Case Summary (G.R. No. 179382)
Petitioner
Pacionaria C. Baylon denied guaranteeing payment and asserted that the P150,000 was an investment in Art Enterprises & Construction, Inc., not a loan; alternatively, she invoked the benefit of excussion and contended she was released by an alleged extension of maturity without her consent.
Respondent (Private Respondent / Creditor)
Leonila Tomacruz asserted she lent P150,000 to Luanzon at a 5% monthly return, received a promissory note (Exhibit A) dated June 22, 1987 promising payment on or before August 22, 1987, postdated checks (Exhibit B and later replacement), and periodic P7,500 checks as payments.
Key Dates and Documents
June 22, 1987: Promissory note (Exhibit A) promising payment on or before August 22, 1987; petitioner’s signature under “GUARANTOR.”
August 22, 1987: Original postdated Solidbank check (Exhibit B) dated for this maturity; later replaced by postdated check dated December 22, 1987.
July–December 1987: Several P7,500 checks issued by Luanzon and paid to private respondent.
May 8, 1989: Complaint for collection filed in RTC, Quezon City, Branch 88.
June 14, 1990: RTC Decision in favor of private respondent.
November 29, 1991: Court of Appeals affirmed RTC.
April 27, 1993: CA denied petitioner’s motion for reconsideration.
Applicable Law
Constitutional framework: 1987 Philippine Constitution (applicable given the decision occurred after 1990).
Procedural and substantive authorities invoked by the courts: Rule 45 of the Revised Rules of Court (certiorari review), Civil Code provisions governing contracts and guaranty (notably Arts. 1370, 2058, 2059, 2062), and cited jurisprudence interpreting contractual interpretation and guarantor liability.
Facts — Nature of the Transaction and Instruments
Petitioner introduced Luanzon to private respondent and encouraged lending money at 5% monthly. Private respondent gave P150,000 to Luanzon; Luanzon executed a promissory note promising payment on or before August 22, 1987 (Exhibit A) and issued a postdated check for that date (later replaced by a December 22, 1987 check). Petitioner’s signature appears beneath the word “GUARANTOR” on the promissory note. Periodic P7,500 checks were issued and received by private respondent for several months thereafter.
Procedural History
Private respondent sued for collection (RTC, May 8, 1989). Summons was not shown to have been served on Luanzon. RTC, after trial, held the transaction to be a loan and rendered judgment against petitioner and her husband for P150,000 plus interest, attorney’s fees and costs (June 14, 1990). The Court of Appeals affirmed that decision on November 29, 1991 and denied reconsideration on April 27, 1993. Petitioner sought review by certiorari under Rule 45 in the Supreme Court.
Issues Presented to the Supreme Court
- Whether the transaction constituted a loan (creditor-debtor) or an investment.
- Whether petitioner, as alleged guarantor, could be compelled to pay without the creditor first exhausting the property of the principal debtor (benefit of excussion).
- Whether petitioner was released from guaranty by a subsequent extension of the maturity date without her consent.
Trial Court and Court of Appeals Findings (as affirmed below)
The RTC found, based on the promissory note’s terms and concomitant issuance of postdated checks and the nature of payments, that the transaction was a loan: private respondent was a creditor, not an investor. The court also relied on testimonial evidence including petitioner’s unequivocal assurance or guarantee of payment. The CA affirmed those factual findings.
Supreme Court’s Approach to Factual Findings
The Supreme Court reiterated the well-settled principle that factual determinations of the trial court, especially when affirmed by the Court of Appeals, are final and binding except in well-defined exceptions. The Court found no exception applicable here and concluded the lower courts’ factual findings were supported by substantial evidence.
Contract Interpretation and Characterization of the Transaction
The Supreme Court emphasized that where contractual terms are clear and unambiguous, the literal meaning controls (Civil Code Art. 1370 and cited jurisprudence). The promissory note plainly promised to pay P150,000 by a specified date; both parties acknowledged the authenticity of the note. Extrinsic evidence suggesting terms like “investment,” “dividends,” or “commission,” and the existence of periodic P7,500 checks, could not alter the clear instrumentary terms establishing a loan. Consequently, the Court upheld the characterization of a creditor-debtor relationship.
Guarantor Liability and the Benefit of Excussion
The Court analyzed petitioner’s invocation of the benefit of excussion under Civil Code Art. 2058 (guarantor cannot be compelled to pay unless creditor has exhausted all property of the debtor and resorted to all legal remedies against the debtor). The principle entails that guarantor liability is subsidiary; the creditor must first obtain judgment against the principal debtor and seek satisfaction from the principal’s assets before pursuing the guarantor.
Jurisdictional and Procedural Prerequisite Affecting Guarantor Liability
Crucially, the Supreme Court noted the lack of evidence that summons was ever served on the principal debtor, Luanzon. Without service, the trial court did not acquire jurisdiction over Luanzon, and no judgment was obtained against the principal debtor. The Court held it is premature and improper to hold a guarantor liable when
Case Syllabus (G.R. No. 179382)
Procedural History
- Petition for review by certiorari under Rule 45 filed in the Supreme Court (G.R. No. 109941).
- Decision of the Court of Appeals (Ninth Division) dated November 29, 1991 in CA-G.R. CV No. 27779 affirmed the Regional Trial Court decision; petitioner moved for reconsideration which was denied by Resolution dated April 27, 1993.
- The trial court (Regional Trial Court of Quezon City, Branch 88) rendered its Decision in Civil Case No. Q-89-2483 on June 14, 1990 (penned by Judge Tirso D.C. Velasco).
- The Supreme Court, through Justice Gonzaga-Reyes, resolved the petition on August 17, 1999.
- The Supreme Court granted the petition, set aside the Court of Appeals Decision dated November 29, 1991 and the April 27, 1993 Resolution, and made no pronouncement as to costs.
- Concurrence in the Supreme Court decision by Melo (Chairman), Vitug, Panganiban, and Purisima, JJ.
- Court of Appeals Ninth Division composition cited: Associate Justices Serafin V.C. Guingona (ponente), Luis A. Javellana and Jorge S. Imperial.
Parties and Roles
- Petitioner: Pacionaria C. Baylon.
- Private respondent / plaintiff below: Leonila Tomacruz.
- Other parties impleaded below: Rosita B. Luanzon (principal debtor), Mariano Baylon (husband of petitioner; additional defendant).
- Respondent court: Court of Appeals (former Ninth Division).
Facts as Found by Trial Court and Affirmed by the Court of Appeals
- In 1986 petitioner Pacionaria C. Baylon introduced Leonila Tomacruz to Rosita B. Luanzon, stating Luanzon had been engaged as a contractor for twenty years and inviting Tomacruz to lend Luanzon money at 5% monthly interest as capital for Luanzon's business.
- Persuaded by petitioner’s assurances of business stability and the high monthly interest, private respondent agreed to lend Luanzon P150,000.
- On June 22, 1987 Luanzon issued and signed a promissory note acknowledging receipt of P150,000 from Tomacruz, obliging herself to pay the amount on or before August 22, 1987 (Exhibit A).
- Petitioner signed the promissory note under the word “guarantor.”
- Luanzon issued a postdated Solidbank check no. CA418437 dated August 22, 1987 payable to Tomacruz for P150,000 (Exhibit B).
- Luanzon later replaced that check with postdated Solidbank check no. 432945 dated December 22, 1987 for the same payee and amount (Exhibit 15).
- Several checks in the amount of P7,500 each were issued by Luanzon and made payable to Tomacruz (Exhibits E, F, G, H, I, J, and K).
- Tomacruz made written demand upon petitioner for payment; petitioner did not pay.
- On May 8, 1989 Tomacruz filed a complaint for collection of sum of money in the RTC against Luanzon and petitioner, impleading Mariano Baylon as additional defendant.
- Summons was never served upon Luanzon; there is nothing in the record showing service of summons upon the principal debtor.
Trial Court Findings and Judgment
- The RTC found the transaction to be a loan bearing 5% monthly interest and not an investment.
- RTC relied on admission that no stock certificates were given and the existence of promissory notes (Exhibit B) and postdated checks as evidence of creditor status rather than participant/investor status.
- Trial court emphasized the assurance of monthly income of 5% and petitioner’s unequivocal guarantee to payment.
- Judgment rendered against Pacionaria C. Baylon and Mariano Baylon to pay Tomacruz the sum of P150,000 with interest at the legal rate from filing of complaint until full payment, plus attorney’s fees of P21,000 and costs of suit.
Assignments of Error by Petitioner
- Trial and appellate courts erred in holding Tomacruz a creditor of Luanzon and not an investor in Art Enterprises & Construction, Inc.
- Even if petitioner was a guarantor under Exhibit A, the courts erred in ruling petitioner liable because Tomacruz had not exhausted the property of the principal debtor nor resorted to all legal remedies against Luanzon.
- Even if petitioner was a guarantor under the June 22, 1987 note, the lower court erred in resolving that petitioner was not released from her guaranty by subsequent transactions between Tomacruz and Luanzon.
Supreme Court’s Evaluation of Factual Findings
- Petitioner’s allegation that trial court findings were based on misapprehension of facts and contradicted by the record was characterized as a bare allegation devoid of merit.
- The Supreme Court reiterated the rule that trial court factual conclusions, especially when affirmed by the Court of Appeals, are final and conclusive and generally not reviewable by the Supreme Court; identified cited authorities (Fortune Motors Phils. Corp. vs. Court of Appeals; Meneses vs. Court of Appeals; Tan Chun Suy vs. Court of Appeals).
- The Court noted exceptions to the rule of finality exist but none applied in the present case; cited example authorities concerning exceptions (Commissioner of Internal Revenue vs. Embroidery and Garments Industri