G.R. No. L-40824. February 23, 1989.
GOVERNMENT SERVICE INSURANCE SYSTEM, petitioner, vs. COURT OF APPEALS and MR. & MRS. ISABELO R. RACHO, respondents.

FACTS

Private respondents, the Racho spouses, together with the Lagasca spouses, executed two real estate mortgages in 1957 and 1958 in favor of petitioner GSIS to secure two loans. The mortgaged property was a parcel of land co-owned by both couples. The accompanying promissory note stated the obligation was joint, several, and solidary. In 1961, the Lagasca spouses executed an “Assumption of Mortgage,” undertaking to assume the entire obligation and secure the release of the Racho spouses’ share, but they failed to do so.
Upon default in amortization payments, GSIS extrajudicially foreclosed the mortgage in 1962. In 1965, the Racho spouses filed a complaint seeking to annul the foreclosure, alleging they signed the mortgage contracts merely to accommodate the Lagasca spouses, as the loans were solely for the latter’s benefit, and that GSIS was aware of this accommodation. The trial court dismissed the complaint, but the Court of Appeals reversed, declaring the foreclosure void as to the Racho spouses’ share for lack of sufficient notice to them and ordering reconveyance or payment of its value.

ISSUE

Whether the extrajudicial foreclosure of the mortgage is valid and binding on the Racho spouses despite their claim of being merely accommodation parties and despite the alleged lack of personal notice to them of the foreclosure sale.

RULING

The Supreme Court reversed the Court of Appeals and reinstated the trial court’s dismissal. The legal logic proceeds as follows: First, the claim of being an accommodation party under the Negotiable Instruments Law is inapplicable. The promissory note and mortgage deeds are not negotiable instruments as they are payable to a specified party (GSIS), not to order or bearer; thus, the transaction is governed by the Civil Code and laws on mortgages. On the substantive merits, the Racho spouses, as co-mortgagors who signed the contracts, are bound by their terms. By consenting to mortgage their undivided share in the property, they made that share answerable for the loan obligation, regardless of who received the loan proceeds. Their solidary liability was expressly stipulated in the promissory note. Furthermore, the extrajudicial foreclosure was valid. Act No. 3135 , governing such foreclosures, does not require personal notice to the mortgagor. The law only mandates posting and publication of notices, and there was no showing of non-compliance. Therefore, the foreclosure was regular and binding on all mortgagors.