Hauer v. Union State Bank of Wautoma

Kathy Hauer (plaintiff) suffered a brain injury in 1987 and was adjudicated mentally incompetent and appointed a guardian. Hauer’s neurologist testified that she regained competency, and the guardianship was terminated in 1988. Hauer lived off government assistance and interest from a mutual fund. Ben Eilbes (defendant) had defaulted on a loan from Union State Bank of Wautoma (the Bank) (defendant). Hauer wanted to invest in Eilbes’s business. Eilbes negotiated with the Bank to give Hauer a loan using the fund as collateral. Eilbes told the Bank he would pay off his loan with Hauer’s investment. Hauer’s stockbroker told the Bank that Hauer needed the fund and had a brain injury. The Bank agreed to loan Hauer $30,000. Eilbes and Hauer met with the Bank to go over the terms. The Bank did not notice anything suggesting Hauer was incompetent. Hauer gave the money to Eilbes and could not pay back the loan. Hauer sued Eilbes and the Bank. Eilbes was dismissed, because he was filing bankruptcy. The Bank counterclaimed for the balance of the loan. Hauer testified that she did not understand the nature and consequences of the transaction. Experts testified that Hauer was incompetent when she entered the contract. The jury found Hauer incompetent and concluded that the Bank acted in bad faith. The Bank moved to set aside the verdict. The trial court refused, entered judgment against the Bank, and ordered the return of Hauer’s collateral. The Bank appealed to the Wisconsin Court of Appeals.