Contracts I, Pages 46–51

Meincke v. Northwest Bank & Trust Co. (1)

Court of Appeals of Iowa, December 28, 2007

Facts:

Meincke Plumbing and Scramm Enterprises are owned by cousins Sandra Mart and Craig Meincke. The plaintiff is eighty-two, Mart's mother, and Craig Meincke's aunt. Sandra and Craig approached the plaintiff for a loan for businesses. At the time, the plaintiff's husband was in the hospital and in poor health and initially refused. After pleading that they would go bankrupt otherwise, plaintiff relented and loaned Scramm Enterprises $90,000. In exchange, Scramm gave the plaintiff a mortgage on the business land and buildings. Scramm already had two mortgages on this property with Rock Island Bank. Sandra and Craig had also mortgaged their personal homes to secure loans to the businesses. James Legare was a Rock Island Bank employee who helped obtain financing for the loan and eventually became vice president of Northwest Bank. They then took out more loans from Northwest Bank and got a second mortgage on the property. They had a pattern of financial difficulty. Northwest Bank continued to give loan renewals, extension, and loans. They then sought another loan from Northwest Bank to pay the balance owed to Rock Island Bank. Northwest Bank agreed if they would be given the first lien on the mortgaged property. A Northwest Bank employee drafted a subordination agreement and Craig went with Legare to the plaintiff's house to get her signature. Legare believe that Craig had already explained this to the plaintiff. The plaintiff signed the agreement, believing it would help her get her money back, not to help her relatives. A notary was not present at the time, but Legare had it notarized later without the plaintiff. Two months later the plumbing business ceased operations. The mortgaged property was sold the proceeds and given to Northwest Bank as they had the first lien.

Procedural History:

Trial court ruled in favor of defendant.

Issue:

Is there consideration when one does not understand what is happening in the transaction?

Plaintiff's Argument:

Subordination agreement was invalid because there was no consideration because she did not know what she was signing.

Rule:

Consideration requires one to require something conditional on your act.

Reasoning:

Plaintiff did not know what she was getting in return for signing the agreement, as evidenced by her believe that it would help get her her money. She could not have considered the transaction without bargaining, or having the other party do or promise something in return.

Holding:

No, a transaction without one understanding what they get in return does not have consideration and is not a contract. Reversed.

Brave Browser – Ad-free browsing