Court Opinion

ID: 2643998
Source: CourtListenerOpinion
Date Created: 2013-11-25 22:47:36.032711+00
Date Added: 2024-06-11T12:30:56.528971
License: Public Domain

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                      NOT TO BE PUBLISHED IN OFFICIAL REPORTS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
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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,                                         G047899 (consol. w/ G047910)

         v.                                                            (Super. Ct. Nos. 30-2010-00379838
                                                                       & 30-2010-00389709)
DAVID LAWLOR et al.,
                                                                       OPINION
     Defendants and Appellants.

CALIFORNIA BANK & TRUST, etc.

     Plaintiff and Respondent,

         v.

COVENANT MANAGEMENT GROUP,
LLC, et al.,

     Defendants and Appellants.
              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).

                                             2
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.

                                             3
              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.

                                              4
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.

                                              5
               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’”].)

                                                6
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

                                              7
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

                                              8
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

                                               9
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

                                             10
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

                                             11
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.)

                                             12
              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.

                                             13
              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

                                             14
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.)

                                              15
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

                                              16
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

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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.

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              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.

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