## Facts

- Grace W. Ortelere was a New York City public schoolteacher for over 40 years and a member of the Teachers’ Retirement System.
- She previously elected a retirement option providing a reduced monthly allowance and preserving an “unexhausted reserve” payable to her husband upon her death.
- At age 60, she suffered a severe mental illness, went on leave, and was diagnosed with involutional psychosis (melancholia type), with suspected cerebral arteriosclerosis; she received tranquilizers and shock treatments and did not return to teaching.
- Her condition deteriorated, and her husband left his job to care for her.
- While still on leave, on February 11, 1965, she:
  - Elected the maximum retirement allowance, increasing lifetime payments but eliminating any survivorship benefit; and
  - Borrowed the largest available loan against her retirement account.
- Two months later, she died of causes unrelated to her mental illness; under the maximum option, the retirement reserve remained with the system and her husband received nothing from the fund.
- The executor/husband sought to avoid the February election on the ground of mental incapacity.

## Issues

1. Whether an otherwise irrevocable retirement-benefit election may be avoided for mental incapacity when the member’s mental illness prevented reasonable action in relation to the transaction.
2. Whether the election is voidable where the retirement system knew or had reason to know of the member’s mental condition.
3. What standard governs contractual incapacity based on mental illness: a narrow cognitive “understanding” test or a broader test recognizing impaired judgment or volition.

## Decision

- The Court of Appeals reversed the Appellate Division and ordered a new trial.
- The court held that a retirement election is voidable if, due to mental illness, the member was unable to act reasonably regarding the transaction and the retirement system had reason to know of the condition.
- The court concluded the matter had been tried under an unduly narrow incapacity standard and required application of the modernized rule to the facts.

## Legal Principles

- Mental illness can render contractual acts voidable (not automatically void) even absent a formal adjudication of incompetence.
- Incapacity includes not only inability to understand the nature and consequences of a transaction, but also inability to make a rational choice or act reasonably because mental disorder substantially impairs judgment or volitional control.
- A transaction is voidable on this ground when the other party knew or had reason to know of the mental condition at the time of the transaction.
- In the public pension context, actuarial and administrative stability does not bar rescission where the system had reason to know of severe impairment and restoration of the prior election would not create meaningful actuarial harm.

## Conclusion

The court modernized New York’s incapacity doctrine by recognizing that serious mental illness may defeat a transaction even when the person can articulate an intellectual understanding, and it remanded for a new trial to determine whether the retirement system had reason to know that the member could not act reasonably when she made the benefit election.


Ortelere v. Teachers’ Ret. Bd. of the City of N.Y., 25 N.Y.2d 196, 250 N.E.2d 460 (1969)