## Facts

- Sandra Marti and Craig Meincke owned and operated Scramm Enterprises, L.C. (Scramm).
- Scramm obtained two loans from Rock Island Bank, secured by mortgages on Scramm’s real property, giving Rock Island first priority.
- Janice Meincke, Marti’s mother and Craig’s aunt, later loaned money to Scramm and received a promissory note and a mortgage on the same property, giving her a junior position behind Rock Island.
- Northwest Bank & Trust Co. later made additional loans to Scramm and took another mortgage on the same property, placing Northwest behind both Rock Island and Janice in priority.
- Scramm then asked Northwest for additional funds to pay off the Rock Island loans.
- Northwest agreed to make the new loan only if it could obtain first priority on the property; this required Janice to sign a subordination agreement.
- Janice testified that Craig called her and told her she needed to sign a subordination agreement “to be second in line.” She signed without further discussion about what the agreement meant or what she would receive from Northwest.
- Janice testified she signed because she thought it would help her get her money back and did not think of her signature as helping Marti and Craig, though she acknowledged it must have helped them in some way because they asked her to sign.
- After Janice signed, Northwest funded the additional loan and Scramm used the proceeds to pay off Rock Island, leaving Northwest in first position by virtue of the subordination agreement.
- Scramm later failed, Northwest foreclosed, and the sale proceeds were applied to Northwest’s debt; Janice received nothing.
- Janice sued Northwest, alleging the subordination agreement was invalid. The trial court ruled for Northwest, and Janice appealed.

## Issues

1. Whether substantial evidence supported the trial court’s finding that the subordination agreement was supported by consideration and therefore enforceable against Janice.

## Decision

- The Iowa Court of Appeals reversed the judgment for Northwest and remanded.
- The court held that substantial evidence did not support the finding that Janice’s subordination was supported by consideration.
- The court concluded the record failed to show a bargained-for exchange between Janice and Northwest that would make Janice’s loss of priority enforceable as a contract.

## Legal Principles

- Consideration requires a bargained-for exchange: an act or promise must be given in return for something sought by the other party.
- A party’s unilateral hope or expectation (such as believing an action may increase the chance of repayment) does not, without more, establish consideration.
- On appeal from a bench trial, a finding that a contract is supported by consideration must be supported by substantial evidence in the record.

## Conclusion

The Iowa Court of Appeals held that the evidence did not support treating Janice Meincke’s subordination of her mortgage as an enforceable contract because the record did not show she bargained for or received a return promise or performance from Northwest in exchange for giving up priority; accordingly, it reversed the judgment enforcing the subordination agreement and remanded.


Meincke v. Northwest Bank & Trust Co., 2007 WL 4553476 (2007)