GSIS V.

CA
170 SCRA 533
FACTS:
Two deeds of mortgages were issued by spouses Racho in favor of
GSIS as security for two loans obtained by them. They also
executed a promissory note. Due to the failure to comply
with the terms of the mortgage, the mortgages were
extrajudicially foreclosed. The foreclosure was being assailed
by the spouses as they alleged that the mortgage contracts were
signed not as guarantees or sureties but merely gave their
common property for the sole benefit of the other spouses. Both
sides of the case
used the provisions on accommodation parties in the Negotiable
Instruments Law.

The trial court dismissed the action but this was reversed by the
appellate court.

HELD:
Both parties rely on the Negotiable Instruments Law but this
is misplaced. The promissory note and the deeds of mortgage
are not negotiable instruments as they lack the fourth requisite
which is it must be payable to order or bearer.

GSIS vs Court of Appeals and Mr. & Mrs. Racho, GR No.

L-40824 February 23, 1989
Posted by Pius Morados on January 12, 2012
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(Negotiable Instruments payable to order or to bearer)
Facts: Spouses Racho together with Spouses Lagasca executed a deed of mortgage in
favor of GSIS in connection with 2 loans granted by the latter in the sums of p11,500.00
and p3,000.00, respectively. A parcel of land co-owned by the mortgagor spouses was
govern as security under the aforesaid deeds and executed a promissory note promising
to pay the said amounts to GSIS jointly, severally and solidarily.
The Lagasca spouses executed an instrument obligating themselves in the assumption
of the aforesaid obligation and to secure the release of the mortgage.
Failing to comply with the conditions of the mortgage, GSIS extrajudicially foreclosed the
mortgage and caused the property to be sold at public auction.
More than 2 years after, Spouses Racho filed a complaint against GSIS and Spouses
Lagasca praying that the extrajudicial foreclosure be declared null and void. They allege
that they signed the mortgage contracts not as sureties for the Lagasca spouses but
merely as accommodation party
Issue: WON the promissory note and mortgage deeds are negotiable.
Held: No. Section 29 of the NIL provides that an accommodation party is one who has
signed an instrument as maker, drawer, acceptor of indorser without receiving value
therefore, but is held liable on the instrument to a holder for value although the latter
knew him to be only an accommodation party.
Both parties appears to be misdirected and their reliance misplaced. The promissory
note, as well as the mortgage deeds subject of this case, are clearly not negotiable
instrument because it did not comply with the fourth requisite to be considered as such
under Sec. 1 of the NIL they are neither payable to order nor to bearer. The note is
payable to a specified party, the GSIS.