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GSIS vs CA (170 SCRA) 23 February 1989
Mr. and Mrs. Isabelo R. Racho, together with the spouses Mr. and Mrs. Flaviano Lagasca, executed a deed of mortgage in favor of petitioner Government Service Insurance System and subsequently, another deed of mortgage in connection with two loans granted by the latter in the sums of P 11,500.00 and P 3,000.00, respectively. A parcel of land covered co-owned by said mortgagor spouses, was given as security under the aforesaid two deeds. They also executed a 'promissory note to be jointly, severally and solidarily liable.
The Lagasca spouses executed an instrument denominated "Assumption of Mortgage" under which they obligated themselves to assume the aforesaid obligation to the GSIS and to secure the release of the mortgage covering that portion of the land belonging to herein private respondents and which was mortgaged to the GSIS. 4 This undertaking was not fulfilled.
Upon failure of the mortgagors to comply with the conditions of the mortgage, particularly the payment of the amortizations due, GSIS extrajudicially foreclosed the mortgage and caused the mortgaged property to be sold at public auction.
Private respondents filed a complaint against the petitioner and the Lagasca spouses in the former Court of First Instance of Quezon City, praying that the extrajudicial foreclosure "made on, their property and all other documents executed in relation thereto in favor of the Government Service Insurance System" be declared null and void.
Private respondents alleged that they signed the mortgage contracts not as sureties or guarantors for the Lagasca spouses but they merely gave their common property to the said co-owners who were solely benefited by the loans from the GSIS.
The trial court dismiss the complaint for lack of cause of action but the Court of Appeals reversed the decision of the trial court.
Whether or not the promissory note and the mortgage deeds are negotiable instruments.
No, the executed documents are not negotiable.
In submitting their case to this Court, both parties relied on the provisions of Section 29 of Act No. 2031, otherwise known as the Negotiable Instruments Law, which provide that an accommodation party is one who has signed an instrument as maker, drawer, acceptor of indorser without receiving value therefor, but is held liable on the instrument to a holder for value although the latter knew him to be only an accommodation party.
This approach of both parties appears to be misdirected and their reliance misplaced. The promissory note hereinbefore quoted, as well as the mortgage deeds subject of this case, are clearly not negotiable instruments. These documents do not comply with the fourth requisite to be considered as such under Section 1 of Act No. 2031 because they are neither payable to order nor to bearer. The note is payable to a specified party, the GSIS. Absent the aforesaid requisite, the provisions of Act No. 2031 would not apply; governance shall be afforded, instead, by the provisions of the Civil Code and special laws on mortgages.
Therefore due to the lack of the essential requisites the promissory note and the deed of mortgage is not negotiable document of title.