Consideration can be either a legal benefit to the promisor, or a legal detriment to the promisee.
Appellant loaned her daughter and her nephew $ 90,000. The loan was secured by a mortgage on property owned by the daughter and nephew's business. The bank also held mortgages on the same property; however, appellant's mortgage had priority. In order for the daughter and nephew to obtain more financing, the bank required appellant to subordinate her mortgage to the bank's by signing a subordination agreement. The daughter and nephew later agreed to a voluntary foreclosure on the mortgages held by the bank. Appellant did not receive any proceeds from the foreclosure sale of the business. Appellant filed suit, asking the trial court to find the subordination agreement null and void for lack of consideration. The trial court found that the agreement was supported by consideration. The court of appeals overturned the trial court's decision.
Is the subordination agreement valid?
In its decision, the court asserted that substantial evidence existed to support the trial court's decision to uphold the validity of the subordination agreement between the bank and the appellant. The Court held that the subordination agreement was supported by proper, bargained for consideration. By signing the subordination agreement, appellant impliedly requested the bank to refinance the business loans; thus, she requested that the bank suffer a detriment.