From Casetext: Smarter Legal Research

Pacific Western Bank v. Stull

California Court of Appeals, Fourth District, Second Division
Feb 24, 2011
No. E050551 (Cal. Ct. App. Feb. 24, 2011)

Summary

affirming grant of writ of attachment where substantial evidence demonstrated claim was based on defendant actively managing and expanding his property management business

Summary of this case from Great Am. Ins. Co. v. Cassinetto

Opinion

NOT TO BE PUBLISHED

APPEAL from the Superior Court of Riverside County. No. RIC538925, John D. Molloy, Judge.

William S. Hulsy for Defendant and Appellant.

Hemar, Rousso & Heald and William J. Sexton for Plaintiff and Respondent.


OPINION

MILLER J.

On September 26, 2006, defendant and appellant William S. Stull executed a commercial guaranty for the refinancing of a loan on commercial property owned by WSS Investments, LLC (WSS), a company he solely owned. After foreclosing on the subject property, plaintiff and respondent Pacific Western Bank (PWB) filed suit seeking to enforce Stull’s guaranty after the trustee sale of the property resulted in a deficiency of $514,213.31 plus accrued interest. PWB contemporaneously sought an order for issuance of a writ of attachment to secure Stull’s personal property in the event it won a judgment. The court granted PWB’s request and ordered an undertaking in the amount of $10,000.

An undertaking is an amount the plaintiff must file for the defendant’s recovery if the attachment is later declared to have been wrongfully issued. (Code of Civ. Proc., § 489.210; Vershbow v. Reiner (1991) 231 Cal.App.3d 879, 882-883.)

On appeal, Stull argues the court erred in issuing the writ of attachment because substantial evidence does not support the contention that PWB’s claim arises out of conduct by Stull in a trade, business or profession. Stull further asserts that the court erred in determining that there was a probable validity that PWB would succeed in its claim. Finally, Stull argues that guaranty was not supported by any consideration and is, therefore, unenforceable. We affirm the judgment.

FACTUAL AND PROCEDURAL HISTORY

Stull founded Stull Industries in 1974 and incorporated the following year. He was the sole owner. In 2000, WSS purchased an industrial commercial property (the Flint Street property) for $1.275 million; Stull made a $100,000 down payment on the property derived from a repayment of a loan by an officer to Stull Industries. Stull invented the Stull Aluminum Billet Grille, which was a replacement item on trucks and cars. From 1998 through 2002, Stull Industries grew from sales of $3 million to $9 million. Stull was the president and chairman of the board of Stull Industries, earning $200,000 a year. At its peak, Stull Industries employed 100 people. Stull Industries was one of three tenants of the Flint Street property.

The identity of this “officer” is not disclosed in the record.

In August 2000, WSS purchased 4.6 acres of lakeshore land on Lake Elsinore (the Saathoff property) for $335,000 with a down payment of $25,000 to $35,000 coming from savings from the purchase of the Flint Street property. Located on the property were three habitable and three uninhabitable structures. The seller remained on as a tenant of one of the structures. Stull rebuilt a triplex structure on the property, and one other free-standing unit, and converted them to tenancies. The previous owner remained as a tenant until March 2002; Stull then fixed up the home and rented it out. Between 1999 and 2002, Stull Industries itself made approximately $500,000 worth of tenant improvements in the Flint Street property.

In August 2003, Stull personally purchased two unimproved lots (approximately 2.2 acres each) for $213,000, which were adjacent to the Saathoff property. He obtained the money to make the purchase from refinancing his home. Combined with the Saathoff property, the total amount of contiguous land owned by Stull amounted to 9.1 acres. Title to the two additional lots was placed in WSS.

On September 26, 2006, WSS executed a promissory note to PWB in the amount of $1,700,000 to refinance the mortgage on the Flint Street property. The note was signed by Stull as a “member” of WSS. Contemporaneously therewith, WSS, again signed for by Stull as a “member, ” executed a deed of trust securing the loan with the Flint Street property. Finally, Stull, in his individual capacity, executed a commercial guaranty for the loan on the same date.

At the top of the four-page “Commercial Guaranty” WSS was identified as the borrower, PWB as the lender, and Stull as the guarantor. The primary provision at issue here read: “For good and valuable consideration, Guarantor absolutely and unconditionally guarantees full and punctual payment and satisfaction of the Indebtedness of Borrower to Lender, and the performance and discharge of all Borrower’s obligations under the Note and the Related Documents.” “Guarantor further understands and agrees that this Guaranty is a separate and independent contract between Guarantor and Lender, given for full and ample consideration, and is enforceable on its own terms.” The provisions of the guaranty specifically waived all rights and defenses the guarantor might have.

Stull utilized $331,805.89 obtained from the refinancing to pay off a line of corporate credit of Stull Industries. Likewise, Stull used $249,818.29 to pay off a personal line of credit. Another amount was placed into the business account of Stull Industries.

Between 2003 and 2004, Stull Industries incurred a dramatic decline in sales of the Stull Billet Grille due to “knock-off” products produced by Asian manufacturers. In August 2005, Stull sold one of his homes to pay down a corporate line of credit in the name of Stull Industries. Also in 2005, an overestimate of the inventory of Stull Industries resulted in a substantial income tax refund which Stull also used to pay down an unsecured corporate line of credit of Stull Industries. Stull stopped taking paychecks from Stull Industries at this time.

In May 2008, the payments of rent from Stull Industries became irregular. The last payment was made on November 25, 2008., Notice of default on the promissory note was served on January 8, 2009. Notice of sale was served on March 16, 2009. The foreclosure sale occurred on August 24, 2009; the Flint Street property sold for $1,384,264—$514,213.31 (plus accrued interest) less than the then-existing balance of $1,904,474.35. Stull apparently refused to honor his commercial guaranty on the deficiency.

The terms of the refinancing contract required WSS to make 59 monthly payments of $12,159.11 and one final balloon payment of $1,568,034.03 to PWB.

Nothing in the record indicates whether the other two tenants of the Flint Street property continued to occupy the building, continued to pay rent, and, if so, in amounts sufficient for WSS to make the monthly payments.

In his responsive pleadings, Stull conceded “he has some passive investment property which is held in the form of WSS Investments, LLC.” However, Stull characterized his interest in and activity with respect to WSS as a private investment, not a personal business. “I am not now, nor have I ever been in the real estate business as either a broker or an agent.” “As a landlord, however, I was not involved in the tenant improvements at all. Basically, Stull Industries... paid its rent to the landlord, WSS, and the landlord paid the loan from the bank, the taxes, and the insurance. Operating WSS... was a part time job taking an hour per month. My wife took care of the paperwork.”

DISCUSSION

“Attachment is an ancillary or provisional remedy to aid in the collection of a money demand by seizure of property in advance of trial and judgment. The money or property is held as security for the eventual satisfaction of the judgment, unless released by the giving of other security. [Citations.]” (6 Witkin, Cal. Procedure (5th ed. 2008) Provisional Remedies, § 46, p. 58.) “The remedy of attachment is wholly statutory, its scope and procedure are limited by the statutes, and these statutes are strictly construed. [Citations.]” (Id. at § 48, p. 59.)

“[A]n attachment may be issued only in an action on a claim or claims for money, each of which is based upon a contract, express or implied, where the total amount of the claim or claims is a fixed or readily ascertainable amount not less than five hundred dollars ($500) exclusive of costs, interest, and attorney’s fees.” (Code Civ. Proc. § 483.010, subd. (a).) “An attachment may not be issued on a claim which is secured by any interest in real property arising from agreement, statute, or other rule of law (including any mortgage or deed of trust of realty and any statutory, common law, or equitable lien on real property....) However, an attachment may be issued where the claim was originally so secured but, without any act of the plaintiff or the person to whom the security was given, the security has become valueless or has decreased in value to less than the amount then owing on the claim, in which event the amount to be secured by the attachment shall not exceed the lesser of the amount of the decrease or the difference between the value of the security and the amount then owing on the claim.” (§ 483.010, subd. (b).) “If the action is against a defendant who is a natural person, an attachment may be issued only on a claim which arises out of the conduct by the defendant of a trade, business, or profession.” (§ 483.010, subd. (c).)

All further statutory references are to the Code of Civil Procedure unless otherwise indicated.

A. TRADE, BUSINESS OR PROFESSION

Stull contends that the court below improperly issued the writ of attachment because PWB’s claim did not arise out of conduct by Stull with respect to a trade, business, or profession. We disagree.

The determination of whether a defendant is engaged in a trade, business, or profession for purposes of issuing a prejudgment writ of attachment is reviewed for substantial evidence. (Nakasone v. Randall (1982) 129 Cal.App.3d 757, 762 (Nakasone).) “It is not the function of this court to reweigh the evidence but we cannot avoid our duty to determine whether the evidence constitutes substantial evidence. ‘Substantial evidence means more than a mere scintilla; it means “such relevant evidence as a reasonable man might accept as adequate to support a conclusion.” [Citation.] Improbable conclusions will not be sustained where testimony is at variance with the physical facts and the repugnance is material and self-evident. [Citation.] “[If] the word ‘substantial’ means anything at all, it clearly implies that such evidence must be of ponderable legal significance. Obviously the word cannot be deemed synonymous with ‘any’ evidence. It must be reasonable in nature, credible, and of solid value; it must actually be ‘substantial’ proof of the essentials which the law requires in a particular case.” [Citations.]’ [Citations.]” (Id. at p. 762.)

Here, substantial evidence supports the court’s conclusion that Stull was engaged in a trade, business, or profession with respect to his activities in WSS, i.e., the business of operating a property ownership and management firm. Stull purchased Flint in 2000 taking title in WSS. Stull acted as a landlord to Stull Industries and the other two tenants of the Flint Street property, apparently for the entirety of WSS’s ownership of the property. Stull Industries spent approximately $500,000 on tenant improvements to the Flint Street property between 1999 and 2002. Although Stull Industries was a separate corporate entity from both Stull and WSS, Stull was its sole owner, its president, and its chairman of the board; thus, a rational inference of the behavior of Stull Industries is that Stull was directing it to make profitable improvements to WSS’s assets on its own dime. Although Stull denied any involvement in the tenant improvements, it is inherently incredible that the owner, president, and chairman of the board would not have known, let alone directed, substantial improvements to a property he owned under another corporate identity. Indeed, Stull stood to gain substantially from the improvements both in the improved value to the property and the potential for increased rents. An appraisal of the Flint Street property completed on July 9, 2003, estimated an effective gross income from renting the property as $236,858 annually, operating expenses of $14,526, and, thus, an estimated net operating income of $222,332. An appraisal of the Flint Street property conducted at the time of the refinancing estimated a potential gross yearly income of $267,133.

Notwithstanding the appraiser’s determination of the Flint Street property’s potential revenue, Stull contends WSS was a money-losing endeavor. Nonetheless, as the court properly found, “Whether... it was a good concern or bad concern is of no moment. If he is the person to receive the proceeds from that, then he is the clear beneficiary—well, the intended beneficiary of any rental moneys paid on those properties.” “‘“An occupation or employment will not be excluded from the classification of business merely because it actually results in loss instead of profit....” [Citation.]’” (Advance Transformer Company v. Superior Court (Shapiro) (1974) 44 Cal.App.3d 127, 134 (Advance).)

Moreover, WSS and Stull’s property management endeavors were not limited to the Flint Street property. In August 2000, WSS purchased the Saathoff property with down payment funds, presumably coming from Stull himself. The Saathoff property had three habitable and three uninhabitable structures. The previous owner remained a presumably paying tenant until March 2002, when Stull renovated the home and rented it to someone else. In 2002 Stull rebuilt a triplex and another free standing unit on the Saathoff property “turning them into tenancies.” As the court below noted, “it was [Stull] who had people renovate the residence for the rental property.” In August 2003, Stull purchased two unimproved lots adjacent to the Satthoff property. Stull obtained the purchase money, $213,000, from refinancing his personally owned home. WSS took title of the additional properties. While Stull averred that “[o]perating WSS, was a part time job taking an hour per month, ” and that his “wife took care of the paperwork, ” this does not refute the court’s determination that Stull was engaged in the business of property management, regardless of how much time or effort it involved. As the court found, “I see that [Stull] was completely engaged in the management of that rental property. He was acting exactly as a landlord.” Thus, Stull’s objections notwithstanding, the record is replete with evidence reflecting that Stull was personally engaged in the business, trade, or profession of operating his property ownership and management firm, WSS.

Stull exposits Advance, supra, 44 Cal.App.3d 127 and Nakasone, supra, 129 Cal.App.3d 757, for the proposition that his mere ownership of WSS “‘is not part and parcel’ of an activity which occupies the time, attention and effort of the guarantor [Stull] for the purpose of ‘livelihood or profit on a continuing basis.’” Thus, he contends the writ of attachment was erroneously issued. We find Advance and Nakasone supportive of, not detracting from, the court’s rationale for issuing the writ.

In Advance, the defendants (the owners, president, and directors of a corporate entity) made personal guarantees of payment to the plaintiff manufacturer of constituent parts utilized by the defendants’ corporation, upon the providing of those parts and an extension of credit on more lenient terms for repayment. (Advance, supra, 44 Cal.App.3d at pp. 131-133.) The defendants defaulted on payment. The plaintiff sought enforcement of the promissory note executed by the defendants; prior to trial, the plaintiff sought issuance of a writ of attachment against the defendants’ personal property. (Id. at pp. 129-130.) The trial court denied the request, finding that even officers of a corporation cannot be construed as personally engaging in a trade, business, or profession unless they disregard the corporate forms to the extent that the court may appropriately pierce the corporate veil, i.e., the defendants were protected from personal liability on the guarantees to the extent that they had not played fast and loose with the rules respecting corporate entities. (Id. at pp. 132-133.) The court of appeal reversed the trial court decision concluding that it had employed the wrong paradigm for analysis of the issue; thus, it ordered a new hearing employing the proper legal framework. (Id. at p. 145.)

The Advance court elucidated the “proper standard for determining whether a defendant guarantor or accommodation maker is engaged in business so as to make issuable an attachment against him... is the application of... general principles.... If the defendant is engaged generally in the business of guaranteeing for a consideration the debts of others, that is, lending credit, any liability incurred as a result is a debt arising out of the conduct of his business. At the opposite extreme, a retired person, with no financial stake in the success of the primary obligor, cannot properly be held engaged in business solely by virtue of an isolated instance in which he guarantees a commercial obligation out of friendship and without compensation.” (Advance, supra, 44 Cal.App.3d at pp. 143-144.) “Cases falling between these extremes will require the exercise of judgment on a case-to-case basis to determine whether the activity of the defendant with respect either (1) to the extension of credit generally, or (2) to the business of the primary obligor is such as to justify the conclusion that the guarantee of the primary obligor’s debt sued upon is part and parcel of an activity which occupies the time, attention and effort of the guarantor for the purpose of livelihood or profit on a continuing basis.” (Id. at p. 144.)

“In cases involving guarantees by principal shareholders of closely held corporations, consideration will necessarily be given to the degree and continuity of the guarantor’s involvement in the affairs of the primary obligor out of which the indebtedness has arisen. For example, (1) if a corporation has habitually been provided with operating capital through the medium of such guarantees by the defendant, or (2) the obligation sued upon has resulted from an extension of credit in reliance upon defendant’s continuing guarantee, or (3) the defendant has extensively occupied himself in the management of the primary obligor on a continuing basis and has a major stake in its success, the required ‘frequency and continuity’ may be found to exist. In short, if the sum total of the circumstances justifies the conclusion that the guarantor occupied himself to a substantial degree and on a continuing basis in promoting his own profit through provision of credit or management to the primary obligor, a guarantee executed in the course of such activity may properly be considered an obligation arising out of the conduct of the guarantor’s business.” (Advance, supra, 44 Cal.App.3d at p. 144.)

Here, while admittedly Stull is not in the business of guaranteeing the debt of others, neither is he an individual on the other side of the spectrum, i.e., retired with no financial stake in the success of WSS (the primary obligor). As discussed above, Stull’s guarantee was part and parcel of an activity in which he was personally involved on a continuing basis for the purposes of earning a livelihood; Stull purchased, renovated, leased, and acted as a landlord for the various properties owned by WSS. He had a major stake in the success of WSS. As the court found, “Stull was, indeed, heavily involved in management of...WSS, ... he was not the passive investor like the defendant in the Nakasone case. In fact, he... resembles remarkably the [defendants] in... Advance ....” Thus, sufficient evidence justified the court’s determination that the guaranty arose out of Stull’s conduct in the business of WSS.

In Nakasone, the defendant entered into a contract for the sale of real property to the plaintiff. The defendant then sold the property to someone else. The plaintiff sued for breach of contract and sought a prejudgment writ of attachment against other real properties owned by the defendant. (Nakasone, supra, 129 Cal.App.3d at pp. 759-760.) The court issued the writ. The defendant sought to quash the writ asserting that she “has never been and is not now engaged in the trade, business or profession of selling real property.” (Id. at p. 760.) The plaintiff countered that the defendant told him she was a real estate broker. The court denied the motion to quash. (Ibid.) The appellate court reversed holding that “[t]his is not the type of activity to which the attachment statute was intended to apply [citation]....” (Id. at p. 763.)

Notably, Nakasone is not a guaranty case. Nonetheless, the court determined that for purposes of the attachment statutes there is “a distinction between one who spends his attention, time and effort in carrying on an activity for the purpose of livelihood or profit on a continuing basis and one who merely conserves his personal investments.” (Nakasone, supra, 129 Cal.App.3d at p. 764.) While the defendant in Nakasone had owned various properties with her husband over the course of 30 years, her husband had died and she appeared to be dissolving her assets in contemplation of a move to Mexico. (Id. at pp. 762-763, 764.) Thus, “[s]he did no more than sell it and receive the ordinary returns of that ownership. Under Advance Transformer Co. she was not engaged in a trade, business or profession of selling real estate.” (Id. at p. 764.) Here, again, Stull was not simply dissolving his investments, but actively managing and expanding his property management business. Thus, his guaranty was made in an effort to secure benefits for WSS in which he was intimately involved and from which he stood to benefit. Therefore, substantial evidence supported the court’s order.

B. PROBABLE VALIDITY

Stull contends the court erred in determining that PWB’s suit was probably valid. Stull maintains that the guaranty was a sham because he was merely an alter ego of WSS. Indeed, Stull goes so far as to assert his disregard of his corporate entities as a defense to this suit. Finally, Stull argues no consideration supported his guaranty. We find Stull’s contentions unavailing.

At a hearing on the application for writ of attachment, “[t]he order will be issued if the court finds that the plaintiff’s claim is probably valid and the other requirements for issuing the order are established. The hearing is not for the purpose of determining whether the claim is actually valid. The determination of the actual validity of the claim will be made in subsequent proceedings in the action and will not be affected by the decisions at the hearing on the application for the order.” (§ 484.050, subd. (b).) “A claim has ‘probable validity’ where it is more likely than not that the plaintiff will obtain a judgment against the defendant on that claim.” (§ 481.190.) “The definition of ‘probable validity’... requires that, at the hearing on the application for a writ, the plaintiff must at least establish a prima facie case. If the defendant makes an appearance, the court must then consider the relative merits of the positions of the respective parties and make a determination of the probable outcome of the litigation.” (Cal. Law Revision Com. com., Deering’s Ann. Civ. Proc. Code (1974) § 481.190, p. 15.)

“At the hearing, the court shall consider the showing made by the parties appearing and shall issue a right to attach order, which shall state the amount to be secured by the attachment... if it finds all of the following: [¶] (1) The claim upon which the attachment is based is one upon which an attachment may be issued. [¶] (2) The plaintiff has established the probable validity of the claim upon which the attachment is based. [¶] (3) The attachment is not sought for a purpose other than the recovery on the claim upon which the attachment is based. [¶] (4) The amount to be secured by the attachment is greater than zero.” (§ 484.090, subd. (a).)

Here, PWB clearly established a prima facie case that it would probably prevail in its suit. PWB included as attachments to its complaints copies of the promissory note, the trust deed, and the commercial guaranty, all of which were signed by Stull. PWB attached the trustee’s deed of sale reflecting a foreclosure sale with a $514,213.31 deficiency below the then-existing balance on the note. Stull admitted in his declarations to signing the guaranty. The guaranty provided, “[f]or good and valuable consideration, Guarantor absolutely and unconditionally guarantees full and punctual payment and satisfaction of the indebtedness of Borrower to Lender, and the performance and discharge of all Borrower’s obligations under the Note and Related Documents.” The guaranty further provided that the guarantor waived any and all legally applicable defenses to enforcement of the guarantee should the need arise. Thus, substantial evidence supported the court’s determination that PWB would probably prevail.

Stull’s contentions that he did not read the documents, did not have time to read the documents, was not told of their import, and was not permitted the use of an attorney, are of no legal import and are belied in part by the record. First, the commercial guaranty is only four pages long. The guaranty reads: that “Guarantor has read and fully understands the terms of this Guaranty; Guarantor has had the opportunity to be advised by Guarantor’s attorney with respect to this Guaranty; the Guaranty fully reflects Guarantor’s intentions....” At the bottom of the final page, just above Stull’s signature, in bold, and in all capital letters, the agreement reads: “Each undersigned guarantor acknowledges having read all the provisions of this guaranty and agrees to its terms.” “‘Ordinarily, one who accepts or signs an instrument, which on its face is a contract, is deemed to assent to all its terms, and cannot escape liability on the ground that he has not read it. If he cannot read, he should have it read or explained to him.’ [Citation.]” (Randas v. YMCA of Metropolitan Los Angeles (1993) 17 Cal.App.4th 158, 163.) Second, PWB had no fiduciary obligation to explain the import of the documents to Stull. “‘A debt is not a trust and there is not a fiduciary relation between debtor and creditor as such.’ [Citation.]” (Price v. Wells Fargo Bank (1989) 213 Cal.App.3d 465, 476.)

1. ALTER EGO

Nevertheless, Stull cites River Bank America v. Diller (1995) 38 Cal.App.4th 1400 (River Bank), for the assertion that the guaranty was a sham because he and the principal obligor were essentially the same person. “Section 2787 provides that ‘[a] surety or guarantor is one who promises to answer for the debt... of another....’ (Italics added.) ‘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 section 2787, since “the supposed guarantors against whom suit has been brought [could be] nothing more than principal obligors under another name.”’ [Citations.] [Citation.]” (Id. at p. 1420.) However, River Bank was solely concerned with whether the lender had orchestrated the guarantor as a straw man so as to overcome the state’s statutory antideficiency laws: “‘[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].’” (Id. at p. 1423, fn. omitted.) “‘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 effect of the agreements to determine whether they are attempts to recover deficiencies in violation of section 580d .’” (Id. at p. 1423.)

River Bank was concerned with, and the evidence supported, a determination that the lender had manipulated the mortgagors and the structure of the applicable financial documents so that it could look first to the guarantors rather than the primary obligor for payment of the note upon default, thus avoiding any need to seek recompense for default in a sale of the subject property at foreclosure and any limit on its ability to seek a deficiency judgment if it did so. The lender and borrower had at first entered into negotiations to develop the property as a joint venture; however, after the borrower had already begun preparations in anticipation of the joint venture, the lender backed out of the joint venture. Instead, the lender offered a restructured deal requiring accompanying personal guarantees on behalf of the borrowers, which the borrowers claimed they executed under economic duress. (River Bank, supra, 38 Cal.App.4th at 1421.) In final negotiations, the lender required that the borrower enter into a limited partnership with a general partner, Prom XX, which was solely owned and controlled by the borrowers and was essentially used as a shell corporation for the purpose of acting as a “place marker” in the structuring of the real estate development operations. Prom XX never had substantial capital or assets. (Id. at pp. 1421-1422.) The lender never investigated “‘the financial standing of Prom XX [the ostensible primary obligor] during the loan application process, or even up to the closing of the “loan.”’” (Id. at pp. 1422-1423.) Instead, the lender relied on the extensive financial statements of the guarantors, to which the lender actually looked as the borrowers. (Ibid.) The court concluded, “there is a triable issue of fact whether the entire transaction was structured to avoid the antideficiency preclusion of... section 580d.” (Id. at p. 1423.)

Here, on the contrary, the evidence indicates that PWB looked primarily, if not exclusively, at the assets of WSS in determining whether to execute the refinancing. In an obvious effort to determine the fiscal propriety of providing the refinancing, PWB commissioned two separate extensive and exhaustive appraisal studies of the Flint Street property, completed on July 9, 2003, and September 8, 2006, respectively. Both studies valued the Flint Street property at more than the value of the note, more than the value of the anticipated refinancing, and clearly anticipated that the Flint Street property would appreciate dramatically in value over the near future. Likewise, both studies reflected that net income from rent receipts would exceed the monthly payments under the refinanced loan. Thus, this evidence negates any contention that PWB primarily intended to rely upon Stull’s personal guaranty in the event of default. Indeed, nothing in this record reflects that PWB looked at Stull’s personal financial status at all in approving the loan. Thus, contrary to Stull’s contention, unlike River Bank, PWB did not orchestrate the loan documents as a “sham guaranty” so that it could avoid the state’s antideficiency laws.

2. PIERCING THE CORPORATE VEIL

In a corollary assault based on his alter ego defense ante, Stull contends that his disregard of his various corporate entities should inure to his favor in this instance because, again, one cannot act as a surety for one’s own obligations. Stull notes, “I am confident that a tort victim or a contractor with a claim against [WSS] could easily pierce the corporate veil.” Further, he asserts, “This is the kind of injustice we can prevent by piercing the corporate veil.” Finally, he observes, “Since [Stull] and [WSS] are, in essence, an identity, the same protection afforded to the primary obligor should also be afforded to [Stull].” Contrary to Stull’s contention, the doctrine of piercing the corporate veil is designed to avail plaintiffs for whom a corporate entity’s unity of interest with its ownership may fraudulently or unfairly prevent the victim from garnering compensation for a wrong. This occurs where the corporate assets are insufficient for redress, but the ownership’s resources remain sufficient.

“‘Ordinarily, a corporation is regarded as a legal entity separate and distinct from its stockholders, officers and directors. Under the alter ego doctrine, however, where a corporation is used by an individual or individuals, or by another corporation, to perpetrate fraud, circumvent a statute, or accomplish some other wrongful or inequitable purpose, a court may disregard the corporate entity and treat the corporation’s acts as if they were done by the persons actually controlling the corporation. [Citations.] [¶] In general, the two requirements for applying the alter ego doctrine are that (1) there is such a unity of interest and ownership between the corporation and the individual or organization controlling it that their separate personalities no longer exist, and (2) failure to disregard the corporate entity would sanction a fraud or promote injustice. [Citations.] The doctrine is applicable where some innocent party attacks the corporate form as an injury to that party's interests. The issue is not so much whether the corporate entity should be disregarded for all purposes or whether its very purpose was to defraud the innocent party, as it is whether in the particular case presented, justice and equity can best be accomplished and fraud and unfairness defeated by disregarding the distinct entity of the corporate form. [Citations.]’” (Webber v. Inland Empire Investments, Inc. (1999) 74 Cal.App.4th 884, 900, italics added, quoting Communist Party v. 522 Valencia, Inc. (1995) 35 Cal.App.4th 980, 993-994; see also Robbins v. Blecher (1997) 52 Cal.App.4th 886, 892.) “‘Thus, alter ego is used to prevent a corporation from using its statutory separate corporate form as a shield from liability only where to recognize its corporate status would defeat the rights and equities of third parties; it is not a doctrine that allows the persons who actually control the corporation to disregard the corporate form.’ [Citation.]” (Webber, at p. 901, italics added.)

While the record certainly establishes numerous incidents of disregard by Stull of his various corporate entities, such fast and loose play with corporate forms does not and should not inure to Stull’s benefit. Rather, disregard of a corporate entity devolves to the benefit of one injured by the corporation, not the other way around. Thus, piercing the corporate veil is a sword wielded on behalf of a plaintiff, not a shield brandished by the defense. It is not at all applicable in the present case.

3. LACK OF CONSIDERATION

Additionally, Stull unavailingly contends that his guaranty was not supported by consideration and, therefore, was rendered null and void. “Where a suretyship obligation is entered into at the same time with the original obligation, or with the acceptance of the latter by the creditor, and forms with that obligation a part of the consideration to him, no other consideration need exist..” (Civ. Code, § 2792.) “Assuming that consideration was necessary under section 2792 of the Civil Code, the fact that the guaranty was in writing imports consideration. [Citation.]” (Elster’s Sales v. Longo (1970) 4 Cal.App.3d 216, 221; see also Challenge-Cook Bros., Inc. v. Lantz (1967) 256 Cal.App.2d 536, 539 [it is legally presumed that a guaranty contained in a written instrument is based upon sufficient consideration—the burden of showing lack of consideration is on the party attacking the instrument]; R. H. Herron Co. v. Flack (1920) 46 Cal.App. 374, 377 [same].)

Here, Stull executed the Commercial Guaranty in writing contemporaneouslywith the original obligation. The guaranty expressly provided that it was made “[f]or good and valuable consideration.” PWB refinanced the loan; thus, plaintiff acted upon the guaranty by providing the service for which the guaranty was intended to secure. (R. H. Herron Co. v. Flack, supra, 46 Cal.App. at pp. 376-377 [where the plaintiff acts upon a guaranty by extending credit that the guaranty was intended to secure, the guaranty becomes binding upon the defendant].) Indeed, Stull himself benefitted directly from the refinancing because, as he himself declared, he used $249,818.29 of the proceeds to pay off a personal line of credit. Thus, Stull’s guaranty was supported by consideration.

DISPOSITION

The judgment is affirmed. Respondent is to recover its costs on appeal.

We concur: KING Acting P. J., CODRINGTON J.


Summaries of

Pacific Western Bank v. Stull

California Court of Appeals, Fourth District, Second Division
Feb 24, 2011
No. E050551 (Cal. Ct. App. Feb. 24, 2011)

affirming grant of writ of attachment where substantial evidence demonstrated claim was based on defendant actively managing and expanding his property management business

Summary of this case from Great Am. Ins. Co. v. Cassinetto
Case details for

Pacific Western Bank v. Stull

Case Details

Full title:PACIFIC WESTERN BANK, Plaintiff and Respondent, v. WILLIAM S. STULL…

Court:California Court of Appeals, Fourth District, Second Division

Date published: Feb 24, 2011

Citations

No. E050551 (Cal. Ct. App. Feb. 24, 2011)

Citing Cases

Great Am. Ins. Co. v. Cassinetto

The Court has also located two unpublished California Court of Appeal decisions granting writs of attachment…