Brief Fact Summary.
Plaintiff sued in state court, seeking judgment that its mortgage had priority over Defendant’s judgment lien. The trial court held in Plaintiff’s favor. Defendant appealed.
Synopsis of Rule of Law.
An agreement to extend the time for paying a preexisting debt is valuable consideration that supports a mortgage of real property as a purchase for value.
In 1956, Joseph Shinstock and his wife borrowed $25,000 from First National Bank (Plaintiff) in return for a mortgage on their property. They defaulted, but on August 20, 1957, they remortgaged their property in return for a 90-day extension of the deadline to repay the $25,000. That same day, Manufacturers and Traders Trust Co. (Defendant) obtained a judgment against the Shinstocks in federal court. The second mortgage was recorded on August 23, and the judgment was recorded on August 28. Plaintiff had neither actual nor constructive knowledge of the judgment lien against the Shinstocks. The bank sued in state court, seeking judgment that its mortgage had priority over the judgment lien. The court held that it did, and Defendant appealed.
Whether a mortgage is a purchase for value when a creditor issues a second mortgage of real property in exchange for extending the time to pay a preexisting debt.
Yes. The trial court’s ruling is affirmed. An agreement to extend the time for paying a preexisting debt is valuable consideration that supports a mortgage of real property as a purchase for value.
It has long been settled, both in this court and elsewhere, that the inquiry, whether a mortgagee is a purchaser, depends on the question, whether he parted with any thing valuable, surrendered an existing right, incurred a fixed liability, or submitted to a loss or detriment, contemporaneously with the execution of the mortgage, or with the agreement, afterwards performed, to execute the mortgage.View Full Point of Law
Any extension of time to pay a debt is a benefit to the debtor and a detriment to the creditor. This is true no matter how short the period of time is. The issuance of the second mortgage prevents the debtor from taking action to compel repayment of the debt until the extension period has expired. In this case, Plaintiff issued a second mortgage agreeing to give the Shinstocks 90 additional days to pay a debt. This was valuable consideration and makes their mortgage a purchase for value. Plaintiff had no notice of the judgment lien because it had not yet been recorded. Because Plaintiff was a purchaser for value and had no notice of the judgment lien when it executed the mortgage, its mortgage has priority over Defendant’s judgment lien.