Which case won?

The case for the seller
  • To the extent the buyer was suffering from a mental illness, this condition existed well before entering into the contract, as confirmed by the psychiatrist’s report.
  • The buyer did not disclose any longstanding mental illness to me when we entered into the contract and I dealt with him in good faith.
  • Clause 33 of the contract refers to becoming mentally ill, not being mentally ill. There is no medical evidence whatsoever to back up the buyer’s claim that he became mentally ill around November/December 2008.
  • Rather, the medical evidence showed that the buyer continued to successfully manage his mental illness at all material times.
  • His illness did not prevent him from managing his affairs or providing for himself and his family. Further, contemporaneous notes taken by the real estate agent and the mortgage broker also make clear that the buyer continued to have the mental and emotional capacity to engage in business transactions.
  • I issued a valid Notice to Complete and the buyer has failed to settle the purchase. The court should find that my Notice of Termination is effective and that the Notice of Rescission issued by the buyer is invalid.
The case for the buyer
  • I have a history of anxiety symptoms and have previously taken the sedatives Valium and diazepam when necessary. As the report from the psychiatrist confirms, I have an anxiety disorder and a personality disorder.
  • I did not disclose my condition to the seller or even to my own solicitors due to acute embarrassment.
  • Before entering into the contract, I had been able to manage my mental illness. However, my symptoms worsened considerably after I entered into the contract.
  • After moving into the Grafton property, my neighbours there regularly harassed me by saying things such as: “we are going to run you off the island or drive you to hang yourself”. This situation greatly exacerbated my symptoms.
  • Due to the global financial crisis, the loan I obtained in March 2007 fell through, which also caused my symptoms to become more acute.
  • My inability to work due to my worsening conditions led to my inability to earn money to meet my obligations under the loan, or even pay the occupation fee. This further exacerbated my illness.
  • The court should find that I validly terminated the contract under the mental illness clause and that as a result, I should not suffer any penalty.

So, which case won?

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case b33%

"There was no definition of the term ‘mentally ill’ itself in the contract. The contract also did not confirm whether it was sufficient to have a diagnosis of a condition, for that condition to be classified as a mental illness.”
Supreme Court finds in favour of property seller

In the case Brennan v O’Meara [2009] NSWSC 1374, the Supreme Court of NSW found in favour of the seller, Mr Peter Brennan. The court found that Mr Brennan’s Notice of Termination was effective.

The Notice of Rescission by the buyer, Mr Matthew O’Meara, was found to be invalid and of no effect.

Did the buyer become mentally ill prior to completion of the contract?

The court found that there was only one issue in this case, that is, whether Mr O’Meara had “become mentally ill” within the meaning of clause 33(a) of the contract, which read as follows.

Without in any way limiting, negating or restricting any rights or remedies which would have been available to either party at law or in equity had this clause not been included herein, should either party (and if more than one person comprises that first party then any one of them), prior to completion:

a) Die or become mentally ill, then either party may terminate this Contract by notice in writing to the other party’s solicitor and thereupon this Contract shall be at an end…

There was no definition of the term “mentally ill” itself in the contract.

The contract also did not confirm whether it was sufficient to have a diagnosis of a condition, for that condition to be classified as a mental illness.

“Mentally ill persons” under the Mental Health Act

The court considered section 14 of the NSW Mental Health Act 2007, which provides as follows.

A person is a mentally ill person if the person is suffering from mental illness and, owing to that illness, there are reasonable grounds for believing that care, treatment or control of the person is necessary:

a) For the person’s own protection from serious harm, or
b) For the protection of others from serious harm.

“Mental illness” as defined by the Mental Health Act

Section 4 of that Act defines “mental illness” as follows.

A condition that seriously impairs, either temporarily or permanently, the mental functioning of a person and is characterised by the presence in the person of any one or more of the following symptoms:

a) delusions,
b) hallucinations,
c) serious disorder of thought form,
d) a severe disturbance of mood,
e) sustained or repeated irrational behaviours indicating the presence of any one or more
symptoms referred to in paragraphs (a) – (d).

When can you rely on an exit clause in a contract?

It is important to know when you can rely on a “get out clause”, or exit clause, in a contract for sale of land. In this particular case, someone who had a previous mental health condition was found not to have “become mentally ill” after the exchange of contracts.

However, if, for example, an elderly person entered into a contract and then had a severe fall, or some other kind of incident which caused mental distress and dementia, the outcome could be different.

There will always be a need for evidence of the person’s condition and it is important to speak with a solicitor who is competent in negotiation to help you in a case such as this.

What constitutes “mental illness” or a “mentally ill person”?

The judge made a decision in this case that the mental state of the buyer, Mr O’Meara, did not satisfy the definitions of either mental illness, or of a mentally ill person. The medical reports did not show that he was unable to function or deal with his affairs, nor that he lacked mental or emotional capacity to engage in or complete business transactions, nor that he was unable to work at any stage.

Further, contemporaneous notes taken by the real estate agent and the mortgage broker also made it clear to the court that Mr O’Meara was capable of managing his affairs.

Therefore, Mr O’Meara did not satisfy the conditions of clause 33(a) in the contract for sale, where the person is no longer able to meet their obligations under the contract due to becoming mentally ill.

Purpose of exit clauses in contracts

Contract clauses which allow the contract to be terminated in the event of a party becoming mentally ill will typically also cover other circumstances, such as death, bankruptcy and liquidation.

Exit clauses of this nature are directed at circumstances and events which cause an impediment or a delay in the fulfilment of contractual obligations.

It could not be said that Mr O’Meara’s condition created such an impediment or delay, so he was not entitled to make use of the exit clause to terminate the contract.

For more information please see Can you rescind a contract for the sale of land due to mental illness?

NOTICE: This article is accurate as at the time of publication and does not constitute legal advice. Please see our legal notices page for more information. Information related to coronavirus can be outdated very quickly.

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