Contracts I, Pages 51–54

Meincke v. Northwest Bank & Trust Co. (2)

Supreme Court of Iowa, 2008

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:

Did the subordination agreement have consideration?

Plaintiff's Argument:

The subordination agreement had no consideration.

Rules:

  • Consideration is assumed for a written agreement.

  • Consideration must be bargained for.

  • For consideration to be bargained for, it must induce the making of the promise.

Reasoning:

Plaintiff admitted that she knew her relatives would receive a benefit as a result of her actions. Plaintiff impliedly requested Northwest Bank to refinance her relatives loans, thereby bargaining.

Holding:

Yes, the subordination agreement had consideration. Decision of Court of Appeals vacated; District Court judgment affirmed.

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