## Facts

- A family plumbing business and a related entity, SCRAMM Enterprises, L.C., operated with SCRAMM owning the real estate used in the business.
- Rock Island State Bank previously made loans to the plumbing business secured by a mortgage on SCRAMM’s building.
- Northwest Bank & Trust Company initially made unsecured loans to the plumbing business in 2001.
- In 2002, Janice A. Meincke loaned $90,000 to SCRAMM and took a mortgage on the SCRAMM building.
- In 2003, Northwest restructured existing debt with new notes secured by a mortgage on the SCRAMM building.
- In 2004, Northwest proposed a refinancing package to restructure its own debt and refinance/pay off the Rock Island debt, again secured by the SCRAMM building.
- Northwest required Meincke to sign a subordination agreement making Northwest’s mortgage senior to hers; the bank would not refinance without her subordination.
- No bank representative negotiated directly with Meincke; she signed after discussing the request with family members and understood she would be “second in line.”
- After the refinancing closed and Rock Island was paid, Northwest foreclosed; sale proceeds satisfied Northwest’s debt and Meincke received nothing.
- Meincke sued, claiming the subordination agreement was unenforceable for lack of consideration to her.

## Issues

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

## Decision

- The Iowa Supreme Court vacated the court of appeals decision and affirmed the district court’s judgment for Northwest.
- The court held substantial evidence supported the finding that the subordination agreement was supported by consideration.
- The bank’s refinancing and restructuring commitments, expressly conditioned on Meincke’s subordination, constituted a bargained-for exchange sufficient to enforce the agreement.

## Legal Principles

- A contract is supported by consideration when there is a bargained-for exchange involving a legal benefit to the promisor or a legal detriment to the promisee; consideration need not be a direct cash payment to the promisor.
- A lender’s agreement to extend new credit, refinance, or restructure debt that it has no preexisting duty to provide can constitute consideration for a third party’s promise, including a mortgage subordination agreement.
- Consideration is not defeated because the primary economic benefit of the transaction flows to third parties (e.g., the borrower) rather than to the party making the promise.
- On review of a fact finding after trial, an appellate court upholds the finding if supported by substantial evidence in the record.

## Conclusion

The court enforced Meincke’s mortgage subordination agreement because the bank’s refinancing and restructuring—made only in exchange for her subordination—provided sufficient consideration, and the trial court’s finding of consideration was supported by substantial evidence.


Meincke v. Nw. Bank & Tr. Co., 756 N.W.2d 223 (Iowa 2008)