Government Service Insurance System v.

CA
G.R. No. 40824
February 23, 1989
When Instrument is Payable to Order
FACTS: Respondents Spouses Racho together with Spouses
Lagasca executed 2 deeds of mortgage on November 13, 1957
and April 14, 1958 respectively, in favor of petitioner Government
Service Insurance System (GSIS). At the same time, they gave a
parcel of land as security covered by a TCT and executed a
promissory note. Lasagca Spouses executed an instrument,
Assumption of Mortgage wherein they obligated to assume the
aforesaid obligation to the GSIS and to secure the release of the
mortgage covering the land owned by private respondent which
was mortgaged to the GSISall of which was not fulfilled.
Respondent failed to comply with the conditions of the mortgage,
particularly the amortizations, that led GSIS extrajudicially
foreclose the mortgage and sell the same though public auction.
After two years, respondents filed a complaint against petitioner
and the Lagasca spouses praying that the extrajudicial foreclosure
made on their property be declared null and void and to be able to
recover the property and/or GSIS to pay them the value and/or be
allowed to repurchase the land. They also ask for moral damages
and attorneys fees.
ISSUE/S: Whether or not the extrajudicial foreclosure made by
GSIS was null and void.

HELD: Both parties relied on Section 29 of the Negotiable

Instruments Law that provides an accommodation party is one
who has signed an instrument as maker, drawer, acceptor of
indoors 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. The promissory note as well as the
mortgage deeds are not negotiable instruments since they do not
comply with the fourth requisite (Section 1)neither one are
payable to order nor to bearer. Said note is payable to a specified
party, GSIS. Respondents signed the documents only to give their
consent to the mortgage with GSIS having full knowledge that
loans are secured solely for the benefit of the Lagasca spouses.
There is no information that the respondents executed the
instruments for a consideration, confirming that they did such to
their original agreement. The parol evidence rule cannot be used
by the petitioner for it is clear that there was no objection in the
court below regarding the admissibility of the testimony and
documents presented to prove that private respondents signed
the mortgage papers to accommodate their co-owners, the
respondents. However, contrary to the respondent court, it cannot
be said that respondents are without liability under the mortgage
contracts. Under Art. 2085, the effect that third persons who are
not parties to the principal obligation may secure the latter by
pledging or mortgaging their own property.