VOL.

170, 533 regarding the failure of the mortgage contracts to express the true
FEBRUARY 23, 1989 agreement of the parties.
Civil Law; Obligations and Contracts; Mortgage
Government Service Contracts; The fact that the loans were contracted solely for the
Insurance System vs. Court benefit of the Lagasca spouses would not invalidate the mortgage
of Appeals with respect to private respondent’s share in the mortgaged
G.R. No. 40824. February 23, 1989. * property, the latter having given a
________________
GOVERNMENT SERVICE INSURANCE SYSTEM,
petitioner, vs. COURT OF APPEALS and MR. & MRS. *
 SECOND DIVISION.
ISABELO R. RACHO, respondents.
534
Mercantile Law; Negotiable Instruments; Promissory
Note; The promissory note and the mortgage deeds in question are 534 SUPREME
not negotiable instruments because they are neither payable to order COURT REPORTS
nor to bearer.—This approach of both parties appears to be ANNOTATED
misdirected and their reliance misplaced. The promissory note Government Service
hereinbefore quoted, as well as the mortgage deeds subject of this
case, are clearly not negotiable intruments. These documents do not Insurance System vs. Court
comply with the fourth requisite to be considered as such under of Appeals
Section 1 of Act No. 2031 because they are neither payable to order valid consent to such mortgage.—However, contrary to the
nor to bearer. The note is payable to a specified party, the GSIS. holding of the respondent court, it cannot be said that private
Absent the aforesaid requisite, the provisions of Act No. 2031 would respondents are without liability under the aforesaid mortgage
not apply; governance shall be afforded, instead, by the provisions of contracts. The factual context of this case is precisely what is
the Civil Code and special laws on mortgages. contemplated in the last paragraph of Article 2085 of the Civil Code
Remedial Law; Evidence; Parol Evidence Rule; The to the effect that third persons who are not parties to the principal
introduction of the evidence in question falls under the exception to obligation may secure the latter by pledging or mortgaging their own
the parol evidence rule since the complaint filed in the lower court property. So long as valid consent was given, the fact that the loans
alleges the failure of the mortgage contracts to express the true were solely for the benefit of the Lagasca spouses would not
agreement of the parties.—The parol evidence rule cannot be used by invalidate the mortgage with respect to private respondents’ share in
petitioner as a shield in this case for it is clear that there was no the property. In consenting thereto, even assuming that private
objection in the court below regarding the admissibility of the respondents may not be assuming personal liability for the debt, their
testimony and documents that were presented to prove that the share in the property shall nevertheless secure and respond for the
private respondents signed the mortgage papers just to accommodate performance of the principal obligation. The parties to the mortgage
their co-owners, the Lagasca spouses. Besides, the introduction of could not have intended that the same would apply only to the
such evidence falls under the exception to said rule, there being aliquot portion of the Lagasca spouses in the property, otherwise the
allegations in the complaint of private respondents in the court below consent of the private respondents would not have been required.

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 Remedial Law; Extra-Judicial Foreclosure of petitioner Government Service Insurance System (hereinafter
Mortgage; Notice; Act No. 3135 does not require personal notice on referred to as GSIS) and subsequently, another deed of
the mortgagor of the extrajudicial foreclosure sale.—Coming now to mortagage, dated April 14, 1958, in connection with two loans
the extrajudicial foreclosure effected by GSIS, We cannot agree with granted by the latter in the sums of P11,500.00 and P3,000.00,
the ruling of respondent court that lack of notice to the private respectively.  A parcel of land covered by Transfer Certificate
1

respondents of the extrajudicial foreclosure sale impairs the validity

of Title No. 38989 of the Register of Deed of Quezon City, co-
thereof. In Bonnevie, et al. vs Court of Appeals, et al., the Court
ruled that Act No. 3135, as amended, does not require personal owned by said mortgagor spouses, was given as security under
notice on the mortgagor, quoting the requirement on notice in such the aforesaid two deeds.  They also executed a “promissory
2

cases as follows: “Section 3. Notice shall be given by posting notices note” which states in part:
of sale for not less than twenty days in at least three public places of “x x x for value received, we the undersigned . . . JOINTLY,
the municipality where the property is situated, and if such property SEVERALLY and SOLIDARILY, promise to pay the
is worth more than four hundred pesos, such notice shall also be GOVERNMENT SERVICE INSURANCE SYSTEM the sum of . . .
published once a week for at least three consecutive weeks in a (P11,500.00) Philippine Currency, with interest at the rate of six
newspaper of general circulation in the municipality or city.” There (6%) per centum compounded monthly payable in . . . (120) equal
is no showing that the foregoing requirement on notice was not monthly installments of . . .(P127.65) each.” 3

complied with in the foreclosure sale complained of.

On July 11, 1961, the Lagasca spouses executed an instrument
PETITION to review the judgment of the Court of Appeals. denominated “Assumption of Mortgage” under which they
obligated themselves to assume the aforesaid obligation to the
The facts are stated in the opinion of the Court. GSIS and to secure the release of the mortgage covering that
     The Government Corporate Counsel for petitioner. portion of the land belonging to herein private respondents and
     Lorenzo A. Sales for private respondents. which was mortgaged to the GSIS.  This undertaking was not
4

535 fulfilled. 5

VOL. 170, 535 Upon failure of the mortgagors to comply with the
FEBRUARY 23, 1989 conditions of the mortgage, particularly the payment of the
Government Service amortizations due, GSIS extrajudicially foreclosed the
mortgage and caused the mortgaged property to be sold at
Insurance System vs. Court
public auction on Decem-
of Appeals _______________

REGALADO, J.: 1
 Record on Appeal, 9, 22; Rollo, 54.
2
 Rollo, 58.
Private respondents, Mr. and Mrs. Isabelo R. Racho, together
3
 Ibid., 26.
4
 Record on Appeal, 27-31; Rollo, 54.
with the spouses Mr. and Mrs Flaviano Lagasca, executed a 5
 Rollo, 59.
deed of mortgage, dated November 13, 1957, in favor of

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 536 thereby were solely for the benefit of the appellant (sic) spouses who
536 SUPREME COURT alone applied for the loan.”
REPORTS xxxx
ANNOTATED “It is, therefore, clear that as against the GSIS, appellants have a
valid cause for having foreclosed the mortgage without having given
Government Service sufficient notice to them as required either as to their delin-
Insurance System vs. Court _______________
of Appeals 6
 Ibid., id.; Record on Appeal, 64.
ber 3, 1962. 6
7
 Branch IV, Civil Case No. Q-9418; Record on Appeal, 1-38; Rollo, 54.
More than two years thereafter, or on August 23, 1965, 8
 Record on Appeal, 69-73; ibid.
herein private respondents filed a complaint against the
9
 CA-G.R. No. 42193-R; Justice Pacifico P. de Castro, ponente, Justices Luis B.
Reyes and Ramon G. Gaviola, Jr., concurring.
petitioner and the Lagasca spouses in the former Court of First
Instance of Quezon City,  praying that the extrajudicial
7 537
foreclosure “made on their property and all other documents VOL. 170, 537
executed in relation thereto in favor of the Government Service FEBRUARY 23, 1989
Insurance System” be declared null and void. It was further Government Service
prayed that they be allowed to recover said property, and/or the Insurance System vs. Court
GSIS be ordered to pay them the value thereof, and/or they be of Appeals
allowed to repurchase the land. Additionally, they asked for guency in the payment of amortization or as to the subsequent
actual and moral damages and attorney’s fees. foreclosure of the mortgage by reason of any default in such
In their aforesaid complaint, private respondents alleged payment. The notice published in the newspaper, ‘Daily Record’
that they signed the mortgage contracts not as sureties or (Exh. 12) and posted pursuant to Sec. 3 of Act 3135 is not the notice
guarantors for the Lagasca spouses but they merely gave their to which the mortgagor is entitled upon the application being made
common property to the said co-owners who were solely for an extrajudicial foreclosure. x x x” 10

benefited by the loans from the GSIS.

On the foregoing findings, the respondent court consequently
The trial court rendered judgment on February 25, 1968
decreed that—
dismissing the complaint for failure to establish a cause of “In view of all the foregoing, the judgment appealed from is hereby
action.8
reversed, and another one entered (1) declaring the foreclosure of the
Said decision was reversed by the respondent Court of mortgage void insofar as it affects the share of the appellants; (2)
Appeals  which held that:
9
directing the GSIS to reconvey to appellants their share of the
“x x x although formally they are co-mortgagors, they are so only for mortgaged property, or the value thereof if already sold to third
accomodation (sic) in that the GSIS required their consent to the party, in the sum of P35,000.00, and (3) ordering the appellees
mortgage of the entire parcel of land which was covered with only Flaviano Lagasca and Esther Lagasca to pay the appellants the sum
one certificate of title, with full knowledge that the loans secured

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of P10,00.00 as moral damages, P5,000.00 as attorney’s fees, and As earlier indicated, the factual findings of respondent court
costs.” 11
are that private respondents signed the documents “only to give
The case is now before Us in this petition for review. their consent to the mortgage as required by GSIS”, with the
In submitting their case to this Court, both parties relied on latter having full knowledge that the loans secured thereby
the provisions of Section 29 of Act No. 2031, otherwise known were solely for the benefit of the Lagasca spouses.  This 12

as the Negotiable Instruments Law, which provide that an appears to be duly supported by sufficient evidence on record.
accommodation party is one who has signed an instrument as Indeed, it would be unusual for the GSIS to arrange for and
maker, drawer, acceptor of indorser without receiving value deduct the monthly amortizations on the loans from the salary
therefor, but is held liable on the instrument to a holder for as an army officer of Flaviano Lagasca without likewise
value although the latter knew him to be only an affecting deductions from the salary of Isabelo Racho who was
accommodation party. also an army sergeant. Then there is also the undisputed fact, as
This approach of both parties appears to be misdirected and already stated, that the Lagasca spouses executed a so-called
their reliance misplaced. The promissory note hereinbefore “Assumption of Mortgage” promising to exclude private
quoted, as well as the mortgage deeds subject of this case, are respondents and their share of the mortgaged property from
clearly not negotiable instruments. These documents do not liability to the mortgagee. There is no intimation that the
comply with the fourth requisite to be considered as such under former executed such instrument for a consideration, thus
Section 1 of Act No. 2031 because they are neither payable to confirming that they did so pursuant to their original
order nor to bearer. The note is payable to a specified party, the agreement.
GSIS. Absent the aforesaid requisite, the provi- The parol evidence rule  cannot be used by petitioner as a
13

_______________ shield in this case for it is clear that there was no objection in
the court below regarding the admissibility of the testimony
 Rollo, 61-63.
10
and documents that were presented to prove that the private
 Ibid., 66.
11
respondents signed the mortgage papers just to accommodate
538 their co-owners, the Lagasca spouses. Besides, the introduction
538 SUPREME COURT of such evidence falls under the exception to said rule, there
REPORTS being allegations in the complaint of private respondents in the
ANNOTATED court below regarding the failure of the mortgage contracts to
express the true agreement of the parties.14

Government Service
However, contrary to the holding of the respondent court, it
Insurance System vs. Court cannot be said that private respondents are without liability
of Appeals under the aforesaid mortgage contracts. The factual context of
sions of Act No. 2031 would not apply; governance shall be _______________
afforded, instead, by the provisions of the Civil Code and
special laws on mortgages. 12
 Ibid., 61.

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  Sec. 7, Rule 130, Rules of Court.
13
vs. Court of Appeals, et al.,  the Court ruled that Act No. 3135,
15

 Record on Appeal, 3-4; Rollo, 54.

14

as amended, does not require personal notice on the mortgagor,

539 quoting the requirement on notice in such cases as follows:
VOL. 170, 539 “Section 3. Notice shall be given by posting notices of sale for not
FEBRUARY 23, 1989 less than twenty days in at least three public places of the
municipality where the property is situated, and if such property is
Government Service worth more than four hundred pesos, such notice shall also be
Insurance System vs. Court published once a week for at least three consecutive weeks in a
of Appeals newspaper of general circulation in the municipality or city.”
this case is precisely what is contemplated in the last paragraph ________________
of Article 2085 of the Civil Code to the effect that third persons
who are not parties to the principal obligation may secure the 15
 125 SCRA 122 (1983).
latter by pledging or mortgaging their own property.
540
So long as valid consent was given, the fact that the loans
54 SUPREME COURT
were solely for the benefit of the Lagasca spouses would not
invalidate the mortgage with respect to private respondents’ 0 REPORTS
share in the property. In consenting thereto, even assuming that ANNOTATED
private respondents may not be assuming personal liability for Joseph vs. Bautista
the debt, their share in the property shall nevertheless secure There is no showing that the foregoing requirement on
and respond for the performance of the principal obligation. noticewas not complied with in the foreclosure sale complained
The parties to the mortgage could not have intended that the of.
same would apply only to the aliquot portion of the Lagasca The respondent court, therefore, erred in annulling the
spouses in the property, otherwise the consent of the private mortgage insofar as it affected the share of private respondents
respondents would not have been required. or in directing reconveyance of their property or the payment
The supposed requirement of prior demand on the private of the value thereof. Indubitably, whether or not private
respondents would not be in point here since the mortgage respondents herein benefited from the loan, the mortgage and
contracts created obligations with specific terms for the the extrajudicial foreclosure proceedings were valid.
compliance thereof. The facts further show that the private WHEREFORE, judgment is hereby rendered REVERSING
respondents expressly bound themselves as solidary debtors in the decision of the respondent Court of Appeals and
the promisory note hereinbefore quoted. REINSTATING the decision of the court a quo in Civil Case
Coming now to the extrajudicial foreclosure effected by No. Q-9418 thereof.
GSIS, We cannot agree with the ruling of respondent court that SO ORDERED.
lack of notice to the private respondents of the extrajudicial      Melencio-Herrera,
foreclosure sale impairs the validity thereof. In Bonnevie, et al. (Chairman), Paras, Padilla and Sarmiento, JJ., concur.

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 Judgment reversed.
Note.—Promissory note must be payable to order or bearer
to be negotiable. (Consolidated Plywood Industries, Inc. vs.
IFC Leasing and Acceptance Corporation, 149 SCRA 448.)

——o0o——

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