Gabel v. Drewrys Limited, U.S.A., Inc

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.

Facts. McCaffrey, a beer distributor, was indebted to Drewrys in a sum exceeding $20,000. McCaffrey bounced several checks to Drewrys, and a conference was arranged, which resulted in McCaffrey giving a demand note of $10,000 of the debts, secured by a mortgage to Drewrys dated June 30, 1950 on the property involved in this suit. The mortgage was in ordinary form and contained the provision of payment by McCaffrey of cost, charges and expenses including reasonable attorneys’ fees. At the same time, personal property mortgages were executed to secure the balance of the debt owed by McCaffrey. Concurrent with the mortgage on real property, the parties entered into an agreement, which recited the debt owed and provided that Drewrys agreed to “forbear for the time being any action to enforce the collection of said sum due and owing it” conditioned on McCaffrey making timely payments under the mortgage. Drewrys examined the public record and found no liens or encumbrances on the title of
the property. No time was specified for the forbearance. The Drewrys mortgage was recorded. The Appellant held a note from McCaffrey in the amount of $2,750. The amount of the note was secured by a mortgage on the property and dated March 14, 1950. The Appellant did not file his mortgage of record until reading in the newspaper that McCaffrey was in trouble, which filing occurred after the recording of the Drewrys mortgage. Drewrys instituted this action to foreclose the mortgage and take the property. The lower court found that Drewrys mortgage was superior to the Appellant’s lien and found specifically that the Drewrys mortgage was supported by consideration, which was based on the forbearance of Drewrys. Also, that Drewrys had no notice of the lien by the Appellant and that the Appellant’s failure to record his lien meant that the Drewrys mortgage was superior. The Appellant appealed challenging the consideration of the Drewrys mortgage.

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.