Star Two (SPV-AMC), Inc. vs. Ko

A surety's obligation is extinguished when payments made by or debited from the surety's accounts exceed the limited liability cap provided in the surety agreement, and evidence not formally offered may still be considered if it has been identified by testimony duly recorded and incorporated in the records of the case.

Jianshe Motorcycle Industries Philippines Corporation obtained credit facilities from Rizal Commercial Banking Corporation (RCBC) to finance its importation of goods, securing these with trust receipts. To secure payment of all existing and future obligations of Jianshe to RCBC, respondents Howard Ko, Jimmy Ong, Min Min See Ko, and Grace Ng Ong executed a Comprehensive Surety Agreement dated September 3, 2002, with a limited liability of ₱50 million. RCBC later sold, transferred, and assigned all its rights and interests in the case to petitioner Star Two (SPV-AMC), Inc.

Jianshe Motorcycle Industries Philippines Corporation obtained various credit facilities from Rizal Commercial Banking Corporation (RCBC) from 2003 to 2004 to finance its importation of motorcycles and related goods. RCBC required Jianshe to execute trust receipts over the imported goods as security. To secure payment of all existing and future obligations of Jianshe to RCBC, respondents Howard Ko, Jimmy Ong, Min Min See Ko, and Grace Ng Ong executed a Comprehensive Surety Agreement dated September 3, 2002, capping their liability at ₱50 million.

When Jianshe failed to pay its obligations despite demand, RCBC filed a complaint for specific performance with a prayer for a writ of preliminary attachment against Jianshe and the respondents before the RTC of Makati City on December 27, 2005. The RTC issued the writ of preliminary attachment on January 11, 2006. Respondents Howard Ko and Min Min See Ko moved to discharge the attachment, while Howard Ko later filed a motion to dismiss on the ground that the claim had been paid, waived, abandoned, or extinguished. The RTC partially granted the motion by discharging the attachment but initially denied the dismissal.

After a motion for reconsideration and a motion to set the case for hearing were filed, the RTC conducted a hearing to receive respondents' evidence, which the petitioner failed to attend. On December 13, 2006, the RTC dismissed the case against the respondents, finding sufficient evidence that Howard Ko had paid an amount exceeding the ₱50 million cap under the Comprehensive Surety Agreement. RCBC's motion for partial reconsideration was denied, although the RTC allowed the substitution of RCBC by petitioner Star Two (SPV-AMC), Inc. as the assignee of RCBC's rights.

Petitioner elevated the matter to the Court of Appeals via a petition for certiorari under Rule 65, arguing that the trial court improperly relied on unoffered documentary evidence and that the payments did not exceed the ₱50 million cap. The Court of Appeals denied the petition and the subsequent motion for reconsideration, prompting petitioner to file the present petition for review on certiorari under Rule 45.

• Admissibility of Evidence: Petitioner argued that the trial court arbitrarily and whimsically considered and relied on documents that were not duly identified by testimony or formally offered in evidence.
• Failure to Exceed Liability Cap: Petitioner maintained that it had not been established that respondent Howard Ko, as surety, had paid amounts over the ₱50 million cap under the Comprehensive Surety Agreement.
• Insufficient Total Payments: Petitioner argued that the supposed payments of Howard Ko, as stated in the trial court's decision, only amounted to ₱46,539,134.42, which is still below the ₱50 million cap.
• Incredible Claim of Overpayment: Petitioner further argued that Howard Ko's claim of overpayment was incredible because he would not have paid the alleged amount of ₱89,656,002.67 as surety when his liability was only ₱50 million.

• Admissibility of Evidence: Whether the trial court erred in admitting and considering documentary evidence that was not formally offered in evidence.
• Extinguishment of Surety's Obligation: Whether the respondents' obligation as sureties was extinguished by payment exceeding the ₱50 million liability cap under the Comprehensive Surety Agreement.

• Admissibility of Evidence: No. The trial court correctly admitted and considered the evidence because, while not formally offered, the documents were identified by testimony duly recorded and incorporated in the records of the case.
• Extinguishment of Surety's Obligation: Yes. The claim against the respondents was properly dismissed because the payments made by or debited from Howard Ko's accounts exceeded the ₱50 million liability cap, thereby extinguishing the surety obligation.

• Admissibility of Evidence: The general rule is that courts cannot consider evidence which has not been formally offered, as parties must inform the courts of the purpose of their exhibits. However, an exception exists when the evidence has been identified by testimony duly recorded and incorporated in the records of the case. Here, the evidence was presented in support of respondents' motion for reconsideration. A hearing was set for the reception of evidence, which petitioner failed to attend. The pieces of evidence were identified, marked, and incorporated into the records, thus falling under the exception and justifying their admission.
• Extinguishment of Surety's Obligation: A contract of suretyship is an accessory contract where the surety becomes directly and equally bound with the principal. Pursuant to Article 2054 of the Civil Code, a surety may bind himself for less, but not for more than the principal debtor. Respondents limited their liability to ₱50 million. Howard Ko made payments through four modes: certificates of time deposit applied to Jianshe's obligation, debits from his current and savings accounts, deposits of matured CTDs into Jianshe's account which were then debited, and proceeds of CTDs borrowed from third parties. These payments were supported by RCBC documents like official receipts and trust debit advices. Petitioner failed to specify a "different credit line" to which these payments should be attributed, and even if attributed to other trust receipts, the payments still exceeded the ₱50 million cap. The fact that receipts were issued in Jianshe's name did not negate that the amounts were debited from Howard Ko's accounts to satisfy his surety obligation. Thus, the claim was paid or extinguished.

• Exception to the Formal Offer of Evidence Rule — Evidence not formally offered may still be considered if it has been identified by testimony duly recorded and incorporated in the records of the case. The Court applied this exception because the respondents' documentary evidence was identified, marked, and incorporated into the records during a hearing that the petitioner failed to attend.
• Limited Liability of a Surety — Pursuant to Article 2054 of the Civil Code, a guarantor or surety may bind himself for less, but not for more than the principal debtor, both as to the amount and the onerous nature of the conditions. The Court applied this by recognizing the respondents' ₱50 million liability cap, which was exceeded by the payments made and debited from their accounts, thereby extinguishing their obligation.

• "This rule, however, admits of an exception, provided that the evidence has been identified by testimony duly recorded and that it has been incorporated in the records of the case." — This passage defines the recognized exception to the requirement of a formal offer of evidence, allowing courts to consider documents that meet these specific conditions.
• "Pursuant to Article 2054 of the Civil Code that 'a guarantor [or surety] 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,' respondents limited their liability to ₱50 M, which is less than Jianshe’s liability to RCBC." — This articulates the statutory basis for capping a surety's liability and explains why the sureties' obligation was extinguished once payments exceeded the stipulated amount.

• Heirs of Roque F. Tabuena vs. Land Bank of the Philippines, G.R. No. 180557 — Cited to support the general rule that courts cannot consider evidence not formally offered and the exception when evidence is identified by testimony and incorporated in the records.
• Ramos vs. Dizon, G.R. No. 137247 — Cited alongside Tabuena to reinforce the exception to the formal offer of evidence rule.
• Intra-Strata Assurance Corporation vs. Republic, G.R. No. 156571 — Cited to define the nature of a contract of suretyship as an accessory contract where the surety is directly, primarily, and equally bound with the principal.

• Article 2054, Civil Code — Provides that a guarantor or surety may bind himself for less, but not for more than the principal debtor. Applied to uphold the respondents' limited liability of ₱50 million under the Comprehensive Surety Agreement, which was exceeded by the payments made.

Antonio T. Carpio (Chairperson), Diosdado M. Peralta, Lucas P. Bersamin, Roberto A. Abad.