Rule 130 Section 9. Evidence of Written Agreements. - When The Terms of An Agreement Have Been Reduced To Writing, It Is

GSIS v CA | GR. No. L-40824 | Feb 23, 1989 | Regalado, J.
Petitioner: Government Service Insurance System

Respondent: Court of Appeals and Mr. & Mrs. Isabelo R. Racho
SUMMARY: Sps. Rachos together with Sps. Lagasca executed mortgage contracts in favor of GSIS. A
parcel of land co-owned by them was given as security. The land was foreclosed. Sps. Rachos are
praying that the forclosure of their property be declared null and void because they signed the
contracts only to accommodate the Lagascas. The Court held that it was duly established that Rachos
signed the documents “only to give their consent to the mortgage as required by GSIS”, they have full
knowledge that the loans secured were solely for the benefit of the Lagasca spouses. BUT Sps. Racho
are still liable under Last paragraph of Article 2085 of the Civil Code
The parol evidence rule cannot be used by GSIS as a shield in this case for it is clear that there was no
objection in the court below regarding the admissibility of the testimony and documents that were
presented to prove that the Rachos signed the mortgage papers just to accommodate
TOPIC: Parol Evidence Rule
Rule 130 Section 9. Evidence of written agreements. — When the terms of an agreement have been reduced to writing, it is
considered as containing all the terms agreed upon and there can be, between the parties and their successors in interest,
no evidence of such terms other than the contents of the written agreement.
However, a party may present evidence to modify, explain or add to the terms of written agreement if he puts in issue in his
pleading:
(a) An intrinsic ambiguity, mistake or imperfection in the written agreement;
(b) The failure of the written agreement to express the true intent and agreement of the parties thereto;
(c) The validity of the written agreement; or
(d) The existence of other terms agreed to by the parties or their successors in interest after the execution of the
written agreement.
The term "agreement" includes wills.
FACTS:
 Sps. Racho, together with the Sps. Lagasca, executed a deed of mortgage, dated November 13,
1957, in favor of GSIS and, another deed of mortgage, dated April 14, 1958, in connection with
two loans granted by GSIS (P11,500.00 and P3,00.00) A parcel of land co-owned by said
mortgagor spouses was given as security  
 They also executed a “promissory note” which states in part: “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.”  
 July 11, 1961, the Lagasca spouses executed an “Assumption of Mortgage” where 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 Sps. Rocha. This was not fulfilled.
 Upon failure of the mortgagors to comply with the conditions of the mortgage, particularly the
payment of the amortizations due, GSIS extrajudicially foreclosed the mortgage and caused it to
be sold
 More than two years after, or on August 23, 1965, Sps. Rocha filed a complaint against the GSIS
and the Lagasca spouses praying that the extra judicial foreclosure be declared null and void;
allow them to recover the property or GSIS pay them the value or they be allowed to repurchase
 
 Sps. Rocha arguement: 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 a cause of action.

 CA reversed the CFI
o Held that although formally they are co-mortgagors, they are so only for
accommodation and that they had full knowledge that the loans were solely for
Lagasca’s benefit.
o As against the GSIS, Rachos have a valid cause because the foreclosure was without
sufficient notice. Foreclosure of the mortgage is null and void.  
ISSUES:
 W/N the mortgage contracts are negotiable instruments? NO.
o Both parties relied on the provisions of Section 29 of Act No. 2031, otherwise known as
the Negotiable Instruments Law, which provide that an accommodation party is one
who has signed an instrument as maker, drawer, acceptor of indorser without receiving
value therefor, but is held liable on the instrument to a holder for value although the
latter knew him to be only an accommodation party.
 BUT THIS IS WRONG
o The promissory note and the mortgage deeds subject of this case are not negotiable
instruments. Civil Code and special Laws on mortgages applies not the Negotiable
Instruments Law.  
 W/N the testimony of the spouses and the documents presented are admissible – YES.
o Respondent court made findings of fact:
 Rachos signed the documents “only to give their consent to the mortgage as
required by GSIS”, they have full knowledge that the loans secured were solely
for the benefit of the Lagasca spouses. This is duly supported by sufficient
evidence of record.  
 It would be unusual for the GSIS to arrange for and deduct the monthly
amortizations on the loans from the salary as an army officer of Flaviano
Lagasca without likewise affecting deductions from the salary of Isabelo Racho
who was also an army sergeant.  
o Also, the Lagasca spouses executed a so-called “Assumption of Mortgage” promising to
exclude Rachos and their share of the mortgage property from liability to the
mortgagee.  
o The parol evidence rule cannot be used by petitioner for it is clear that there was no
objection in the lower courts regarding the admissibility of the testimony and
documents that were presented to prove that the private respondent Rachos signed
the mortgage papers just to accommodate their co-owners.
 Besides, the introduction of such evidence falls under the exception to the said
rule, there being allegations in the complaint of the Rachos regarding the failure
of the mortgage contracts to express the true agreement of the parties.
o HOWEVER, it cannot be said that Rachos are without liability under the mortgage
contracts. Last paragraph of Article 2085 of the Civil Code applies: Third persons who
are not parties to the principal obligation may secure the latter by pledging or
mortgaging their own property.  
o So long as valid consent was given, the fact that the loans were solely for the benefit of
the Lagasca spouses would not invalidate the mortgage with respect to Rachos’ share.
 
o Facts shows that Rachos expressly bound themselves as solidary debtors in the
promissory note  
o Regarding the notice of the foreclosure sale. The Court held that there was no showing
that notice as required in Section 3 of Act No. 3135, as amended, was not complied
with.
o Extrajudicial foreclosure proceedings were valid.  

 The lack of notice to the Rachos of the extrajudicial foreclosure does NOT impair
the validity of the foreclosure sale.
FINAL RULING:
WHEREFORE, judgment is hereby rendered REVERSING the decision of the respondent Court of Appeals
and REINSTATING the decision of the court a quo in Civil Case No. Q-9418 thereof.

Rule 130 Section 9. Evidence of Written Agreements. - When The Terms of An Agreement Have Been Reduced To Writing, It Is

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GSIS v CA | GR. No. L-40824 | Feb 23, 1989 | Regalado, J.

Petitioner: Government Service Insurance System

TOPIC: Parol Evidence Rule

 CFI dismissed the complaint for failure to establish a cause of action.

o Extrajudicial foreclosure proceedings were valid.

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