25 N.Y.2d 196, 199, 250 N.E.2d 460, 303 N.Y.S.2d 362 (1969)
Grace W. Ortelere taught elementary school in New York City from 1924 until she took a leave of absence in March 1964 after suffering a nervous breakdown.1 She was 60 years old at the time and had been married for 38 years.2 On July 1, 1964, she began treatment with psychiatrist Dr. D'Angelo, who diagnosed her with involutional psychosis, melancholia type, and prescribed tranquilizers and shock therapy for about six weeks.3 Although she continued monthly visits with the psychiatrist until March 1965, her condition included suspected and later confirmed cerebral arteriosclerosis.4
In 1958, Mrs. Ortelere had selected benefits under Option One of the Teachers' Retirement System, naming her husband as beneficiary of any unexhausted reserve upon her death.5 Two years later, she designated him as beneficiary for preretirement death benefits.6 On February 8, 1965, shortly after her leave expired on February 5, she wrote to the Retirement Board listing eight detailed questions about her options, including her average salary, maximum allowance, and calculations for the different retirement alternatives available.7 On February 11, 1965, she executed a retirement application selecting the maximum retirement allowance with no option and withdrew the maximum cash amount of $8,760.8
Mrs. Ortelere died on April 7, 1965, from cerebral thrombosis due to hypertensive heart disease, less than two months after her retirement election.9 Her husband, as executor, sued the Teachers' Retirement Board of the City of New York to set aside the February 11 application.10 After a nonjury trial, the Supreme Court found her mentally incompetent and declared the application null and void.11 The Appellate Division reversed, holding there was insufficient proof of mental incompetency as a matter of law.12
Whether an otherwise irrevocable election of retirement benefits may be avoided for incapacity because of known mental illness which resulted in the election when, except in the barest actuarial sense, the system would sustain no unfavorable consequences?13
Contracts of a mentally incompetent person who has not been adjudicated insane are voidable.14 Traditionally, contractual mental capacity has been measured by a cognitive test inquiring whether the mind was so affected as to render the person wholly and absolutely incompetent to comprehend and understand the nature of the transaction.15 However, a modern rule recognizes that a person incurs only voidable contractual duties by entering into a transaction if, by reason of mental illness or defect, he is unable to act in a reasonable manner in relation to the transaction and the other party has reason to know of his condition.16
Yes. Mrs. Ortelere's known mental illness, including her involutional psychosis and cerebral arteriosclerosis, rendered her unable to act in a reasonable manner in relation to the retirement election, as her selection of the maximum allowance was unwise and foolhardy.17 The Teachers' Retirement Board had reason to know of her condition because she was on leave for mental illness and under the care of a psychiatrist, with the Board of Education also aware through its medical examinations.18 Except for the barest actuarial consequences, the system would sustain no unfavorable effects from avoiding the election.19
Therefore, under the modern rule, the election is voidable.20
The order of the Appellate Division should be reversed and a new trial granted.21
Related opinions on this issue
Judge Jasen dissented on the ground that the plaintiff failed to sustain the burden of proving mental incompetence.22 He emphasized that the decedent's detailed letter to the Retirement Board demonstrated her full mental capacity to understand and decide on the retirement options.23 In his view, the election of maximum payments was rational and necessary to support both herself and her husband on their limited income.24
Judge Jasen maintained that the traditional cognitive test for contractual capacity remains workable and fair, striking an appropriate balance between protecting the security of transactions and safeguarding those who are mentally handicapped.25 He feared that the majority's refinement would make many contracts vulnerable to psychological attack and would undermine the reasonable expectations of those who deal with persons who appear rational.26 Accordingly, he would affirm the order of the Appellate Division.27