G.R. No. 25920, November 17, 1926
M. W. STRAIGHT, Plaintiff-Appellant, vs. A. D. HASKELL, THE MAGDALENA COCONUT CO., INC., and A. S. HEYWARD, Defendants-Appellees.

FACTS

Plaintiff M.W. Straight extended two loans to defendant A.D. Haskell, secured by real estate mortgages on a tract of land in Laguna. The first mortgage was for P20,000, and the second for P12,200. Both mortgages stipulated 12% annual interest and a 10% attorney’s fee in case of suit. Subsequently, Haskell sold the mortgaged property to defendant Magdalena Coconut Co., Inc., which, as part of the consideration, assumed and agreed to pay the mortgage debts. The Coconut Co. later mortgaged the same property (along with other assets) to defendant A.S. Heyward. All mortgages were duly registered. After the Coconut Co. paid interest up to April 30, 1924, no further payments were made. Straight filed for foreclosure against Haskell and the Coconut Co. The trial court held only the Coconut Co. liable, released Haskell from liability, reduced the attorney’s fee to P1,000, and granted a six-month redemption period. Straight appealed.

ISSUES:
1. Whether the assumption of the mortgage debt by the Magdalena Coconut Co., with the creditor’s knowledge, operated as a substitution of debtors, thereby releasing the original debtor, Haskell.
2. Whether the stipulated 10% attorney’s fee should be enforced.
3. Whether the plaintiff’s mortgages are superior to the subsequent mortgage in favor of Heyward.
4. Whether the redemption period granted by the trial court was proper.

RULING

1. No. The mere assumption of the debt by the vendee (Coconut Co.) and the creditor’s (Straight’s) knowledge and acceptance of interest payments from the vendee did not constitute a novation or release of the original debtor (Haskell). To effect a release from a written contract, the evidence must be clear and convincing. There was no evidence, written or oral, that Straight intended to release Haskell. The payments by the Coconut Co. merely inured to Haskell’s benefit, reducing his liability *pro tanto*, but did not extinguish his obligation. Haskell remained jointly and severally liable with the Coconut Co.

2. Yes. The stipulated 10% attorney’s fee is reasonable and enforceable. The contract expressly provided for it, and the plaintiff was forced to litigate in the trial court and appeal to the Supreme Court to obtain relief.

3. Yes. The plaintiff’s mortgages, being prior in registration, are superior and have preference over the subsequent mortgage executed by the Coconut Co. in favor of Heyward. This issue, though raised, was not contested by Heyward, who did not appeal.

4. No. The trial court’s grant of a six-month period was excessive. Given that no payments had been made for about two and a half years, a four-month period was deemed sufficient.

DISPOSITIVE PORTION:
The judgment of the lower court was modified. A new judgment was rendered:
* Holding defendants Haskell and Magdalena Coconut Co., Inc., jointly and severally liable for the full amount of the debt with 12% interest.
* Awarding the stipulated 10% attorney’s fee on the amount due.
* Limiting the stay of execution to four months.
* Allowing a deficiency judgment against both Haskell and the Coconut Co. if the foreclosure sale proceeds are insufficient.
* Costs of appeal were awarded against Haskell.