Blatt v. Manhattan Medical Group, P. C.

OPINION OF THE COURT

Milonas, J.

In this action seeking rescission of general releases and a letter of resignation executed by plaintiff-respondent Dr. Robert Blatt in favor of defendants-appellants Manhattan Medical Group, Inc. (MMG) and Dr. Martin Gold, as well as monetary damages, judgment was awarded to plaintiff, after a jury trial, granting him both the requested rescission and damages in the amount of $250,000.

Plaintiff had worked for some nine years as a physician for MMG, a professional corporation operating a health clinic in Manhattan, whose director is Dr. Gold, when he was suspended without pay. The reason for the suspension was that following the end of an approved two-week leave of absence due to the sudden death of his father, he failed to report for duty on three successive Mondays, occasions on which he was scheduled to see patients. Each time, plaintiff telephoned from Florida shortly before his first appointment advising that he would be unable to be present that week, either because of his mother’s illness and his need to remain with her or his own poor mental condition.

Plaintiff finally returned to New York three weeks later than expected. In addition to being suspended, plaintiff was requested to attend a board of directors meeting at which he appeared in the company of his counsel, a long-time family friend and experienced negotiator. The board, however, unanimously upheld his suspension, and, the next day, his resignation was solicited. Plaintiff was informed that the board wished to arrange a settlement with him. Thereafter, MMG conducted negotiations with plaintiff and his attorney, and plaintiff was eventually made an acceptable offer pursuant to which he was to receive $25,000 in severance pay, an increase from the initial tender of $15,000, plus the return of the value of his shares in defendant corporation, worth $3,000. He then signed and had notarized two general releases, which he brought to MMG’s counsel. He also submitted a letter of resignation and, in return, was given a check for $28,000.

Plaintiff subsequently commenced the instant lawsuit to rescind the settlement, releases and resignation and for damages against MMG and Dr. Gold. The complaint alleged that at the time he agreed to terms with defendants, he lacked contractual capacity by reason of mental illness and that MMG and Dr. Gold knew or should have known of his condition. Plaintiff further asserted that he was compelled to resign under duress. At trial, the psychiatric testimony introduced by both sides concurred that Blatt had been suffering from a major depressive illness induced by the death of his father. There was also some evidence that he may have had a preexisting personality disorder, and his mental condition could have damaged his ability to function properly. There was, however, no proof whatever that plaintiffs cognitive process was impaired or that he was incapable of understanding the nature and consequences of his actions when he executed the releases and letter of resignation. On the contrary, the record reveals, and plaintiff’s psychiatrist admitted, that he did not appear to be suffering from a psychotic condition, that he was oriented as to time, place and person and that he was able to comprehend the nature of his actions and was fully capable of making a rational decision.

Indeed, plaintiffs own testimony indicated that he understood the purpose of the directors’ meeting, the effect of the releases and that he was resigning in exchange for a $25,000 severance payment and that he knew that, if he refused to accept defendants’ offer, he risked being fired without receiving anything. Dr. Gold, MMG’s attorney, and one of the physician members of the board, who appeared as witnesses, stated that plaintiff seemed coherent and capable of understanding what he was doing. Moreover, plaintiff was represented throughout by a lawyer who was an experienced negotiator, had been a family friend for many years and was concerned for his client’s welfare. In that regard, plaintiffs attorney asserted that while plaintiff was "overwrought” from the death of his father, he comprehended the consequences of his actions and knew that he was resigning. According to plaintiff’s counsel, it was in his client’s interest to resign rather than take the chance of being fired.

There is also no proof that plaintiff had consulted a psychiatrist prior to his resignation or that his behavior, except for his failure to report to work, was in any way out of the ordinary. All of the testimony, including that offered on behalf of plaintiff, indicated that at the time of the settlement, his appearance and demeanor were unremarkable. Further, plaintiff was not examined by a psychiatrist until approximately two months after he had left MMG. It is, thus, difficult to perceive how Dr. Gold or the other members of MMG, who were not themselves psychiatrists, could or should have known that he was mentally incapacitated simply because they were doctors.

It is, therefore, clear that based upon the insufficiency of evidence at trial, plaintiff failed to make out a prima facie case that he lacked contractual capacity by reason of mental illness and that defendants knew or should have known of his impairment, and defendants’ motion to dismiss the complaint should have been granted, and, indeed, this case should never have been submitted to the jury. The evidence at trial shows that plaintiff was severely depressed as a result of his father’s death and possibly because of a personality disorder. However, if mere depression, serious or otherwise, can be considered a valid reason to avoid a contract or, for that matter, the consequences of any act, then the courts will be confronted with a plethora of claims by litigants declaring that they were too depressed or unhappy to know what they were doing and should, thus, be relieved from the effects of their conduct. The fundamental integrity and reliability of contracts which are the basis of our common commercial transactions would be greatly undermined if signatories thereto can seek to have them voided simply because they were depressed at the time these contracts were executed, even when represented by experienced counsel. The fact is that such a result establishes dangerous precedent, and there appears to be no legal authority which has released an individual from a contract on the ground of depression.

In Ortelere v Teachers’ Retirement Bd. (25 NY2d 196, 203), the Court of Appeals acknowledged that the "traditional standards governing competency to contract were formulated when psychiatric knowledge was quite primitive. They fail to account for one who by reason of mental illness is unable to control his conduct even though his cognitive ability seems unimpaired.” Accordingly, the court expressly expanded the old rule that a person’s contractual mental capacity is determined by the cognitive test of whether his mind was "so affected as to render him wholly and absolutely incompetent to comprehend and understand the nature of the transaction” (Aldrich v Bailey, 132 NY 85, 89) and make a rational judgment concerning that transaction (Paine v Aldrich, 133 NY 544). Strict adherence to the cognitive rule has been superseded by a more flexible standard pursuant to which, as the Court of Appeals enunciated in Ortelere (at 205): "The avoidance of duties under an agreement entered into by those who have done so by reason of mental illness, but who have understanding, depends on balancing competing policy considerations. There must be stability in contractual relations and protection of the expectations of parties who bargain in good faith. On the other hand, it is also desirable to protect persons who may understand the nature of the transaction but who, due to mental illness, cannot control their conduct. Hence, there should be relief only if the other party knew or was put on notice as to the contractor’s mental illness.”

The court in Ortelere (supra) recognized that while equitable relief may be available in certain circumstances notwithstanding the lack of knowledge by the other party of the contractor’s mental illness, in general such knowledge is a prerequisite for the voidance of the contract. Thus, where the evidence indicates that a person is suffering from a psychosis which renders him or her incapable of making a voluntary decision, and the other party was, or should have been, aware of the contractor’s condition, then the agreement may be voided (the so-called motivational test). While the court explained therein that "nothing less serious than medically classified psychosis should suffice or else few contracts would be invulnerable to some kind of psychological attack” (Ortelere v Teachers’ Retirement Bd., supra, at 206), it is unclear that nothing less than a psychosis may be the predicate for avoiding a contract. The reason for this is that the standard of assessing competent conduct enunciated in Ortelere has been extended from contract law to tort law (Fuller v Preis, 35 NY2d 425) and now also includes a disability which " 'may fall short of psychosis or severe retardation and the act may be a voluntary judgment by the patient but still be a product of impulse or irrational behavior beyond his control’ ” (Padula v State of New York, 48 NY2d 366, 373). Since the Court of Appeals seems to be applying the same test of mental capacity to contract and tort claims, it may be that an individual who has not demonstrated a clinically classified psychosis may still be able to rescind a contract in some instances.

In the present situation, plaintiff has failed to show that his mind was "so affected as to render him wholly and absolutely incompetent to comprehend and understand the nature of the transaction” (Aldrich v Bailey, supra, at 89) and that, accordingly, he lacked the requisite contractual capacity (the so-called cognitive rule); or that his agreement with MMG was the result of impulsive or irrational behavior beyond his control and that defendants knew, or should have known, that he did not possess the proper capacity to enter into contracts (the motivational rule). Rather, all that the proof indicates is that at all times relevant herein, plaintiff comprehended the nature and consequences of his actions and made a rational judgment concerning the transaction. He was ably represented by counsel, who assisted him in negotiating an improved and fair settlement and one which was deemed by him and his attorney to be in his best interests. The fact that he was in a severely depressed emotional state is scarcely sufficient indication that he did not have either the necessary understanding to execute a contract or that he was unable to control his behavior. An outcome which will, in all likelihood, encourage people to challenge otherwise valid agreements on the ground that they were depressed when they entered into them should not be condoned.

Consequently, the order and judgment (one paper) of the Supreme Court, New York County (Alfred M. Ascione, J.), entered on December 4, 1985, which, following a jury trial, inter alia, awarded plaintiff the sum of $250,000 in damages, plus costs, disbursements and interest, and found plaintiff to be entitled to rescission of the subject documents, should be reversed, on the law and the facts, and the complaint dismissed, without costs or disbursements.