Mental Incompetence

Kathy Hauer suffered a brain injury in a motorcycle accident. Two years later, Ben Eilbes, who was in default on a loan and was denied further credit by the bank, asked Hauer to take out a loan from the bank to invest in his business and the investment failed. When the loan matured, Hauer sued the bank claiming in part that Hauer lacked mental capacity to enter into the loan. During the trial, Hauer's attorney showed that Hauer was under court-appointed guardianship approximately one year before the loan transaction. Also, Hauer's testimony showed that she misunderstood the nature of the loan, believing that she was merely cosigning a loan for Eilbes and that Eilbes was responsible for paying it back. Finally, a medical expert testifying on Hauer's behalf stated that Hauer was "very deficient in her cognitive abilities, her abilities to remember and to read, write and spell . . . she was very malleable, gullible, people could convince her of almost anything." The expert also said that she was "incompetent and . . . unable to make reasoned decisions" on the date she made the loan. 1. What element of a valid contract is at issue here? SelectMutual assentConsiderationCapacityLegalityItem 1

2. SelectMinorityIntoxicationMental incompetenceItem 1 may be affecting Hauer's capacity to contract.

3. Can people who are adjudged mentally incompetent by the court enter into a valid contract? SelectYesNoItem 1

4. If a person who has been declared incompetent by the courts enters into a "contract," what kind of contract is it? SelectvoidvoidablevalidItem 1

5. What does it mean if the contract is void? The contract Selectdoesdoes notItem 1 exist.

6. Kathy was not judged mentally incompetent at the time of the loan, so is it theoretically possible for her to enter into a contract? SelectYesNoItem 1

7. What type of contract does a mentally incompetent person enter into? SelectvoidvoidablevalidItem 1

8. When is a mentally incompetent person's contract voidable? When the person did not understand the Selectlanguagenaturepurposepriceconsequencespartiesremedies of the contractItem 1 , Selectlanguagenaturepurposepriceconsequencespartiesremedies of the contractItem 2 , and Selectlanguagenaturepurposepriceconsequencespartiesremedies of the contractItem 3 of the contract.

9. Does Hauers deficiency in her cognitive abilities indicate that she may not have understood the nature, purpose, or consequences of the contract? SelectYesNoItem 1

10. Is a court likely to find Hauer mentally incompetent at the time she obtained the loan? SelectYesNoItem 1

11. If so, the loan Selectmaymay notItem 1 be void.

12. Can the bank void the loan? SelectYesNoItem 1

13. Why? The option to void the contract is Selectavailable to any party to the contractonly available to the person who is incompetentItem 1 .

14. What is the bank's best argument that the contract with Hauer was valid? That Hauer was SelectconfusedlucidItem 1 at the time she agreed to the loan.