TOPIC Applicability of the Negotiable Instruments Law

Case Name GSIS V. COURT OF APPEALS

GR No. G. R. No. L-40824 23 February 1989
Facts Spouses Racho and Lagasca were co-owners of a piece of property which became
the subject of two (2) deeds of mortgage to the GSIS. In addition to that, they also
executed a promissory note which stated, “…JOINTLY, SEVERALLY and SOLIDARILY,
promise to pay the GSIS the sum of PhP11,500.00 with interest at the rate of 6%
per centum compounded monthly payable in 120 equal monthly installments of
PhP 127.65 each.

After this, the Lagasca spouses executed an Assumption of Mortgage whereby 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. Upon the failure of the parties to meet their
obligations, the property was extrajudicially foreclosed. Two years after, the
Rachos moved to have the mortgage declared null and void.
Issue Whether or not the promissory note is a negotiable instrument.
Ruling No, it is not a negotiable instrument. It lacks the fourth requisite under Section 1 of
the Negotiable Instruments Law to be a negotiable instrument, 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 Instrument Law but by relevant
provision in the Civil Code and Special Law on mortgage.