PACIONARIA C. BAYLON, petitioner, vs. THE HONORABLE COURT OF APPEALS (Former Ninth Division) and LEONILA TOMACRUZ, respondents.

This is a petition for review by way of certiorari under Rule 45 of the Revised Rules of Court of the decision of the Court of Appeals[1] dated November 29, 1991 in CA-G.R. CV No. 27779 affirming the decision[2]of the Regional Trial Court of Quezon City, Branch 88, dated June 14, 1990 in Civil Case No. Q-89-2483 and the Resolution of the Court of Appeals dated April 27, 1993 denying petitioner's Motion for Reconsideration. The pertinent facts, as found by the trial court and affirmed by respondent court, are briefly narrated as follows: Sometime in 1986, petitioner Pacionaria C. Baylon introduced private respondent Leonila Tomacruz, the co-manager of her husband at PLDT, to Rosita B. Luanzon.[3] Petitioner told private respondent that Luanzon has been engaged in business as a contractor for twenty years and she invited private respondent to lend Luanzon money at a monthly interest rate of five percent (5%), to be used as capital for the latter's business. Private respondent, persuaded by the assurances of petitioner that Luanzon's business was stable and by the high interest rate, agreed to lend Luanzon money in the amount of P150,000. On June 22, 1987, Luanzon issued and signed a promissory note acknowledging receipt of the P150,000 from private respondent and obliging herself to pay the former the said amount on or before August 22, 1987.[4] Petitioner signed the promissory note, affixing her signature under the word "guarantor." Luanzon also issued a postdated Solidbank check no. CA418437 dated August 22, 1987 payable to Leonila Tomacruz in the amount of P150,000.[5] Subsequently, Luanzon replaced this check with another postdated Solidbank check no. 432945 dated December 22, 1987, in favor of the same payee and covering the same amount.[6] Several checks in the amount of P7,500 each were also issued by Luanzon and made payable to private respondent.[7] Private respondent made a written demand upon petitioner for payment, which petitioner did not heed. Thus, on May 8, 1989, private respondent filed a case for the collection of a sum of money with the Regional Trial Court (RTC) of Quezon City, Branch 88, against Luanzon and petitioner herein, impleading Mariano Baylon, husband of petitioner, as an additional defendant. However, summons was never served upon Luanzon. In her answer, petitioner denied having guaranteed the payment of the promissory note issued by Luanzon. She claimed that private respondent gave Luanzon the money, not as a loan, but rather as an investment in Art Enterprises and Construction, Inc. - the construction business of Luanzon. Furthermore, petitioner avers that, granting arguendo that there was a loan and petitioner guaranteed the same, private respondent has not exhausted the property of the principal debtor nor has she resorted to all the legal remedies against the principal debtor as required by law. Finally, petitioner claims that there was an extension of the maturity date of the loan without her consent, thus releasing her from her obligation.[8] After trial on the merits, the lower court ruled in favor of private respondent. In its Decision dated June 14, 1990, it stated that The evidence and the testimonies on record clearly established a (sic) fact that the transaction between the plaintiff and defendants was a loan with five percent (5%) monthly interest and not an investment. In fact they all admitted in their testimonies that they are not given any stock certificate but only promissory notes similar to Exhibit B wherein it was clearly stated that defendant Luanzon would pay the amount of indebtedness on the date due. Postdated checks were issued simultaneously with the promissory notes to enable the plaintiff and others to withdraw their money on a certain fixed time. This shows that they were never participants in the business transaction of defendant Luanzon but were creditors. The evidences presented likewise show that plaintiff and others loan their money to defendant Luanzon because of the assurance of the monthly income of five percent (5%) of their money and that they could withdraw it anytime after the due date add to it the fact that their friend, Pacionaria Baylon, expresses her unequivocal gurarantee to the payment of the amount loaned. xxx xx xxx WHEREFORE, premises considered, judgment is hereby rendered against the defendants Pacionaria C. Baylon and Mariano Baylon, to pay the plaintiff the sum of P150,000.00, with interest at the legal rate from the filing of this complaint until full payment thereof, to pay the tota l sum of P21,000.00 as attorneys fees and costs of suit.[9] On appeal, the trial court's decision was affirmed by the Court of Appeals. Hence, this present case wherein petitioner makes the following assignment of errors I. RESPONDENT COURT ERRED IN HOLDING THAT THE PRIVATE RESPONDENT TOMACRUZ WAS A CREDITOR OF DEFENDANT LUANZON AND NOT AN INVESTOR IN THE CONSTRUCTION BUSINESS OF ART ENTERPRISES & CONSTRUCTION, INC. II. GRANTING, WITHOUT ADMITTING, THAT PETITIONER-APPELLANT BAYLON WAS A "GUARANTOR" AS APPEARING IN THE NOTE (EXH. "A") THE RESPONDENT COURT ERRED IN RULING THAT PETITIONER-APPELLANT BAYLON IS LIABLE TO THE PRIVATE RESPONDENT BECAUSE THE LATTER HAS NOT TAKEN STEPS TO EXHAUST THE PROPERTY OF THE PRINCIPAL DEBTOR AND HAS NOT RESORTED TO ALL THE LEGAL REMEDIES PROVIDED BY LAW AGAINST THE DEBTOR, DEFENDANT LUANZON. III. GRANTING, WITHOUT ADMITTING THAT PETITIONER-APPELLANT BAYLON WAS A GUARANTOR UNDER THAT NOTE (EXHIBIT "A") DATED JUNE 22, 1987, THE LOWER COURT ERRED IN RESOLVING THAT SHE WAS NOT RELEASED FROM HER GUARANTY BY THE SUBSEQUENT TRANSACTIONS BETWEEN THE RESPONDENTAPPELLANT AND DEFENDANT LUANZON. At the outset, we note that petitioners claim that the factual findings of the lower court, which were affirmed by the Court of Appeals, were based on a misapprehension of facts and contradicted by the evidence on records[10] is a bare allegation and devoid of merit. As a rule, the conclusions of fact of the trial court, especially when affirmed by the Court of Appeals, are final and conclusive and cannot be reviewed on appeal by the Supreme Court.[11] Although this rule admits of several exceptions,[12] none of the exceptions are in point in the present case. The factual findings of the respondent court are borne out by the record and are based on substantial evidence. Petitioner claims that there is no loan to begin with; that private respondent gave Luanzon the amount of P150,000, not as a loan, but rather as an investment in the construction project of the latter.[13] In support of her claim, petitioner cites the use by private respondent of the words investment, dividends, and commission in her testimony before the lower court; the fact that private respondent received monthly checks from Luanzon in the amount of P7,500 from July to December, 1987, representing dividends on her investment; and the fact that other employees of the Development Bank of the Philippines made similar investments in Luanzons construction business.[14] However, all the circumstances mentioned by petitioner cannot override the clear and unequivocal terms of the June 22, 1987 promissory note whereby Luanzon promised to pay private respondent the amount of P150,000 on or before August 22, 1987. The promissory note states as follows: June 22, 1987 To Whom It May Concern: For value received, I hereby promise to pay Mrs. LEONILA TOMACRUZ the amount of ONE HUNDRED FIFTY THOUSAND PESOS ONLY (P150,000.00) on or before August 22, 1987. The above amount is covered by _____ Check No. _____ dated August 22, 1987. (signed) ROSITA B. LUANZON GURARANTOR: (signed) PACIONARIA O. BAYLON Tel. No. 801-28-00 18 P. Mapa St., DBP Village Almanza, Las Pinas, M.M.[15] If the terms of a contract are clear and leave no doubt as to the intention of the contracting parties, the literal meaning of its stipulation shall control. [16] Resort to extrinsic aids and other extraneous sources are not necessary in order to ascertain the parties' intent when there is no ambiguity in the terms of the

agreement.[17] Both petitioner and private respondent do not deny the due execution and authenticity of the June 22, 1987 promissory note. All of petitioner's arguments are directed at uncovering the real intention of the parties in executing the promissory note, but no amount of argumentation will change the plain import of the terms thereof, and accordingly, no attempt to read into it any alleged intention of the parties thereto may be justified.[18] The clear terms of the promissory note establish a creditor-debtor relationship between Luanzon and private respondent. The transaction at bench is therefore a loan, not an investment. It is petitioner's contention that, even though she is held to be a guarantor under the terms of the promissory note, she is not liable because private respondent did not exhaust the property of the principal debtor and has not resorted to all the legal remedies provided by the law against the debtor.[19] Petitioner is invoking the benefit of excussion pursuant to article 2058 of the Civil Code, which provides that The guarantor cannot be compelled to pay the creditor unless the latter has exhausted all the property of the debtor, and has resorted to all the legal remedies against the debtor. It is axiomatic that the liability of the guarantor is only subsidiary.[20] All the properties of the principal debtor must first be exhausted before his own is levied upon. Thus, the creditor may hold the guarantor liable only after judgment has been obtained against the principal debtor and the latter is unable to pay, for obviously the exhaustion of the principals property - the benefit of which the guarantor claims - cannot even begin to take place before judgment has been obtained.[21] This rule is embodied in article 2062 of the Civil Code which provides that the action brought by the creditor must be filed against the principal debtor alone, except in some instances when the action may be brought against both the debtor and the principal debtor.[22] Under the circumstances availing in the present case, we hold that it is premature for this Court to even determine whether or not petitioner is liable as a guarantor and whether she is entitled to the concomitant rights as such, like the benefit of excussion, since the most basic prerequisite is wanting - that is, no judgment was first obtained against the principal debtor Rosita B. Luanzon. It is useless to speak of a guarantor when no debtor has been held liable for the obligation which is allegedly secured by such guarantee. Although the principal debtor Luanzon was impleaded as defendant, there is nothing in the records to show that summons was served upon her. Thus, the trial court never even acquired jurisdiction over the principal debtor. We hold that private respondent must first obtain a judgment against the principal debtor before assuming to run after the alleged guarantor. IN VIEW OF THE FOREGOING, the petition is granted and the questioned Decision of the Court of Appeals dated November 29, 1991 and Resolution dated April 27, 1993 are SET ASIDE. No pronouncement as to costs.

JACINTO UY DIO and NORBERTO UY, petitioners, vs. HON. COURT OF APPEALS and METROPOLITAN BANK AND TRUST COMPANY In 1977, Uy Tiam Enterprises and Freight Services (UTEFS), thru its representative Uy Tiam, applied for and obtained credit accommodations (letter of credit and trust receipt accommodations) from the Metropolitan Bank and Trust Company. To secure the aforementioned credit accommodations, Norberto Uy and Jacinto Uy Dio executed separate Continuing, dated 25 February 1977, in favor of the MBTC. This credit accommodation has been fully paid. Subsequent transactions flowed smoothly until UTEFS executed and delivered to METROBANK a Trust Receipt whereby the former acknowledged receipt in trust from the latter of the received goods from Planters Products which amounted to P815,600.00. Being the entrustee, the UTEFS agreed to deliver to METROBANK the entrusted goods in the event of non-sale or, if sold, the proceeds of the sale thereof, on or before September 2, 1979. However, UTEFS did not acquiesce to the obligatory stipulations in the trust receipt. As a consequence, METROBANK sent letters to the said principal obligor and its sureties, Norberto Uy and Jacinto Uy Dio, demanding payment of the amount due. They denied liability on the transaction. In its reply, the bank informed him that the source of his liability is the Continuing Suretyship which he executed on February 25, 1977. On demand, UTEFS paid some of the outstanding amount. As a rejoinder, Dio maintained that he cannot be held liable for the 1979 credit accommodation because it is a new obligation contracted without his participation. Besides, the 1977 credit accommodation which he guaranteed has been fully paid. Since it could no longer collect the balance of amount due, METROBANK thus filed a complaint for collection of a sum of money. Norberto Uy and Jacinto Uy Dio (sureties-defendants) filed a motion to dismiss the complaint on the ground of lack of cause of action. They maintained that the obligation which they guaranteed in 1977 has been extinguished since it has already been paid in the same year. Accordingly, the Continuing Suretyships executed in 1977 cannot be availed of to secure Uy Tiam's Letter of Credit obtained in 1979 because a guaranty cannot exist without a valid obligation. It was further argued that they cannot be held liable for the obligation contracted in 1979 because they are not privies thereto as it was contracted without their participation. METROBANK filed its opposition to the motion to dismiss. Invoking the terms and conditions embodied in the comprehensive suretyships separately executed by sureties-defendants, the bank argued that sureties-movants bound themselves as solidary obligors of defendant Uy Tiam to both existing obligations and future ones. The RTC and the CA ruled in favor of MBTC and held the sureties solidarily liable. Issues Whether petitioners are liable as sureties for the 1979 obligations of Uy Tiam to METROBANK by virtue of the Continuing Suretyship Agreements they separately signed in 1977; and On the assumption that they are, what is the extent of their liabilities for said 1979 obligations. Held Yes, they are still liable. Under the Civil Code, a guaranty may be given to secure even future debts, the amount of which may not be known at the time the guaranty is executed. This is the basis for contracts denominated as a continuing guaranty or suretyship. A continuing guaranty is one which is not limited to a single transaction, but which contemplates a future course of dealing, covering a series of transactions, generally for an indefinite time or until revoked. It s prospective in its operation and is generally intended to provide security with respect to future transactions within certain limits, and contemplates a succession of liabilities, for which, as they accrue, the guarantor becomes liable. Otherwise stated, a continuing guaranty is one which covers all transactions, including those arising in the future, which are within the description or contemplation of the contract of guaranty, until the expiration or termination thereof. A guaranty shall be construed as continuing when by the terms thereof it is evident that the object is to give a standing credit to the principal debtor to be used from time to time either indefinitely or until a certain period, especially if the right to recall the guaranty is expressly reserved. Hence, where the contract of guaranty states that the same is to secure advances to be made "from time to time" the guaranty will be construed to be a continuing one. Paragraph IV of both agreements stipulate that: "VI. This is a continuing guaranty and shall remain in full force and effect until written notice shall have been received by the BANK that it has been revoked by the SURETY, but any such notice shall not release the SURETY from any liability as to any instruments, loans, advances or other obligations hereby guaranteed, which may be held by the BANK, or in which the BANK may have any interest at the time of the receipt of such notice. x x x The foregoing stipulations unequivocally reveal that the suretyship agreements in the case at bar are continuing in nature. Petitioners do not deny this; in fact, they candidly admitted it. Neither have they denied the fact that they had not revoked the suretyship agreements. Petitioners maintain, however, that their Continuing Suretyship Agreements cannot be made applicable to the 1979 obligation because the latter was not yet in existence when the agreements were executed in 1977; under Article 2052 of the Civil Code, a guaranty "cannot exist without a valid obligation." We cannot agree. First of all, the succeeding article provides that "[a] guaranty may also be given as security for future debts, the amount of which is not yet known." Secondly. Article 2052 speaks about a valid obligations, as distinguished from a void obligation, and not an existing or current obligation. This distinction is made clearer in the second paragraph of Article 2052 which reads: "Nevertheless, a guaranty may be constituted to guarantee the performance of a voidable or an unenforceable contract. It may also guarantee a natural obligation." By express mandate of the Continuing Suretyship Agreements which they had signed, petitioners separately bound themselves to pay interests, expenses, attorney's fees and costs. The last two items are pegged at not less than ten percent (10%) of the amount due.

Even without such stipulations, the petitioners would, nevertheless, be liable for the interest and judicial costs. Article 2055 of the Civil Code provides: "ARTICLE 2055. A guaranty is not presumed; it must be express and cannot extend to more than what is stipulated therein. The limit of the petitioners' respective liabilities must be determined from the suretyship agreement each had signed. It is undoubtedly true that the law looks upon the contract of suretyship with a jealous eye, and the rule is settled that the obligation of the surety cannot be extended by implication beyond its specified limits. To the extent, and in the manner, and under the circumstances pointed out in his obligation, he is bound, and no farther. Indeed, the Continuing Suretyship Agreements signed by petitioner Dio and petitioner Uy fix the aggregate amount of their liability, at any given time, at P800,000.00 and P300,000.00, respectively. The law is clear that a guarantor may bind himself for less, but not for more than the principal debtor, both as regards the amount and the onerous nature of the conditions.

JOSEPH COCHINGYAN, JR. and JOSE K. VILLANUEVA, petitioners, vs. R & B SURETY AND INSURANCE COMPANY, INC., respondent. FACTS: In November 1963, Pacific Agricultural Suppliers, Inc. (PAGRICO) was granted an increase in its line of credit from P400,000.00 to P800,000.00 (the "Principal Obligation"), with the Philippine National Bank (PNB). PAGRICO submitted Surety Bond No, issued by the respondent R & B Surety and Insurance Co., Inc. (R & B Surety") in the amount of P400,000.00 in favor of the PNB. In consideration of R & B Surety's issuance of the Surety Bond, two identical indemnity agreements were entered into with R & B Surety executed by the Catholic Church Mart (CCM) and by petitioner Joseph Cochingyan, Jr, and (b) another agreement dated 24 December 1963 was executed by PAGRICO. When PAGRICO failed to comply with its Principal Obligation to the PNB, the PNB demanded payment from R & B Surety of the sum of P400,000.00, the full amount of the Principal Obligation. R & B Surety made a series of payments to PNB by virtue of that demand totalling P70,000.00 evidenced by detailed vouchers and receipts. R & B Surety in turn sent formal demand letters to petitioners Joseph Cochingyan, Jr. and Jose K. Villanueva for reimbursement of the payments made by it to the PNB and for a discharge of its liability to the PNB under the Surety Bond. When petitioners failed to heed its demands, R & B Surety brought suit against Joseph Cochingyan, Jr., Jose K. Villanueva and Liu Tua Ben. ISSUES: Whether the Trust Agreement extended the term of the Surety Bond so as to release petitioners from their obligation as indemnitors thereof as they did not give their consent to the execution of the Trust Agreement; and HELD: The Indemnity Agreement speaks of the several indemnitors "apply[ing] jointly and severally (in solidum) to the R & B Surety] to become SURETY upon a SURETY BOND demanded by and in favor of [PNB] in the sum of [P400,000.00] for the faithful compliance of the terms and conditions set forth in said SURETY BOND ." This part of the Agreement suggests that the indemnitors (including the petitioners) would become co-sureties on the Security Bond in favor of PNB. The record, however, is bereft of any indication that the petitioners-indemnitors ever in fact became co-sureties of R & B Surety vis-a-vis the PNB. The petitioners, so far as the record goes, remained simply indemnitors bound to R & B Surety but not to PNB, such that PNB could not have directly demanded payment of the Principal Obligation from the petitioners. Thus, we do not see how Article 2079 of the Civil Code-which provides in part that "[a]n extension granted to the debtor by the creditor without the consent of the guarantor extinguishes the guaranty" could apply in the instant case. The petitioner-indemnitors are, as, it were, second-tier parties so far as the PNB was concerned and any extension of time granted by PNB to any of the first-tier obligators (PAGRICO, R &B Surety and the trustors[s]) could not prejudice the second-tier parties. The theory behind Article 2079 is that an extension of time given to the principal debtor by the creditor without the surety of his right to pay the creditor and to be immediately subrogate ed to the creditor's remedies against the principal debtor upon the original maturity date. The surety is said to be entitled to protect himself against the principal debtor upon the orginal maturity date. The surety is said to be entitled to protect himself against the contingency of the principal debtor or the indemnitors becoming insolvent during the extended period