## Facts

- Albert and Barbara Mead owned undeveloped land and entered a long-term ground lease with a developer to construct a commercial building.
- To enable construction financing, the Meads executed a deed of trust in favor of the developer’s construction lender, Sanwa Bank California.
- The deed of trust encumbered the Meads’ fee interest (and the developer’s leasehold interest) to secure the developer’s construction loan; the Meads were not personally liable for the debt.
- The developer defaulted on the construction loan, and the lender’s assignee foreclosed on the Meads’ fee interest, causing the Meads to lose title.
- The Meads sued Sanwa and others, alleging that the deed of trust operated as a surety arrangement and that suretyship doctrines limited Sanwa’s ability to foreclose or otherwise harmed the Meads.
- The trial court sustained Sanwa’s demurrers to all causes of action; the Meads declined to amend, and the action against Sanwa was dismissed.
- The trial court later awarded Sanwa attorney’s fees as the prevailing party, and the Meads appealed both the dismissal and the fee award.

## Issues

1. Whether the Meads adequately alleged they were sureties, rather than principal obligors, with respect to the developer’s construction debt secured by the deed of trust.
2. Whether, assuming surety status, the complaint stated any viable cause of action against Sanwa under statutory or common-law suretyship doctrines (including limits on foreclosure or discharge based on lender conduct).
3. Whether Sanwa was properly awarded postjudgment attorney’s fees as the prevailing party.

## Decision

- The Court of Appeal held the Meads sufficiently pleaded that they were sureties rather than principal obligors because their property secured another party’s debt and they were not personally liable on the note.
- The Court nevertheless affirmed the dismissal because the Meads did not show the trial court erred in sustaining demurrers to the particular surety-based claims pleaded.
- The Court affirmed the postjudgment award of attorney’s fees to Sanwa.

## Legal Principles

- On demurrer, courts assume the truth of properly pleaded material facts and reasonable inferences, read the pleading as a whole, and disregard erroneous labels; a complaint is sufficient if facts state a cause of action under any legal theory.
- A property owner who pledges an interest in real property as security for another’s obligation may be treated as a surety in substance even if not personally liable on the underlying note.
- Surety characterization does not itself establish entitlement to relief; the plaintiff must plead facts showing that specific statutory or common-law suretyship protections apply and were violated in a way that supports a recognized cause of action.
- A prevailing party may recover attorney’s fees pursuant to contractual fee provisions as permitted by California law, including reciprocal fee rules where applicable.

## Conclusion

The court recognized that fee owners who encumber their property to secure a developer’s construction debt can plead surety status, but it affirmed dismissal because the Meads’ pleaded surety-based theories did not state a claim against the lender, and it also affirmed the lender’s prevailing-party attorney’s fee award.


Mead v. Sanwa Bank Cal., 61 Cal. App. 4th 561 (Ct. App. 1998)