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IN THE COURT OF APPEALS OF IOWA No. 7-829 / 06-1541 Filed December 28, 2007 JANICE A. MEINCKE, Plaintiff-Appellant, vs. NORTHWEST BANK & TRUST COMPANY and SCRAMM ENTERPRISES, L.C., Defendants-Appellees. ________________________________________________________________ NORTHWEST BANK & TRUST COMPANY, Cross-Claimant, vs. SCRAMM ENTERPRISES, L.C., Cross-Defendant. _______________________________________________________________ NORTHWEST BANK & TRUST COMPANY, Third-Party Plaintiff, vs. SANDRA R. MARTI and C.A. MEINCKE PLUMBING, INC., Third-Party Defendant. ________________________________________________________________ Appeal from the Iowa District Court for Scott County, Mark D. Cleve, Judge.

Plaintiff appeals the trial court's judgment in favor of the defendant. REVERSED.

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Timothy L. Baumann, Christopher L. Surls, and William B. Norton of Wm. B. Norton Law Firm, P.C., Lowden, for appellant. Michael J. McCarthy, McCarthy, Lammers & Hines Law Firm, Davenport, for appellee.

Heard by Sackett, C.J., and Vaitheswaran and Baker, JJ.

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SACKETT, C.J. Plaintiff-appellant, Janice Meincke, appeals the trial court's ruling in favor of defendant-appellee, Northwest Bank & Trust Company (Northwest Bank). Plaintiff urges us to reconsider existing precedent concerning whether a party may prevent enforcement of a financing agreement due to a defective acknowledgment. Plaintiff also contends the trial court erred by (1) finding the subordination agreement between the plaintiff and Northwest Bank was supported by consideration, (2) finding that Northwest Bank did not intentionally interfere with plaintiff's contractual relations with the debtor, and (3) denying plaintiff's motion to amend her pleadings to conform to the evidence. We reverse finding no consideration to support the contract. I. BACKGROUND. This case involves a family's financially troubled businesses and the debt the businesses incurred from an elderly family member and from two banks. C.A. Meincke Plumbing and Scramm Enterprises are owned by Sandra Marti and Craig Meincke. The plaintiff is Sandra's mother and is Craig's aunt. She is eighty-two years old. In July 2002, Sandra and Craig approached the plaintiff for a loan for the businesses. At the time, the plaintiff's husband was in the hospital and in very poor health. Sandra and Craig visited the hospital and made the request. The plaintiff and her husband initially refused to give the loan. After Sandra and Craig told them they would go bankrupt without the money, the plaintiff loaned Scramm Enterprises $90,000. The plaintiff's husband died two months after the loan was made. To secure the loan, Scramm gave the plaintiff a mortgage on the business's land and buildings. Scramm had already granted

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two mortgages on this property to secure loans from Rock Island Bank. Sandra and Craig had also mortgaged their personal homes to secure loans to the businesses. James Legare was a loan officer at Rock Island Bank who worked with Craig and Sandra to obtain financing for the businesses. At some point, James Legare began working for Northwest Bank and eventually became vice president. He also helped the businesses obtain loans through this bank. In 2003, Scramm obtained loans from Northwest Bank and granted yet another mortgage on the property. The record shows a pattern of financial difficulty for the businesses. The businesses sought, and Northwest Bank approved, continual loan renewals and extensions, loans for paying suppliers, and loans to pay off other lenders. In 2003 and 2004 the businesses' payments on various loans were late over thirty times. In 2004, Sandra and Craig sought another loan from Northwest Bank. The loan was needed primarily to pay the balance owed to Rock Island Bank because these loans were due and Rock Island Bank refused to renew the loans. Northwest Bank agreed to provide these funds on the condition that Northwest Bank acquired the first lien on the mortgaged property. At this time, Rock Island Bank had first priority to the property, the plaintiff had second priority, and Northwest Bank had third priority. If Northwest Bank expended the funds owed to Rock Island Bank, the plaintiff would have first priority and Northwest Bank would have second priority. To protect its financial interest, Northwest Bank would not provide additional funding unless the plaintiff was willing to subordinate her priority position to Northwest Bank.

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At trial, Sandra testified that she knew a subordination agreement was required but never discussed this or any financial matters of the businesses with the plaintiff. The plaintiff testified that Craig called her saying "I had to sign this paper to be second in line." A Northwest Bank employee drafted a subordination agreement and Craig went with the bank's vice president, James Legare, to the plaintiff's house to get her signature. Legare said hello to the plaintiff but no one discussed the agreement. Legare testified that he believed Craig had already explained the agreement to the plaintiff. The plaintiff signed the agreement. A notary was not present at the signing. Legare had the agreement notarized at a later time. The plaintiff was not present when it was notarized. After the subordination agreement was obtained, Northwest Bank made two loans to the businesses in March of 2004, issuing funds on behalf of the businesses in the amount of approximately $716,907. Of this amount,

approximately $474,500 was paid for the Rock Island Bank loans. Approximately $242,000 was applied to refinance other Northwest Bank Loans. Sandra testified that this was a refinancing transaction and none of these funds were actually paid directly to the businesses. Jim Legare testified, and the banking documents show, that the transaction also provided another $4,000 in a line of credit to the businesses. It appears the businesses drew approximately $2,209 from this line of credit two days after the loan was made. Approximately two months later, the plumbing business ceased operations because of financial problems. In 2005, Scramm and Northwest Bank entered into an agreement for non-judicial foreclosure. The mortgaged property was

sold. Due to the subordination agreement, the proceeds from the sale were

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applied to the Northwest Bank loans first. The proceeds were insufficient to repay the total owed to Northwest Bank and consequently, the plaintiff received nothing toward the debt owed her. The plaintiff filed suit against Northwest Bank claiming, among other things, the subordination agreement was invalid and Northwest Bank intentionally interfered with the plaintiff's contract with Scramm Enterprises. At the close of the evidence at a bench trial, the plaintiff moved to amend her pleadings to conform to the evidence, seeking to add a claim of fraud. The trial court denied this motion and ruled in favor of the defendant on all counts. The plaintiff appeals the trial court's rulings. II. STANDARD OF REVIEW. Claims based on a contract tried at law are reviewed for correction of errors at law. Iowa R. App. P. 6.4; Equity Control Assocs., Ltd. v. Root, 638 N.W.2d 664, 670 (Iowa 2001). The trial court's fact findings are binding upon us if they are supported by substantial evidence and we view the findings in a light most favorable to upholding the ruling. Equity Control Assocs., 638 N.W.2d at 670. We reverse if there is an erroneous application of the law. Id. III. CONSIDERATION. The plaintiff contends the trial court erred in finding the subordination agreement was supported by consideration. We must determine whether

substantial evidence supports this finding. Id. A subordination agreement is generally governed by the rules of contract law. Transactions

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