Pawtucket Institution for Savings v. Gagnon

Pawtucket Institution for Savings (Pawtucket) (plaintiff) held the first mortgage on property owned by R. & R. Construction Company (R. & R.) and foreclosed on the property when R. & R. defaulted on debts it owed to Pawtucket and other creditors. Pawtucket interpleaded those creditors to determine which of them should receive the $10,153.95 balance of the foreclosure proceeds. One of the creditors, Lawrence E. Gagnon (codefendant), had entered into a construction contract with R. & R. By the terms of that contract, Gagnon advanced $25,000 to R. & R., and R. & R. promised to build an apartment building and sell it to Gagnon for $82,000. R. & R. gave Gagnon a second mortgage on its property. The standard-form mortgage deed contained a reference, which the parties apparently inadvertently failed to delete, to a promissory note, which did not actually exist, and which was mentioned nowhere in the construction contract. The mortgage deed also stated that the mortgage was given specifically to secure performance of the construction contract. R. & R. failed to complete the apartment building. Gagnon finished the construction himself and kept itemized records of his expenses. Another creditor that Pawtucket interpleaded was F. D. McKendell Lumber Company (McKendell) (codefendant), which held the third mortgage on R. & R.'s property. McKendell claimed the balance of the foreclosure proceeds on the grounds that Gagnon's mortgage was invalid, because Gagnon's mortgage deed did not precisely describe what obligation the mortgage secured. The trial court ruled for Gagnon, and McKendell appealed to the Rhode Island Supreme Court.