Case: GSIS vs.

CA

Facts:

Spouses Racho and Spouses Lagasca were co-owners of a particular piece of property, which became
the subject of a two (2) deeds of mortgage to the Government Service Insurance System (GSIS). In
addition to that, they also executed a promissory note which stated (quote)

". . . for value received, we the undersigned . . . JOINTLY, SEVERALLY and SOLIDARILY, promise to
pay the
GOVERNMENT SERVICE INSURANCE SYSTEM the sum of . . . (P11,500.00) Philippine Currency,
with interest at the
rate of six (6%) per centum compounded monthly payable in . . .(120) equal monthly
installments of . . . (P127.65) each."

After this, the Lagasca spouses executed an Assumption of Mortgage wherein they stated that they
were assuming the obligation in order to release that portion of the property which belonged to the co-
owners, the Rachos. It appears that the mortgage and loan itself were intended entirely for the benefit
of the Lagascas, and that the Rachos merely signed on as well as a form of accommodation and because
the GSIS required it as well. (In short, the Lagasca were really the ones loaning, they just needed Rachos
to agree. They intended to release the Rachos share after the mortgage was executed. Unfortunately,
they ended up failing to pay so the whole property including the Rachos aliquot share was foreclosed).

Upon the failure of the parties to meet their obligations, the property was extra judicially foreclosed.
Two years after, the Rachos moved to have the mortgage declared null and void.

Issue:

1) Whether the fact that the mortgage was only for the benefit of the Lagascas and not Rachos,
notwithstanding both signed as assuming the obligation jointly and severally, affected the
validity of the mortgage.

Negotiable Instruments Issue: <-The Only Important Thing in this whole case.

2) Was the Promissory note a negotiable instrument?

Ruling:

1) No. The mortgage is still valid because the Civil Code (Art 2085) allows a third party to a principal
obligation to secure the later by pledging his or her own property. The important thing is that
valid consent was given. Hence, the extrajudicial foreclosure was not reversed.

2) The Promissory note is clearly not a negotiable instrument. It lacks the fourth (4 th) requisite
under Section 1 of the NIL to be a negotiable instrument, in that it is made neither to order nor
to bearer. Instead, it is issued to a specific party (the GSIS). Hence, it is not governed by the
Negotiable Instruments Law, but by the relevant provision in the Civil Code and Special Laws on
Mortages. (In short, a negotiable note must ALWAYS be made either pay to order, or to
bearer).