Brief Fact Summary. In this case McCaffrey, a beer distributor indebted to Drewrys Limited, U.S.A., Inc., (Drewrys) a supplier, made a mortgage to the Appellant, Gabel (Appellant) for $2,750, which went unrecorded and then a mortgage to Drewrys in the amount of $10,000 on the same property.
Synopsis of Rule of Law. If the mortgage has been taken to secure an existing debt and no new contemporaneous consideration passes, either of benefit to the mortgagor, or to the detriment of the mortgagee, then the mortgagee does not become a purchaser.
Issue. Was the Drewrys mortgage supported by sufficient consideration?
Held. No. Reversed.
The Court cited factors, which would guide the determination of whether the mortgage was supported by consideration. A mortgagee is a purchaser if he has parted with anything valuable, surrendered an existing right, incurred a fixed liability, or submitted to a loss or detriment, contemporaneous to the execution of the mortgage.
On the other hand, if the mortgage has been taken to secure an existing debt, and no new contemporaneous consideration passes, either of benefit to the mortgagor, or to the detriment of the mortgagee, then the mortgagee does not become a purchaser.
A definite extension of time for the payment of an existing debt, by a valid agreement, for any period however short, even if only a day, is valuable consideration and is sufficient to support a mortgage as a purchase for a valuable consideration. In this case the extension of time was indefinite.
Drewrys contended that the lack of definite language of time for forbearance should have been excused because there had been forbearance in fact by Drewrys and such forbearance did inure to the benefit of McCaffrey, which would be consideration. The Court disagreed and pointed out that McCaffrey, through the mortgage, agreed to further detriment by agreeing to pay the attorneys’ fees and that Drewrys actually gained in benefit thereunder.
Discussion. This case illustrates the importance of taking care when drafting to include time limitations for forbearance in this type of situation. As the Court pointed out, even forbearance of a day would have been sufficient consideration.