Court Opinion

ID: 9707226
Source: CourtListenerOpinion
Date Created: 2023-08-26 02:05:51.127166+00
Date Added: 2024-06-11T15:41:07.530072
License: Public Domain

LARSEN, Justice,
dissenting.
I dissent. In view of the obvious diminished mental capacity of the decedent Francis J. McGovern, I would hold that the contract created by decedent’s election of option 3 and the designation of his then terminally ill wife as his sole beneficiary is voidable. The evidence introduced at the hearing before the State Employes’ Retirement Board (Board) is clear and persuasive. It shows that the decedent was laboring in a defective mental state when he signed his job termination and retirement papers on December 17, 1980. The decedent’s flawed mental condition rendered him *388unable to act reasonably and deal with his retirement options in a reasonable fashion.
Contrary to the evidence, the Board found that the decedent “did not lack the requisites or mental capacity to execute his retirement application on December 17, 1980 and did understand the nature of the transaction.” (Board, Conclusion of Law No. 1) The Commonwealth Court reversed the Board, relying upon Section 15 of the Restatement of Contracts Second which provides as follows:
§ 15. Mental Illness or Defect
(1) A person incurs only voidable contractual duties by entering into a transaction if by reason of mental illness or defect
(a) he is unable to understand in a reasonable manner the nature and consequences of the transaction, or
(b) 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.
(2) Where the contract is made on fair terms and the other party is without knowledge of the mental illness or defect, the power of avoidance under Subsection (1) terminates to the extent that the contract has been so performed in whole or in part or the circumstances have so changed that avoidance would be unjust. In such a case a court may grant relief as justice requires.
The comment to Section 15 of the Restatement is particularly apropos.
Comment:
a. Rationale. A contract made by a person who is mentally incompetent requires the reconciliation of two conflicting policies: the protection of justifiable expectations and of the security of transactions, and the protection of persons unable to protect themselves against imposition. Each policy has sometimes prevailed to a greater extent than is stated in this1 Section. At one extreme, it has been said that a lunatic has no capacity to contract because he has no mind; this view has given way to a better understanding of mental phenomena and to *389the doctrine that contractual obligation depends on manifestation of assent rather than on mental assent. See §§ 2, 19. At the other extreme, it has been asserted that mental incompetency has no effect on a contract unless other grounds of avoidance are present, such as fraud, undue influence, or gross inadequacy of consideration; it is now widely believed that such a rule gives inadequate protection to the incompetent and his family, particularly where the contract is entirely executory.
b. The standard of competency. It is now recognized that there is a wide variety of types and degrees of mental incompetency. Among them are congenital deficiencies in intelligence, the mental deterioration of old age, the effects of brain damage caused by accident or organic disease, and mental illnesses evidenced by such symptoms as delusions, hallucinations, delirium, confusion and depression. Where no guardian has been appointed, there is full contractual capacity in any case unless the mental illness or defect has affected the particular transaction: a person may be able to understand almost nothing, or only simple or routine transactions, or he may be incompetent only with respect to a particular type of transaction. Even though understanding is complete, he may lack the ability to control his acts in the way that the normal individual can and does control them; in such cases the inability makes the contract voidable only if the other party has reason to know of his condition. Where a person has some understanding of a particular transaction which is affected by mental illness or defect, the controlling consideration is whether the transaction in its result is one which a reasonably competent person might have made.
Illustration:
1. A school teacher, is a member of a retirement plan and has elected a lower monthly benefit in order to provide a benefit to her husband if she dies first. At age 60 she suffers a “nervous breakdown,” takes a leave of absence, and is treated for cerebral arterioscle*390rosis. When the leave expires she applies for retirement, revokes her previous election, and elects a larger annuity with no death benefit. In view of her reduced life expectancy, the change is foolhardy, and there are no other circumstances to explain the change. She fully understands the plan, but by reason of mental illness is unable to make a decision based on the prospect of her dying before her husband. The officers of the plan have reason to know of her condition. Two months after the changed election she dies. The change of election is voidable.
c. Proof of incompetency. Where there has been no previous adjudication of incompetency, the burden of proof is on the party asserting incompetency. Proof of irrational or unintelligent behavior is essential; almost any conduct of the person may be relevant, as may lay and expert opinions and prior and subsequent adjudications of incompetency. Age, bodily infirmity or disease, use of alcohol or drugs, and illiteracy may bolster other evidence of incompetency. Other facts have significance when there is mental illness or defect but some understanding: absence of independent advice, confidential or fiduciary relationship, undue influence, fraud, or secrecy; in such cases the critical fact often is departure from the normal pattern of similar transactions, and particularly inadequacy of consideration.
The above comment and illustration are specifically germane to the instant case. The final months of the decedent’s life were pathetic. They depict an existence dominated by “delusion, hallucination, delirium, confusion and depression.” McGovern v. State Employes’ Retirement Board, 85 Pa.Cmwlth.Ct. 50, 481 A.2d 981 (1984). During that time of progressive deterioration the decedent’s acts and decisions were influenced by his corrupted view of reality. His conduct often was based upon false percep*391tions. Such perceptions apparently prompted his selection of pension option 3.1
The decedent may have understood the pension plan as presented to him by the pension officer but, the evidence establishes that he was unable to make a rational decision based upon the very real prospect of his wife dying before him. The decedent’s wife and sole beneficiary, Loretta M. McGovern, was first diagnosed in October of 1979 as suffering from Hodgkin’s disease. In March of 1980 she was informed that the disease was in its late stages. (Board, Finding of Fact No. 2.) Upon being apprised of these medical findings, the decedent became despondent, his “drinking” habits worsened and he, at times, refused to accept the fact that his wife was terminally ill with cancer. (Board, Finding of Fact No. 4.) The majority expresses the view that a person who believes, contrary to scientific probability, that another will overcome a usually terminal disease and live is not rendered incompetent by holding such a belief. The majority goes on to say that this is true even if we consider that such a belief is irrational. These, however, are not the circumstances presented in the instant case. Here the decedent did not express a belief that his wife would overcome a terrible disease. Rather, the decedent, at times, flatly denied that Mrs. McGovern was ill, accusing her of malingering. At other times he seemed to acknowledge her illness. This kind of irrational conduct when considered in conjunction with the decedent’s other aberrant behavior demonstrates a lack of mental capacity sufficient to render the decedent’s pension option election voidable.
Additionally, the pension officer, James Kendig, who accepted decedent’s application had reason to know of deee*392dent’s condition.” Starting in early 1978, pension officer Kendig had many discussions with the decedent. Those discussions included face to face meetings and numerous telephone conversations. It was established that Mr. Ken-dig had reason to know of decedent’s alcohol problem. Further, at the time of his application, the decedent failed to give Mr. Kendig comprehensible answers to questions concerning the health of Mrs. McGovern. Considering all of the evidence there was sufficient and clear proof of irrational behavior and debilitating alcohol abuse on the part of the decedent to render voidable his choice of pension option 3.
I would adopt the principles set forth in the Restatement of the Law of Contract Second, § 15, apply those principles to this case, and affirm the Commonwealth Court.
I dissent.
McDERMOTT, J., joins in this dissenting opinion.

. Prior to his retirement and the signing of retirement papers, the decedent indicated that, when he did retire, he would name his daughter as sole beneficiary under pension option 1. (Rep.Rec. pps. 33a, 34a). The decedent frequently told his friend and fellow-worker, James Moore, that he wanted everything to go to his daughter. (Rep.Rec. pps. 77a, 78a). After he retired, the decedent informed his friend, James Moore, that he had selected pension options 1 and 4 and everything was going to his daughter. (Rep.Rec. pps. 83a, 88a, 90a, 92a).