create a triable issue on their sham guaranty defense, and therefore we do not reach 

 

1 Defendants and appellants are David Lawlor, Jerry Smith, Joanne Smith, 

Covenant Management Group, LLC (Covenant Management), and Heritage Capital 

Management, LLC (Heritage Capital). We shall refer to them collectively as Defendants.

Plaintiff and respondent is California Bank & Trust (California B&T), as 

assignee through a transaction with the Federal Deposit Insurance Corporation (FDIC), as 

receiver for Alliance Bank (Alliance).
3

California B&T’s contention that Defendants waived this issue because they failed to 

allege it as an affirmative defense. As explained below, Defendants failed to create a 

triable issue because they presented insufficient evidence to show there was no legal 

separation between them and the primary obligors on the loans, or that the lender who 

made the loan structured it in a manner to circumvent the antideficiency law.

I

FACTS AND PROCEDURAL HISTORY

Smith and Lawlor are real estate investors and developers. Along with 

Smith’s wife, they formed several entities they used for different development projects,

including Cartwright Properties, LLC, Heritage Orcas Partners, LP, Heritage Orcas VL 

Partners, LP, Covenant Management, and Heritage Capital. Smith, his wife, and Lawlor 

effectively were the only members or partners in these entities either in their own name 

or through one of the other entities. For example, Smith and Lawlor owned and 

controlled Covenant Management, which owned and controlled Heritage Capital, which 

was the general partner of Heritage Orcas Partners and Heritage Orcas VL Partners

(collectively, Heritage Orcas). 

Alliance made an approximately $2 million loan to Cartwright Properties in 

December 2004, and an approximately $1.4 million loan to Cartwright Properties in 

October 2006. Cartwright Properties signed a business loan agreement, commercial 

security agreement, and promissory note for each loan. To secure the loans, Cartwright 

Properties gave Alliance trust deeds on its office building. Alliance required Smith, his 

wife, and Lawlor to execute separate commercial guaranties for each loan, and also 

required Covenant Management to execute a commercial guaranty for the second loan.

Defendants contend Alliance required Smith, his wife, and Lawlor to submit extensive 

information on their individual financial resources before it made either loan. 
4

In June 2008, Alliance loaned Heritage Orcas approximately $10.5 million 

pursuant to a business loan agreement and promissory note. As security for the loan, 

Heritage Orcas gave Alliance a trust deed on two parcels of real property. In making the 

loan, Alliance required Smith, Lawlor, Covenant Management, and Heritage Capital to 

execute a continuing guaranty. Defendants contend Alliance required Smith and Lawlor 

to submit extensive information about their individual financial resources before it 

authorized the loan. 

California B&T acquired Alliance’s assets from the FDIC in 

February 2009. Shortly thereafter, Cartwright Properties and Heritage Orcas both 

defaulted on their loans and Defendants refused to pay on their guaranties. In June 2010, 

California B&T filed an action against Cartwright Properties, Smith, Smith’s wife, 

Lawlor, and Covenant Management to (1) recover on the loans to Cartwright Properties; 

(2) judicially foreclose on the real property security for the loans; and (3) enforce the 

commercial guaranties. In July 2010, California B&T filed a similar action against 

Heritage Orcas, Smith, Lawlor, Covenant Management, and Heritage Capital to 

(1) recover on the loan to Heritage Orcas; (2) judicially foreclose on the real property 

security for the loan; and (3) enforce the continuing guaranty Defendants signed. 

Defendants filed their answers to the two actions in September 2010. 

During the first half of 2011, California B&T conducted nonjudicial 

foreclosure sales under the trust deeds that secured the loans to Cartwright Properties and 

Heritage Orcas. California B&T purchased the property Cartwright Properties pledged 

for a credit bid that left an outstanding balance on the two loans of nearly $2 million. 

California B&T also purchased the property that secured the Heritage Orcas loan for a 

credit bid that left an outstanding balance on its loan of more than $13 million. 

In July 2012, California B&T filed a motion in each action seeking 

summary adjudication on its breach of guaranty claims, which would entitle it to 

deficiency judgments against Defendants for the outstanding balances on all loans. 
5

Defendants did not dispute that they signed the guaranties, nor did they challenge the 

balances California B&T claimed were due on the loans after it foreclosed on the 

security. Instead, Defendants argued the guaranties were sham guaranties and therefore 

they were actually the primary obligors on the loans, not true guarantors. As primary 

obligors, Defendants claimed they were entitled to the protection of California’s 

antideficiency statutes and California B&T could not obtain a judgment against them for 

the difference between the value of the security and the outstanding loan balances. 

The trial court granted the motions on the grounds that California B&T met 

its initial burden to produce evidence establishing the elements of its breach of guaranty 

claims, and Defendants could not create a triable issue based on their sham guaranty 

defense because Defendants failed to allege it as an affirmative defense in their answers. 

After the trial court entered judgment in both actions, Defendants timely appealed and we 

consolidated the two appeals. 

II

DISCUSSION

A. Relevant Summary Adjudication Standards

“‘“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.]’” (Affholder, Inc. v. Mitchell Engineering, Inc.

(2007) 153 Cal.App.4th 510, 516.) A party may seek summary adjudication on whether a 

cause of action, affirmative defense, or punitive damages claim has merit or whether a 

defendant owed a duty to a plaintiff. (Code Civ. Proc., § 437c, subd. (f)(1).)2 “A motion 

for summary adjudication . . . shall proceed in all procedural respects as a motion for 

summary judgment.” (§ 437c, subd. (f)(2).)

 

2 All statutory references are to the Code of Civil Procedure unless otherwise 

stated. 
6

The moving party “bears an initial burden of production to make a prima 

facie showing of the nonexistence of any triable issue of material fact.” (Aguilar v. 

Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850-851.) To meet that burden, a plaintiff 

seeking summary adjudication on a cause of action must present evidence sufficient to 

establish every element of that cause of action. A plaintiff’s initial burden, however,

does not include disproving any affirmative defenses the defendant asserts. “Once the 

plaintiff . . . has met [its] burden, the burden shifts to the defendant . . . to show that a 

triable issue of one or more material facts exists as to that cause of action or a defense 

thereto.” (§ 437c, subd. (p)(1); Oldcastle Precast, Inc. v. Lumbermens Mutual Casualty

Co. (2009) 170 Cal.App.4th 554, 564-565.)

A triable issue of material fact exists “‘if, and only 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.’ [Citation.] Thus, a 

party ‘cannot avoid summary [adjudication] by asserting facts based on mere speculation 

and conjecture, but instead must produce admissible evidence raising a triable issue of 

fact. [Citation.]’ [Citation.]” (Dollinger DeAnza Associates v. Chicago Title Ins. Co.

(2011) 199 Cal.App.4th 1132, 1144-1145 (Dollinger).)

We review de novo a trial court’s ruling on a summary adjudication 

motion. (Eriksson v. Nunnink (2011) 191 Cal.App.4th 826, 848.) “‘[I]n practical effect, 

we assume the role of a trial court and apply the same rules and standards that govern a 

trial court’s determination of a motion for summary [adjudication].’ [Citation.] 

‘Regardless of how the trial court reached its decision, it falls to us to examine the record 

de novo and independently determine whether that decision is correct.’ [Citation.]” 

(Carnes v. Superior Court (2005) 126 Cal.App.4th 688, 694; Dollinger, supra, 

199 Cal.App.4th at p. 1144 [“the reviewing court ‘. . . reviews the trial court’s ruling, not 

its rationale’”].)
7

B. California’s Antideficiency Statutes and the Sham Guaranty Defense

“The courts have repeatedly recognized that the antideficiency laws 

embodied in sections 580a through 580d and 726 reflect a legislative policy that strictly 

limits the right to recover deficiency judgments for the amount the debt exceeds the value 

of the security.” (Cadle Co. II v. Harvey (2000) 83 Cal.App.4th 927, 932 (Cadle).) 

Indeed, “[these provisions,] 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 (Talbott).) These antideficiency statutes “bar[]

a deficiency judgment following nonjudicial foreclosure of real property (. . . § 580d) or 

following foreclosure of a purchase money deed of trust on a residence (. . . § 580b).” 

(Trust One Mortgage Corp. v. Invest America Mortgage Corp. (2005) 134 Cal.App.4th 

1302, 1309.)

“[T]he [antideficiency] legislation is designed to accomplish several public 

policy objectives: [¶] ‘(1) to prevent a multiplicity of actions, (2) to prevent an 

overvaluation of the security, (3) to prevent the aggravation of an economic recession 

which would result if creditors lost their property and were also burdened with personal 

liability, and (4) to prevent the creditor from making an unreasonably low bid at the 

foreclosure sale, acquire the asset below its value, and also recover a personal judgment 

against the debtor.’ [Citations.]” (Torrey Pines Bank v. Hoffman (1991) 231 Cal.App.3d 

308, 318 (Torrey Pines).) Because the antideficiency legislation was established for a 

public purpose “[t]he debtor cannot be compelled to waive the antideficiency protections 

in advance . . . and [the protections] cannot be contravened by a private agreement.” 

(Cadle, supra, 83 Cal.App.4th at p. 932; Torrey Pines, at pp. 318-319.)

“[T]he protections afforded to debtors under the antideficiency legislation 

do not directly protect guarantors from liability for deficiency judgments. . . . [I]f a 

guarantor expressly waives the protections of the antideficiency laws, a lender may 
8

recover the deficiency judgment against the guarantor even though the antideficiency 

laws would bar the lender from collecting that same deficiency from the primary 

obligor.” (Cadle, supra, 83 Cal.App.4th at p. 932.)

To be subject to a deficiency judgment, however, a guarantor must be a true 

guarantor, not merely the principal obligor under a different name. (Cadle, supra, 

83 Cal.App.4th at p. 932; River Bank America v. Diller (1995) 38 Cal.App.4th 1400, 

1420 (River Bank).) Indeed, Civil Code section 2787 defines a guarantor as “one who 

promises to answer for the debt, default, or miscarriage of another . . . .” (Civ. Code, 

§ 2787, italics added; River Bank, at p. 1420.) Where the principal obligor purports to 

take on additional liability as a guarantor, the guaranty adds nothing to the principal 

obligation and the antideficiency legislation bars a deficiency judgment based on the 

guaranty because it is not a promise to answer for the debt of another. (Cadle, supra, 

83 Cal.App.4th at p. 932; River Bank, at p. 1420 [“if the guarantor is actually the 

principal obligor, he is entitled to the unwaivable protection of the antideficiency 

statutes”]; Torrey Pines, supra, 231 Cal.App.3d at p. 319-320 [“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”].)

To decide whether a guarantor is a true guarantor or merely the principal 

obligor under a different name, “[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 individuals from their status and obligations as debtors. [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. [Citation.] [¶] To 

determine whether the [purported guarantors] as individuals were primary obligors . . .

such that their guaranties must be considered ineffective, we . . . look to the purpose and 
9

effect of the agreements to determine whether they are attempts to recover deficiencies in 

violation of [the antideficiency law]. Similarly, . . . we may look to the contract between 

the parties to find the relationship of these individuals to the entire enterprise.” (Torrey 

Pines, supra, 231 Cal.App.3d at p. 320; see also Talbott, supra, 164 Cal.App.4th at 

p. 152; Cadle, supra, 83 Cal.App.4th at pp. 932-933; River Bank, supra, 38 Cal.App.4th 

at pp. 1422-1423.)

In Torrey Pines, the appellate court applied these standards to affirm the 

trial court’s ruling that the personal guaranty on a construction loan was a sham guaranty 

because the legal relationship between the guarantors and the borrower made the 

guarantors primary obligors on the loan. (Torrey Pines, supra, 231 Cal.App.3d at 

p. 321.) The borrower in Torrey Pines was a revocable living trust that a husband and 

wife formed several years before the loan was made. The husband and wife were the 

trust’s settlors, beneficiaries, and trustees, and they personally guaranteed the loan to the 

trust. When the trust defaulted, the lender sued the husband and wife on their guaranty to 

recover the difference between the outstanding loan balance and the amount the lender 

received when it nonjudicially foreclosed on the real property security for the loan. Both 

the trial and appellate courts concluded the antideficiency statutes prevented the lender 

from obtaining a deficiency judgment because the guaranty was a sham. (Id. at 

pp. 313-316.) 

Significantly, trust law at the time of the transaction made trustees 

personally liable for the contracts they executed on the trust’s behalf. Based on that law 

and the husband and wife’s status as the trust’s settlers, beneficiaries, and trustees, the 

Torrey Pines court concluded: “There is a significant identity between these individuals 

and their inter vivos trust during their lifetimes, such that their trust should be deemed to 

be a ‘mere instrumentality’ [citation] through which they operated, but which never 

served to remove them from the status of primary obligors. Accordingly, they must be 
10

considered to be primary obligors along with their trust.” (Torrey Pines, supra, 

231 Cal.App.3d at p. 321.) 

In contrast, we concluded in Talbott that a husband and wife who 

personally guaranteed a loan to a trust they formed were true guarantors, rather than 

primary obligors, and therefore were not entitled to the antideficiency law’s protection: 

“Here, the trust arrangement provided the [husband and wife] a significantly greater 

degree of separation than that in Torrey Pines. Although the [husband and wife] are the 

settlors of the Trust, they are secondary, not primary, beneficiaries. More importantly, 

[they] are not trustees of the Trust; instead, [they] used a limited liability company as 

trustee, thus limiting their personal liability for the Trust’s obligations. The [husband and 

wife] became true guarantors because [their] trust arrangement ‘actually removed the[m] 

from their status and obligations as debtors.’ [Citation.] Accordingly, we conclude the 

trial court did not err in holding the protections of section 580a inapplicable in the present 

case.” (Talbott, supra, 164 Cal.App.4th at p. 153.)

In Valinda Builders, Inc. v. Bissner (1964) 230 Cal.App.2d 106 (Valinda 

Builders), the appellate court applied the foregoing standards to conclude a guaranty in a 

land purchase agreement was not a true guaranty and therefore the antideficiency law 

prevented a deficiency judgment against the purported guarantors. The borrowers were 

two individuals who purchased a large parcel of land to develop as a residential 

subdivision. They paid a portion of the purchase price up front and agreed to give the 

seller a promissory note and trust deed as security. The purchase agreement provided the 

individuals guaranteed performance under the agreement and payment of the outstanding 

balance. After entering into the purchase agreement, the individuals formed a 

corporation in which they were the only stockholders, directors, and officers. They used 

that corporation to take title to the property and to execute the promissory note and trust 

deed, although the agreement required the individuals to do so. The seller sought a 

deficiency judgment against the two individuals based on the guaranty when they 
11

defaulted on the loan and the real property security failed to cover the outstanding 

balance. (Id. at pp. 107-108.) The trial court entered a deficiency judgment against the 

two individuals based on the guaranty, but the Court of Appeal reversed. (Id. at 

pp. 112-113.)

The Valinda Builders court explained the individuals were the primary 

obligors under the purchase agreement and were entitled to the antideficiency law’s

protections because the individuals contracted with the seller in their own names and 

personally assumed the obligation to pay the purchase price. The purchase agreement did 

not authorize them to form a corporation to take title to the property or give the seller the 

required promissory note and trust deed. Moreover, the individuals and the seller never 

agreed a corporation or anyone other than the individuals would assume liability for the 

purchase price, and the seller never released the individuals from their personal and 

primary liability for the purchase price. The appellate court therefore concluded the 

corporation was a mere instrumentality the individuals used to conduct business and it 

did not separate them from the liability they originally assumed as the primary obligors 

under the purchase agreement. (Valinda Builders, supra, 230 Cal.App.2d at 

pp. 108-109.) 

Roberts v. Graves (1969) 269 Cal.App.2d 410 (Roberts), presented a 

factual scenario very similar to Valinda Builders, but reached the opposite result. In 

Roberts, an individual purchased a parcel of land for development and agreed to give the 

seller a promissory note and trust deed as security. After entering into the agreement, the 

individual formed a corporation that took title to the property and gave the seller the note 

and trust deed the agreement required. In doing so, the individual signed the note as the 

corporation’s officer and also individually as a guarantor. When the corporation 

defaulted on the loan and the real property security proved insufficient to cover the 

outstanding balance, the seller sought a deficiency judgment against the individual based 

on his signature as a guarantor. The trial court found the antideficiency law did not apply 
12

to the guaranty and entered a deficiency judgment against the individual. (Id. at 

pp. 412-414.) The Court of Appeal affirmed. (Id. at p. 419.)

The Roberts court explained the individual was a true guarantor who could 

not claim protection under the antideficiency law because the evidence showed the seller 

and the individual agreed to modify the original purchase agreement to change the 

personal obligation to a corporate obligation. This modification removed the individual 

from his status as the primary obligor on the purchase agreement and made him a true 

guarantor when he signed the note individually as a guarantor. The Roberts court 

concluded this legal separation of the primary obligation and the guaranty obligation 

distinguished the case from Valinda Builders. (Roberts, supra, 269 Cal.App.2d at 

pp. 417-418.)

Finally, in River Bank, the Court of Appeal applied the foregoing standards 

to conclude triable issues of material fact existed on a sham guaranty defense and 

defeated a lender’s summary judgment motion on it breach of guaranty claim. A 

developer sought a construction loan to build an apartment complex on land he already 

owned. (River Bank, supra, 38 Cal.App.4th at pp. 1407-1408.) The developer intended 

to use his closely-held corporation as the borrower, but the bank required the developer to 

form a new limited partnership to act as the borrower, with the developer and his 

corporation guaranteeing the loan. The developer testified the bank insisted his 

corporation could not be the borrower or the borrower’s general partner so the bank could 

enforce the corporation’s guaranty. (Id. at pp. 1421-1422.) In making the loan, the bank 

never examined the financial condition of the entity that served as the borrower’s general 

partner, but rather relied exclusively on the financial condition of the developer and his 

corporation because it considered them the true borrowers. (Id. at p. 1423.) The court of 

appeal affirmed the trial court’s conclusion these facts created a triable issue on whether 

the guaranties were sham guaranties designed to subvert the purpose of the antideficiency 

statutes. (Id. at p. 1420.)
13

The River Bank court explained the bank would have created sham 

guaranties if it required the developer and his corporation to be general partners in the 

borrower. In that situation, the developer and his corporation would have been primary 

obligors on the loans under the law governing limited partnerships and therefore entitled 

to protection under the antideficiency law. (River Bank, supra, 38 Cal.App.4th at 

p. 1422.) Accordingly, the evidence showing the bank specifically structured the loan to 

require another layer of separation between the primary obligor on the loan, and the 

developer and his corporation as guarantors, created a triable issue on whether the bank 

acted to “subvert[] the purpose of the antideficiency laws ‘by making a related entity the 

debtor while relegating the principal obligors to the position of guarantors.’” (Id. at 

p. 1423; see also Union Bank v. Brummell (1969) 269 Cal.App.2d 836, 837-838 (Union 

Bank) [antideficiency laws prevented lender from obtaining deficiency judgment against 

individual guarantor based on loan to corporation because lender required individual to 

act as guarantor rather than borrower to avoid antideficiency laws].)

C. Defendants Failed to Establish Triable Issues on Their Sham Guaranty Defense

To meet its initial burden on the motions, California B&T presented 

evidence showing (1) Alliance made the loans to Cartwright Properties and Heritage 

Orcas; (2) Defendants signed the guaranties promising to pay the outstanding loan 

balances if Cartwright Properties and Heritage Orcas defaulted; (3) Cartwright Properties 

and Heritage Orcas defaulted on the loans; (4) Defendants refused to pay the outstanding 

loan balances under the guaranties; (5) California B&T acquired Alliance’s assets, 

including the loans and guaranties; (6) California B&T nonjudicially foreclosed on the 

real property security for the loans; and (7) the amount due and owing on the loans after 

the nonjudicial foreclosure sales. Defendants do not dispute any of these facts and we 

conclude California B&T met its initial burden on the summary adjudication motions.
14

Defendants attempted to create triable issues on both motions by arguing 

the guaranties they signed were sham guaranties. According to Defendants, their 

relationships with Cartwright Properties and Heritage Orcas made them primary obligors 

on the loans rather than true guarantees, and therefore the antideficiency law applied to 

protect them from the deficiency judgments sought by California B&T.

In the action on the loans to Cartwright Properties, Defendants submitted 

Smith’s declaration to show (1) Cartwright Properties was formed to acquire title to the 

real property that secured the two loans it received; (2) Cartwright Properties had no 

business activities other than holding title to that real property and the real property was 

its only asset; (3) Lawlor, Smith, and his wife were Cartwright Properties’ only members, 

managers, and owners; (4) before making the loans, Alliance required extensive financial 

information from Lawlor, Smith, and his wife; and (5) Alliance relied on that information 

in making the loans. Defendants’ separate statement, however, failed to offer any facts or 

evidence on Covenant Management Group’s relationship to Cartwright Properties or the 

loans. 

In the action on the loan to Heritage Orcas, Defendants submitted Smith’s

declaration to show (1) Heritage Orcas’s “principal purpose” was to hold title to the real 

property security for the loan; (2) Smith and Lawlor owned and controlled Covenant 

Management, which owned and controlled Heritage Capital, which was Heritage Orcas’s 

general partner; (3) the real property securing the loan was Heritage Orcas’s “principal 

asset”; (4) before making the loan, Alliance required extensive financial information from

Lawlor and Smith; and (5) Alliance relied on that information in making the loan. 

The trial court, however, sustained California B&T’s evidentiary objections 

to all the evidence Defendants offered to establish these facts and Defendants do not 

challenge any of those evidentiary rulings on appeal. Specifically, the trial court 

sustained the evidentiary objections to the portions of Smith’s declarations offered to 

support each of the foregoing facts on the grounds his testimony lacked foundation and 
15

was barred by the secondary evidence rule. The court also found the evidence to be 

irrelevant and conclusory. Even if we assume the relevancy objection should have been 

overruled and decide the matter on the merits rather than Defendants’ failure to allege 

their sham guaranty defense,3 Defendants’ failure to challenge the other evidentiary 

rulings require us to exclude Defendants’ evidence. Consequently, Defendants have no 

evidence to create a triable issue on either motion. (State Dept. of Health Services v. 

Superior Court (2003) 31 Cal.4th 1026, 1035 [we review trial court ruling granting 

summary judgment based on all evidence in the moving and opposing papers except

evidence to which objections were sustained]; Guz v. Bechtel National, Inc. (2000) 

24 Cal.4th 317, 334 [same].) This failure to challenge the trial court’s evidentiary rulings 

provides an adequate and independent ground for affirming the trial court’s decision

granting the motions.

Nonetheless, the result is the same if we consider Defendants’ evidence 

because the facts they identified in their separate statements fail to establish a triable 

issue on their sham guaranty defense. To determine whether Defendants’ guaranties are 

sham guaranties we must look to the purpose and effect of the parties’ agreement to 

determine whether the guaranties constitute an attempt to circumvent the antideficiency 

law and recover deficiency judgments when those judgments otherwise would be 

prohibited. (River Bank, supra, 38 Cal.App.4th at pp. 1422-1423; Torrey Pines, supra, 

231 Cal.App.3d at p. 320.) This requires us to examine whether the legal relationship 

between the guarantor and the purported primary obligor truly separated the guarantor 

 

3 The pleadings delimit the scope of the issues on a summary judgment 

motion. (Hutton v. Fidelity National Title Co. (2013) 213 Cal.App.4th 486, 493.) A 

party may not oppose a summary judgment motion based on a claim, theory, or defense 

that is not alleged in the pleadings. (Laabs v. City of Victorville (2008) 163 Cal.App.4th 

1242, 1253.) Evidence offered on an unpleaded claim, theory, or defense is irrelevant 

because it is outside the scope of the pleadings. (Oakland Raiders v. National Football 

League (2005) 131 Cal.App.4th 621, 648-649.)
16

from the principal underlying obligation, and whether the lender required or structured 

the transaction in a manner designed to cast a primary obligor in the appearance of a 

guarantor. (River Bank, at p. 1423 [“the legislative purpose of the antideficiency law 

may not be subverted by attempting to separate the primary obligor’s interest by making 

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

guarantors” (italics omitted)]; Torrey Pines, at p. 320.)

Here, Defendants failed to offer any evidence that showed a lack of legal 

separation between them and the primary obligors on the loans, Cartwright Properties and 

Heritage Orcas. In Torrey Pines, there was no legal separation between the husband and 

wife guarantors and the trust that was the primary obligor on the loan because the 

husband and wife also were the trust’s trustees and trust law made trustees personally 

liable for the contracts they executed on the trust’s behalf. (Torrey Pines, supra, 

231 Cal.App.3d at p. 321.) In Valinda Builders, there was no legal separation between 

the guarantors and the primary obligors because they were the same people. Indeed, the 

individuals who guaranteed performance under the purchase agreement also were the 

individuals who entered into the purchase agreement as the primary obligors. The 

individuals remained the primary obligors even after they formed a corporation to 

perform their obligations because the seller never authorized them to do so nor released 

them from their obligations as the primary obligors. (Valinda Builders, supra, 

230 Cal.App.2d at pp. 107-109; see also Roberts, supra, 269 Cal.App.2d at 412, 418 

[where guarantor and primary obligor are the same person, there is no legal separation 

between them unless and until the other contracting party agrees to substitute a new 

person or entity as primary obligor].)

In contrast to the borrowers in Valinda Builders and Roberts, Defendants 

are not the primary obligors on the loans because they did not enter into the business loan 

agreements or execute the promissory notes with Alliance. Moreover, in contrast to 

Torrey Pines, Cartwright Properties’s and Orcas’s legal status as a limited liability 
17

company and a limited partnership provide legal separation between those entities as the 

primary obligors and Defendants as the guarantors. On the Heritage Orcas loans, an 

additional layer of separation existed between Smith and Lawlor and the primary obligors 

because there was both a limited partnership and a limited liability company between 

them and the primary obligors.

Defendants suggest there was no legal separation between them, on the one 

hand, and Cartwright Properties and Heritage Orcas, on the other, because Defendants 

owned and controlled those entities, the “principal purpose” of those entities was to hold 

title to the real property security for the loans, and the real property security was “the 

entities’ principal asset.” These conclusory statements, however, fail to establish there 

was no legal separation between those entities and Defendants. Defendants presented no 

evidence to show these entities were not properly formed or failed to observe the 

necessary formalities that usually protect their owners from corporate liabilities. 

Individuals may structure their own business dealings to limit their personal 

liability, but they must accept the risks that accompany the benefits of incorporation. For 

example, in Talbott, the husband and wife structured their trust to separate themselves 

from the trust’s debts by making their limited liability company the trustee. (Talbott, 

supra, 164 Cal.App.4th at pp. 150, 153.) That structure separated them from personal 

liability on the loan to the trust, which made the trust the primary obligor. But that 

separation also made them true guarantors when they personally guaranteed the trust’s 

loan and they could not obtain protection from a deficiency judgment under the 

antideficiency law. (Id. at p. 153.) The husband and wife offered no evidence to show 

the lender required that structure, and therefore there was no basis to conclude the lender 

structured the loan to subvert the antideficiency law.

Here, Defendants failed to offer any evidence showing that Alliance, as 

California B&T’s predecessor in interest, requested, required, or otherwise had any 

involvement in selecting the entities, or the form of the entities, that were the borrowers 
18

and primary obligors. Defendants offered no evidence showing they were the primary 

obligors on the loans or that Alliance attempted to separate Defendants’ interests in the 

loans by making Cartwright Properties and Heritage Orcas the borrowers while relegating 

Defendants to the position of guarantors. (See River Bank, supra, 38 Cal.App.4th at 

p. 1423; Torrey Pines, supra, 231 Cal.App.3d at p. 320.) In River Bank, the evidence 

showed the bank required the developer to form a new entity to act as the borrower so the 

developer and his corporation could be characterized as guarantors who were unprotected 

by the antideficiency law. (River Bank, at pp. 1421-1423.) Similarly, in Union Bank, the 

lender required the individual to use a corporation as the borrower so the individual could 

be characterized as a guarantor who was unshielded by the antideficiency law. (Union 

Bank, supra, 269 Cal.App.2d at pp. 837-838.) Without some evidence to show Alliance 

had a role in structuring the transactions to make Defendants appear as guarantors rather 

than primary obligors, this case is indistinguishable from Talbott. Indeed, without that 

evidence, the record shows Defendants formed Cartwright Properties and Heritage Orcas 

to protect themselves from those entities’ liabilities. In now arguing we should disregard 

the legal separation those entities provided, Defendants seek to obtain the benefits of a 

course of action they did not follow.

Defendants also contend Cartwright Properties and Heritage Orcas were 

formed to hold title to the real property security for the loans and that shows they were 

formed to make Defendants appear as guarantors rather than primary obligors. We 

disagree. Without evidence showing Alliance had some role in the formation of 

Cartwright Properties and Heritage Orcas, there is no basis for the conclusion those 

entities were designed to conceal Defendants’ status as the primary obligors. Moreover, 

the evidence suggests Defendants formed Cartwright Properties and Heritage Orcas for 

their own purposes independent of the loans. Indeed, Defendants formed Cartwright 

Properties eight months before the first loan and over two and one-half years before the 

second loan. Defendants offer no evidence on when Heritage Orcas was formed.
19

Defendants next contend that Alliance’s demand they submit extensive 

information about their financial resources before it would issue the loans shows Alliance 

relied on Defendants as the primary obligors. Not so. There is nothing unusual about a 

bank asking for financial information from a person or entity that is guaranteeing a loan. 

Defendants offer no evidence to show Alliance did not also require financial information 

regarding Cartwright Properties and Heritage Orcas. In River Bank, the Court of Appeal 

noted the bank required extensive financial information from the guarantors, but it also 

noted the bank did not require any financial information from the entity that was acting as 

the borrower. This was significant because the bank required the guarantors to form the 

entity that served as the borrower and therefore these facts supported the conclusion the 

bank considered the guarantors as the primary obligors and therefore attempted to 

circumvent the antideficiency law. (River Bank, supra, 38 Cal.App.4th at p. 1423.) As 

explained above, there is no evidence to support that conclusion here.

Finally, Defendants contend that whether they are true guarantors rather the 

disguised primary obligors is a question of fact that cannot be decided on summary 

judgment. Their status as true guarantors is generally a question of fact (River Bank, 

supra, 38 Cal.App.4th at p. 1422), but that does not change the outcome here because 

Defendants failed to present sufficient evidence to create a triable issue. Indeed, 

assuming all of the evidence Defendants submitted is true, there is still insufficient 

evidence to allow a reasonable trier of fact to find Defendants executed sham guaranties. 

(See Dollinger, supra, 199 Cal.App.4th at p. 1144 [“‘There is a triable issue of material 

fact if, and only 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’”].)
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III

DISPOSITION

The judgments are affirmed. California B&T shall recover its costs on 

appeal. 

ARONSON, J.

WE CONCUR:

RYLAARSDAM, ACTING P. J.

BEDSWORTH, J.