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Contracts Keyed to Knapp
Hauer v. Union State Bank of Wautoma
Facts
In 1987, Plaintiff suffered a brain injury from a motor cycle accident and was subsequently adjudicated to be incompetent and was appointed a guardian. A year after her accident Plaintiff was declared to be competent and was given the ability to manage her own affairs. She received $900 per month from social security and from interest income from a mutual fund. Plaintiff was introduced to Ben Eilbes through a friend and Eilbes convinced Plaintiff to invest in Eilbes’ business. Eilbes had been seeking funds to assist repayment of a loan that he had defaulted on with Defendant bank. Plaintiff was advised by Eilbes to take out a loan using her mutual fund income as collateral. Eilbes discussed the potential loan agreement with Richard Schroeder, an assistant vice president at Defendant Bank. Schroeder indicated that the Bank would be willing to loan Plaintiff $30,000 on the understanding that the mutual fund would be used for collateral. Schroeder then spoke to Plaintiff’s financ ial consultant to verify the existence of the bank loan. Schroeder admits that the financial manager told not to use the mutual fund as collateral because Plaintiff used that income as the primary source of her income. Schroeder admits that it was possible that Plaintiff’s financial advisor told Schroeder about Plaintiff’s mental incapacity. Plaintiff eventually received the money from the Bank, putting up her mutual fund as security. Plaintiff invested the money into Eilbes’ business and lost the full amount. Plaintiff then brought suit against the Defendant Bank alleging, inter alia, that the Defendant knew or should have known about Plaintiff’s mental incapacity and that the Bank breached a fiduciary duty owed to her. The trial court eventually found that Plaintiff lacked the mental capacity to enter into the loan agreement and that the Bank failed to act in good faith towards Plaintiff. The Bank was ordered to return Plaintiff her collateral, and Plaintiff was not forced to repay the $30,000 she had borrowed. The Bank then appealed.
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