Court Opinion

ID: 3165015
Source: CourtListenerOpinion
Date Created: 2015-12-23 01:03:07.031417+00
Date Added: 2024-06-11T11:51:16.435434
License: Public Domain

Filed 12/22/15 Wells Fargo Bank v. Thornton CA1/5
                      NOT TO BE PUBLISHED IN OFFICIAL REPORTS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
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or ordered published for purposes of rule 8.1115.

              IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                                       FIRST APPELLATE DISTRICT

                                                  DIVISION FIVE

WELLS FARGO BANK, N.A.
         Plaintiff and Respondent,
v.                                                                   A143854
GERALD THORNTON,                                                     (Solano County
         Defendant and Appellant.                                     Super. Ct. No. FCS042764)

         In April 2007, Thornton & Sons Jewelers, Inc. (Thornton & Sons) executed a
promissory note in which it agreed to repay a loan of $800,000 made by Wells Fargo,
N.A. (Wells Fargo). Gerald Thornton, who wholly owns Thornton & Sons, personally
secured the note by pledging, via a deed of trust, real property he and his wife owned.1
Gerald also signed a personal guaranty. Following Thornton & Sons’s default on the
note, Wells Fargo foreclosed on the property and sued Gerald for a deficiency judgment.
Relying on the principle that a lender may obtain deficiency judgments from guarantors
(Code Civ. Proc., § 580d, subd. (b)), the trial court granted Wells Fargo’s motion for
summary judgment.2 On appeal from the judgment against him, Gerald primarily

         1
       Because Gerald and his wife Erika share the same last name, we use their first
names when referring to them individually.
         2
         All statutory references are to the Code of Civil Procedure unless otherwise
stated. In relevant part, section 580d provides: “(a) Except as provided in
subdivision (b), no deficiency shall be owed or collected, and no deficiency judgment

                                                             1
challenges the trial court’s conclusion that he raised no triable issue of material fact
regarding his “sham guaranty” defense. We reverse.
                       I. FACTUAL AND PROCEDURAL BACKGROUND
       On or about April 23, 2007, Wells Fargo made a business loan of $800,000 to
Thornton & Sons, which Thornton & Sons agreed in a written promissory note (Note) to
repay. The loan was made to refinance a previous loan to Thornton & Sons and was
secured by a deed of trust against property located in Dixon, California (Property). Title
to the Property securing the note was not vested in Thornton & Sons; it was held by
Gerald and Erika, as trustees of the Gerald Thornton and Erika Thornton Revocable
Living Trust, dated February 16, 1993 (Thornton Trust). Accordingly, the deed of trust
was signed by Gerald and Erika, as trustees of the Thornton Trust. At the time it made
the loan, Wells Fargo knew that Gerald and Erika were the settlors, trustees and
beneficiaries of the Thornton Trust.3
       Gerald also personally signed a separate commercial guaranty (Guaranty), wherein
he “absolutely and unconditionally guarantee[d] full and punctual payment and
satisfaction of the indebtedness of [Thornton & Sons] to [Wells Fargo].” In the
Guaranty, Gerald “waive[d] all rights and defenses that Guarantor may have because

shall be rendered for a deficiency on a note secured by a deed of trust or mortgage on real
property or an estate for years therein executed in any case in which the real property or
estate for years therein has been sold by the mortgagee or trustee under power of sale
contained in the mortgage or deed of trust. [¶] (b) The fact that no deficiency shall be
owed or collected under the circumstances set forth in subdivision (a) does not affect the
liability that a guarantor, pledgor, or other surety might otherwise have with respect to
the deficiency, or that might otherwise be satisfied in whole or in part from other
collateral pledged to secure the obligation that is the subject of the deficiency.” (Italics
added.)
       3 Because the Property effectively remained owned by Gerald and Erika, we
hereafter omit reference to the Thornton Trust. (Steinhart v. County of Los Angeles
(2010) 47 Cal. 4th 1298, 1319 [property held in a revocable inter vivos trust deemed
property of settlor]; Carolina Casualty Ins. Co. v. L.M. Ross Law Group, LLP (2010)
184 Cal. App. 4th 196, 208 [same].) We also reject Wells Fargo’s unsupported assertion
that we must assume the Property actually is the separate property of Erika.

                                              2
[Thornton & Sons]’s obligation is secured by real property” including but not limited to
“any rights and defenses based on Section 580a, 580b, 580d, or 726.”
       Thornton & Sons defaulted on the loan. On July 6, 2011, the Property was sold to
Wells Fargo at a nonjudicial foreclosure sale for a credit bid of $682,540.40. Wells
Fargo applied the proceeds of the sale to the principal amount owing on the Note, which
left a balance owing of $40,323.29 in principal and $32,237.71 in interest. Wells Fargo
then sued Gerald for the difference and moved for summary judgment.
       Gerald opposed Wells Fargo’s motion and filed his own motion for summary
judgment, arguing that Wells Fargo is precluded, as a matter of law, from obtaining a
deficiency judgment against Gerald after a nonjudicial foreclosure sale of his own
property. In the alternative, Gerald contended that a disputed issue of material fact
remained regarding his “sham guaranty” defense.
       The trial court granted Wells Fargo’s motion for summary judgment and denied
Gerald’s. The trial court concluded that Gerald, as a matter of law, was not protected by
the antideficiency statutes because of his status as a guarantor. It further concluded
Gerald had failed to show a triable issue of material fact regarding the sham guaranty
defense. The court explained: “The sham guaranty defense is based upon a claim that
the defendant was not a true guarantor but merely the principal obligor under a different
name. [Citation.] However, [Gerald] fails to produce any evidence that the corporate
entity of [Thornton & Sons] was not properly formed or that [Gerald] failed to observe
the necessary formalities that would protect [him] from corporate liabilities. [Citation.]
[Gerald] fails to produce any evidence that [Wells Fargo] structured the loan agreement
in order to subvert the antideficiency law, such as a showing that [Gerald] intended to
obtain the loan in his own name but was advised or required by [Wells Fargo] to create a
corporate entity to be the borrower and to execute a guaranty on behalf of that entity.
[Citations.] To the contrary, [Gerald] concedes that he was acting as ‘president and
secretary of [Thornton & Sons]’ at the time of the making of the loan and that the
purpose of the 2007 loan was to refinance an existing loan that was held by [Thornton &
Sons.] Consequently, [Gerald] has not produced the necessary evidence to suggest that

                                             3
there exists a triable issue of material fact regarding [his] status as a true guarantor.”
(Citing California Bank & Trust v. Lawlor (2013) 222 Cal. App. 4th 625, 632, 638
(Lawlor) and Union Bank v. Brummell (1969) 269 Cal. App. 2d 836, 838.) Judgment was
entered against Gerald in the total amount of $130,238.03, plus attorney fees and costs.
Gerald filed a timely notice of appeal from the judgment.
                                     II.     DISCUSSION
        Gerald contends the trial court erred in granting summary judgment for Wells
Fargo because, after losing his own real property in a trustee’s sale, he was protected as a
matter of law by the antideficiency statutes. Gerald also argues that a triable issue of
material fact exists regarding his “sham guaranty” defense. We address each argument in
turn.
A.      Summary Judgment and Standard of Review
        “[T]he party moving for summary judgment bears the burden of persuasion that
there is no triable issue of material fact and that he is entitled to judgment as a matter of
law.” (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal. 4th 826, 850 & fn. 11; accord,
§ 437c, subd. (c).) “A plaintiff . . . has met his or her burden of showing that there is no
defense to a cause of action if that party has proved each element of the cause of action
entitling the party to judgment on that cause of action. . . .” (§ 437c, subd. (p)(1).) “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); see Oldcastle Precast, Inc. v.
Lumbermens Mutual Casualty Co. (2009) 170 Cal. App. 4th 554, 564–565.)” (Lawlor,
supra, 222 Cal.App.4th at pp. 630–631.)
        “On appeal, we determine de novo whether there is a triable issue of material fact
and whether the moving party is entitled to summary judgment as a matter of law.”
(Republic Indemnity Co. v. Schofield (1996) 47 Cal. App. 4th 220, 225.) “ ‘We review the
trial court’s decision de novo, considering all of the evidence the parties offered in
connection with the motion (except that which the court properly excluded) and the

                                               4
uncontradicted inferences the evidence reasonably supports.’ ” (Oldcastle Precast, Inc.
v. Lumbermens Mutual Casualty Co., supra, 170 Cal.App.4th at p. 562.) “We liberally
construe the evidence in support of the party opposing summary judgment and resolve
doubts concerning the evidence in favor of that party.” (Yanowitz v. L’Oreal USA, Inc.
(2005) 36 Cal. 4th 1028, 1037.)
B.     Antideficiency Laws
       Gerald first challenges the trial court’s interpretation of the antideficiency statutes
(§ 580d). Gerald suggests that, as the owner of the Property, he is necessarily also the
principal obligor and entitled, as a matter of law, to the protection of the antideficiency
statutes. Gerald concedes, “the protections of the anti-deficiency statutes may be
waivable under Civil Code Section 2856 by someone who is nothing more than a
guarantor.”4 However, he asserts the same protections “may not be waived by the
property owner/trustor himself, who is directly entitled to those unwaivable protections.”
On the other hand, Wells Fargo concedes that if the borrower owns the real property
securing the loan, then the borrower or the principal obligor is protected under section

       4 Civil Code section 2856, subdivision (a)(3), provides: “Any guarantor or other
surety, including a guarantor of a note or other obligation secured by real property or an
estate for years, may waive . . . : [¶] . . . [¶] (3) Any rights or defenses the guarantor or
other surety may have because the principal’s note or other obligation is secured by real
property or an estate for years. These rights or defenses include, but are not limited to,
any rights or defenses that are based upon, directly or indirectly, the application of
Section 580a, 580b, 580d, or 726 . . . to the principal’s note or other obligation.” Civil
Code section 2856, subdivision (c)(2)(B), provides: “[T]he following provisions in a
contract shall effectively waive all rights and defenses described in paragraphs (2) and (3)
of subdivision (a): [¶] The guarantor waives all rights and defenses that the guarantor
may have because the debtor’s debt is secured by real property. This means, among other
things: [¶] . . . [¶] (2) If the creditor forecloses on any real property collateral pledged by
the debtor: [¶] . . . [¶] (B) The creditor may collect from the guarantor even if the
creditor, by foreclosing on the real property collateral, has destroyed any right the
guarantor may have to collect from the debtor. This is an unconditional and irrevocable
waiver of any rights and defenses the guarantor may have because the debtor’s debt is
secured by real property. These rights and defenses include, but are not limited to, any
rights or defenses based upon Section 580a, 580b, 580d, or 726 . . . .” (Italics added.)

                                              5
580d from a deficiency judgment. However, Wells Fargo maintains that the signature on
the promissory note is determinative. Because Gerald did not personally sign the
promissory note, Wells Fargo insists Gerald is only a guarantor and, at most, a surety.
Accordingly, Gerald is not entitled to protection under section 580d.
       Gerald’s argument need not detain us long. “ ‘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.’ [Citation.] 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.’ [Citation.] 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).’ [Citation.]
       “ ‘[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 debtors 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.]’ [Citation.] 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.’ ” (Lawlor, supra, 222 Cal.App.4th at pp. 631–632.)
       However, “ ‘[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
recover the deficiency judgment against the guarantor even though the antideficiency
laws would bar the lender from collecting that same deficiency from the primary

                                               6
obligor.’ ” (Lawlor, supra, 222 Cal.App.4th at p. 632.) As it is undisputed that Gerald
personally executed the Guaranty and section 580d clearly has no application to an action
against a guarantor for recovery of a deficiency judgment (§ 580d, subd. (b);
CADC/RADC Venture 2011-1 LLC v. Bradley (2015) 235 Cal. App. 4th 775, 784), we turn
to Gerald’s contention that he was only a “sham guarantor” and, in fact, a principal
obligor (Lawlor, supra, 222 Cal.App.4th at p. 632).
C.     Sham Guaranty Defense
       Gerald’s contention that disputed issues of material fact defeat Wells Fargo’s
motion for summary judgment is more persuasive. Gerald argues there is substantial
evidence that Wells Fargo considered him a principal obligor on the Note, if not the
principal obligor, and relied upon him as the primary source of repayment. He cites his
status as trustor on the deed of trust as well as evidence that Wells Fargo focused almost
exclusively on his personal financial statements and liquidity in funding the loan.
       “Unquestionably after the creditor has resorted to foreclosure under a power of
sale in a deed of trust, it is not entitled to pursue the principal obligors for a deficiency.”
(Union Bank v. Dorn (1967) 254 Cal. App. 2d 157, 158–159.) The same is true when a
person serves as both a principal obligor and as a supposed guarantor. (Ibid.)
Accordingly, California courts recognize a distinction between true independent guaranty
contracts and those which were in reality executed by the primary obligor. (See Torrey
Pines Bank v. Hoffman (1991) 231 Cal. App. 3d 308, 320 (Torrey Pines); Valinda
Builders, Inc. v. Brissner (1964) 230 Cal. App. 2d 106, 108–109 (Valinda Builders);
Riddle v. Lushing (1962) 203 Cal. App. 2d 831, 836.)
       “To be subject to a deficiency judgment . . . a guarantor must be a true guarantor,
not merely the principal obligor under a different name. Indeed, Civil Code section 2787
defines a guarantor as ‘one who promises to answer for the debt, default, or miscarriage
of another, [or hypothecates property as security therefor.]’ [Citations.] 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

                                               7
judgment based on the guaranty because it is not a promise to answer for the debt of
another.” (Lawlor, supra, 222 Cal.App.4th at p. 632.)
       However, “California law does not define ‘sham’ guaranties. The cases which
have found a guaranty to be a sham . . . do not enunciate a test but instead mention certain
facts and conclude that the guarantor was actually the true purchaser-debtor.” (Paradise
Land & Cattle v. McWilliams Ent. (9th Cir. 1992) 959 F.2d 1463, 1467.) As outlined
above, Wells Fargo urges us to resolve this appeal by simply comparing the signature
block on the Note to that appearing on the Guaranty. Such a mechanical approach has
been rejected. “Section 2787 [of the Civil Code] provides that ‘[a] surety or guarantor is
one who promises to answer for the debt . . . of another . . . .’ . . . ‘That the names “on the
dotted line” are different on the promissory note and trust deed, on the one hand, and on
the guarantee agreement, on the other hand, is not enough to qualify under [Civil Code]
section 2787, since “the supposed guarantors against whom suit has been brought [could
be] nothing more than principal obligors under another name.” ’ [Citations.]
Importantly, if the guarantor is actually the principal obligor, he is entitled to the
unwaivable protection of the antideficiency statutes, including . . . section 580d, which
prohibits a deficiency judgment after nonjudicial foreclosure of real property under a
power of sale . . . .” (River Bank America v. Diller (1995) 38 Cal. App. 4th 1400, 1420
(River Bank), italics added; Union Bank v. Dorn, supra, 254 Cal.App.2d at pp. 158–159.)
       Wells Fargo fares no better in arguing that the sham guaranty defense applies in
only two situations: (1) when the guarantor would be liable for the debt under the
promissory note even without a guaranty (see, e.g., Union Bank v. Dorn, supra,
254 Cal.App.2d at p. 159 [guaranties signed by partners of borrowing partnership were
concluded to be sham because “[b]oth as guarantors and as partners respondents were
jointly liable for the debt on the default of the principal obligor”]); or (2) when the lender
is responsible for structuring the loan to avoid the antideficiency protections by requiring
an individual to establish a new “sham” entity to serve as borrower so that the individual
may serve as the purported guarantor (see, e.g., River Bank, supra, 38 Cal.App.4th at
pp. 1420–1424). We do not agree that the defense is so limited.

                                               8
       “To determine whether . . . 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. [Citations.] This
requires us to examine whether the legal relationship between the guarantor and the
purported primary obligor truly separated the guarantor 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.” (Lawlor, supra,
222 Cal.App.4th at p. 638; accord, Torrey Pines, supra, 231 Cal.App.3d at p. 320.) “It is
a factual question whether a person is a true guarantor or a principal obligor in
guarantor’s guise.” (River Bank, supra, 38 Cal.App.4th at p. 1422.)
       Despite the intensely factual nature of the sham guaranty inquiry, certain
principles become clear in review of the case law. In Valinda Builders, supra,
230 Cal. App. 2d 106, the individual defendants executed a purchase agreement, in which
they both agreed personally to pay the purchase price and guaranteed payment of a loan
made to their corporation. The corporation was organized shortly before the loan was
made, had a paid-in capital of only $200, and the defendants and their wives were its only
stockholders, directors, and officers. (Id. at p. 107.) The reviewing court concluded there
was no evidence the corporation was anything other than “an instrumentality used by the
individuals or that defendants were ever removed from their status and obligations of
purchasers.” (Id. at p. 110.) “[T]he alleged guaranty of defendants was no more than a
promise to pay their own debt . . . . [¶] . . . [¶] . . . [O]ne who contracts to buy land does
not alter his identity and relation as purchaser by a purported guaranty of performance of
his own obligation to pay the purchase price.” (Id. at pp. 110–111.)
       In Torrey Pines, supra, 231 Cal. App. 3d 308, the borrower 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. When the trust defaulted, the lender sued the husband and wife on
their guaranty to recover the deficiency remaining after it nonjudicially foreclosed on the

                                               9
real property security. The reviewing court affirmed 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. (Id. at pp. 313–316, 321.)
       In contrast, Mariners Sav. & Loan Assn. v. Neil (1971) 22 Cal. App. 3d 232, 234,
involved a wife who took out a loan secured by her separately owned real property. Her
husband signed a personal guaranty. The reviewing court held the husband became a true
guarantor because he would not have been personally liable for the loan made to the wife
absent the guaranty. (Id. at p. 235.)
       Similarly, in Talbott v. Hustwit (2008) 164 Cal. App. 4th 148, a husband and wife
who personally guaranteed a loan to a trust they formed were true guarantors and not
entitled to the protection of the antideficiency law. The court explained: “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.’ ” (Talbott, at p. 153.) Accordingly, the trial court did not err
in holding the antideficiency protections inapplicable. (Ibid.)
       The Lawlor defendants, individual guarantors, challenged deficiency judgments
entered against them after a lender nonjudicially foreclosed on real property a limited
liability company and several limited partnerships had pledged as security for loans made
to them. The defendants were the only members or partners of the entities. (Lawlor,
supra, 222 Cal.App.4th at pp. 628–629.) They argued that the antideficiency statutes
applied because “their close relationship with the borrowers made [them] primary
obligors on the loans rather than true guarantors.” (Id. at p. 628.)
       The Lawlor court concluded the guarantors had presented insufficient evidence to
create a triable issue on their sham guaranty defense. (Lawlor, supra, 222 Cal.App.4th at

                                              10
pp. 628, 638.) It observed: “In contrast to the borrowers in Valinda Builders . . . , [the
individual 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 [the lender].
Moreover, in contrast to Torrey Pines, [the primary obligors’] legal status as a limited
liability company and a limited partnership, respectively, provide legal separation
between those entities as the primary obligors and [the individual defendants] as the
guarantors.” (Id. at p. 638.) The reviewing court further cautioned: “Individuals may
structure their own business dealings to limit their personal liability, but they must accept
the risks that accompany the benefits of incorporation. . . . [¶] Here, [the individual
defendants] failed to offer any evidence showing that [the lender] requested, required, or
otherwise had any involvement in selecting the entities, or the form of the entities, that
were the borrowers and primary obligors. . . . Without some evidence to show [the
lender] had a role in structuring the transactions to make [the individual defendants]
appear as guarantors rather than primary obligors, . . . the record shows [the individual
defendants] formed [the debtor entities] to protect themselves from those entities’
liabilities. In now arguing we should disregard the legal separation those entities
provided, [they] seek to obtain the benefits of a course of action they did not follow.”
(Id. at pp. 639–640.)
       Wells Fargo contends that this case is analogous to Lawlor and that Gerald is a
true guarantor because he personally had no liability on the Note until he signed as a
guarantor. Gerald is not a party to the Note. And admittedly, as a corporation, Thornton
& Sons’s shareholders are generally not personally liable for its debts. (ECC
Construction, Inc. v. Ganson (2000) 82 Cal. App. 4th 572, 575–576.) However, “[e]ven
where a corporation is the nominal primary obligor, and the debt is guaranteed by its
officers and shareholders, the guarantors may nevertheless be considered the primary
obligors. This is true even though the corporation’s debt does not directly obligate the
shareholders and officers.” (River Bank, supra, 38 Cal.App.4th at pp. 1423–1424.)
Furthermore, Wells Fargo overlooks the key distinction between this case and Lawlor.
Unlike in Lawlor, supra, 222 Cal.App.4th at pages 628–629 (or any of the cited

                                             11
authority), where the guarantors had created valid, separate corporations to both take the
loans and hold the real property securing the loans, it is undisputed that, here, Gerald
personally executed a deed of trust that secured the Note with his own property.
       The facts of this case are closer to those presented in Valinda Builders and River
Bank than in Lawlor. In River Bank, supra, 38 Cal. App. 4th 1400, a developer sought a
construction loan to build an apartment complex on land his wholly-owned corporation
already owned. The developer intended to use the 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 loan secured by deeds of trust on the property. The developer and
corporation separately guaranteed the loan. (Id. at pp. 1407–1408, 1421.) Division Three
of this court concluded triable issues of material fact existed on a sham guaranty
defense.5 (Id. at pp. 1409, 1419–1420.) However, the reviewing court relied on the
developer’s testimony that 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. In
fact, the lender required that the borrower be a limited partnership, with a general partner
other than the developer’s corporation. (Id. at pp. 1421–1422.) Furthermore, in making
the loan, the bank did not examine 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
pp. 1422–1423.) Because evidence suggested the lender 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, a triable issue existed 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.)

       5 The lender did not move for summary adjudication on its cause of action to
enforce the corporation’s guaranty. (River Bank, supra, 38 Cal.App.4th at p. 1419,
fn. 13.)

                                             12
       Here, in contrast to River Bank, there may be no evidence that Wells Fargo
insisted on a newly created entity to serve as borrower. However, contrary to Wells
Fargo’s assertion and the trial court’s apparent understanding, River Bank does not
indicate this is the dispositive test of the sham guaranty defense. (See River Bank, supra,
38 Cal.App.4th at pp. 1420–1424; see also Lawlor, supra, 222 Cal.App.4th at p. 638;
Torrey Pines, supra, 231 Cal.App.3d at p. 320.) In any event, as in River Bank, there is
also evidence that Wells Fargo looked primarily, although not exclusively, to Gerald and
Erika’s assets to justify the loan. (See River Bank, at p. 1420, fn. 14.)
       Contrary to Wells Fargo’s assertion, it is not undisputed that Wells Fargo expected
Thornton & Sons would provide the primary source of repayment on the loan. Wells
Fargo points to declarations and loan documents purportedly showing that it evaluated
Thornton & Sons’s financial documents, including a business balance sheet and income
statement, as well as corporate tax returns, before making the loan and concluded that
Thornton & Sons had “substantial cash and marketable securities . . . which could make
up the temporary funds flow deficiency . . . .” Although the loan documents show Wells
Fargo noted Thornton & Sons’s “strong history of profitability,” we agree with Gerald
that the documents are susceptible of another interpretation. Wells Fargo also required
Gerald to provide copies of his personal tax returns and financial statements. “There is
nothing unusual about a bank asking for financial information from a person or entity that
is guaranteeing a loan.” (Lawlor, supra, 222 Cal.App.4th at p. 640.) However, here, in
its credit approval presentation, Wells Fargo at one point notes, consistent with Gerald’s
declaration, that Thornton & Sons submitted only its tax returns and did not submit any
financial statements to support its loan application. It is reasonable to infer from these
same documents and Gerald’s declaration that Wells Fargo, in fact, relied on Gerald’s
“substantial cash and marketable securities” to mitigate the identified “funds flow
deficiency.” Significantly, as we have already noted, Gerald also presents evidence that
Wells Fargo insisted on having the loan secured by real property it knew was owned by
Gerald personally, not Thornton & Sons.

                                             13
       Finally, and perhaps most tellingly, the express terms of the deed of trust support
Gerald’s argument that Wells Fargo sought and obtained his personal liability on the
underlying obligation. In the deed of trust, Gerald as “Trustor” agreed that “[a]ll
obligations of [Thornton & Sons] and [Gerald] under this Deed of Trust shall be joint and
several.” (Italics added.) By its terms, the security agreement would be fully performed
“[i]f [Thornton & Sons] and [Gerald] pay all of the indebtedness when due . . . .” (Italics
added.) “Indebtedness” was defined to include, “without limitation, all liability of
[Thornton & Sons] or other party having its obligations to [Wells Fargo] secured by this
Deed of Trust.” (Italics added.)
       Given these terms, we cannot agree with Wells Fargo that, in signing the deed of
trust, Gerald’s only role in connection with the loan was as a surety. “The suretyship
relation . . . arises where two persons are under obligation to the same obligee, who is
entitled to but one performance, as between the two who are bound, and one of them
should ultimately bear the burden of the obligation. The obligor ultimately responsible
for the debt is the principal and the other is the surety.” (Everts v. Matteson (1942)
21 Cal. 2d 437, 447.) “[T]he terms of the instrument and the circumstances under which
it was made determine the character and extent of the undertaking.” (Id. at p. 449.)
Although Gerald’s identification as trustor in the deed of trust is not necessarily
determinative, it does appear that Gerald became jointly and severally liable for the debt
under the express terms of deed of trust. (Cf. Mead v. Sanwa Bank California (1998)
61 Cal. App. 4th 561, 568–569, 571–572 [owners of real property properly pleaded
suretyship despite execution of deed of trust in favor of developer’s lender; only
developer signed note and deed of trust identified secured obligation as belonging only to
developer and expressly provided property owners had no liability for the debt].) The
terms of the deed of trust refute Wells Fargo’s assertion that Gerald was shielded—before
signing the guaranty—from any personal liability on the debt by Thornton & Sons’s
corporate form.
       We agree with Gerald that the distinction in the facts presented here only makes
his sham guaranty argument more compelling. Wells Fargo certainly does not

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persuasively explain why Thornton & Sons—which never pledged any property as
security for the note—should be the only party entitled to protection from a double
recovery by the antideficiency statutes. Here, the guarantor is not truly separated from
the principal obligation and one could reasonably infer that the purpose and effect of the
agreements was an attempt to recover deficiencies in violation of section 580d. (Lawlor,
supra, 222 Cal.App.4th at p. 638; Torrey Pines, supra, 231 Cal.App.3d at p. 320.)
       Our conclusion is consistent with the observation of our colleagues in Division
One: “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
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.” (CADC/RADC Venture 2011-1 LLC v. Bradley, supra,
235 Cal.App.4th at pp. 786–787.) The trial court erred in granting summary judgment in
Wells Fargo’s favor.
                                    III.   DISPOSITION
       The judgment is reversed. Appellant is entitled to his costs on appeal.

                                                  _________________________
                                                  BRUINIERS, J.

WE CONCUR:

_________________________
JONES, P. J.

_________________________
SIMONS, J.

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