Clarno

Plaintiff bank brought suit to enforce the personal guarantees of individual defendants. They cross-complained seeking declaratory relief and exoneration from personal guarantees on two loans to their financially troubled business. The bank appeals the trial court’s orders of exoneration.

Facts

Defendants Clarno and Hunter were sole shareholders of Duncan-Hunter (Duncan) which in turn wholly owned Equipment Wholesalers, Incorporated (EWI). In March 1973, Duncan borrowed $200,000 from plaintiff American Security Bank (bank). Duncan executed a $200,000 promissory note, 85 percent of which was guaranteed by the Small Business Association (SBA). As a condition to the SBA’s guarantee, Clarno and his wife, Hunter and his wife, and Giardina (one of Duncan’s managers) and his wife executed continuing guarantees secured by trust deeds on their respective residences. The promissory note was also secured by a security agreement and financing statement on Duncan’s machinery, equipment, furniture, fixtures, inventory, trade accounts receivable and materials then owned or thereafter acquired.

This loan was refinanced and increased to $275,000, as evidenced by an October 1973…