The law presumes that every adult person is fully competent until satisfactory proof to the contrary is presented. The burden of proof is on the person seeking to void the act. The test for determining competency is whether the person involved had sufficient mental ability to know what he or she was doing and the nature and consequences of the transaction. Almost any conduct may be relevant, as may lay opinions, expert opinions and prior and subsequent adjudications of incompetency.
The borrower had been formerly adjudicated incompetent. Her guardian was discharged pursuant to a physician's recommendation. A third party induced the borrower to get a loan for him and use her mutual fund as collateral. The third party promised the borrower he would pay the interest and the loan. The borrower and the third party met with a bank employee who explained the terms. When the loan went into default and the bank sought recovery of the loan, the borrower filed a claim to void the loan and return the borrower's collateral, alleging the bank knew or should have known of her mental incapacity to enter into a loan. The circuit court found for the borrower and required the bank to return the borrower's collateral. The bank appealed the case.
Can the loan be voided based on the borrower's mental incapacity?
On appeal, the court held that the borrower's complaint properly stated a cause of action. The court concluded there was evidence in the record, which supported the jury's findings that the borrower was incompetent at the time of the loan, and the jury must have reached that conclusion to reach a verdict for the borrower. The court held that the return of the collateral and holding the borrower not liable for the money was the proper remedy because the bank did not demonstrate good faith in the transaction, but rejected the circuit court's application of the infancy doctrine to reach the same result.