GSIS vs CA, et al., G. R. No.
L-40824, 23 February 1989, 170 SCRA 533
FACTS: Mr. and Mrs. Isabelo R. Racho, together with the spouses Mr. and Mrs Flaviano Lagasca,
executed a deed of mortgage in favor of GSIS in connection with two loans granted by GSIS in the sums
of P11,500 and P3,000 as evidenced by a promissory note.
Lagasca spouses executed an instrument denominated "Assumption of Mortgage" under which they
obligated themselves to assume the obligation to the GSIS and to secure the release of the mortgage
covering that portion of the land belonging to spouses Racho and which was mortgaged to the GSIS.
Upon their failure 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.
More than 2 years after, Spouses Racho filed a complaint against GSIS and spouses Lagasaca before the
CFI praying that the extrajudicial foreclosure be declared null and void. They 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.
CFI dismissed the complaint for failure to establish cause of action. Decision was reversed by the CA.
Hence, this petition.
ISSUE: Whether or not the subject promissory note and mortgage of deeds are negotiable instruments
HELD: No. The promissory note and the mortgage deeds subject of this case are 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 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.
CA erred in annulling the mortgage insofar as it affected the share of spouses Racho or in directing
reconveyance of their property or the payment of the value thereof Indubitably, whether or not private
respondents herein benefited from the loan, the mortgage and the extrajudicial foreclosure proceedings
were valid.
