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Contract for sale of land contains mental illness clause
A seller and a buyer entered into a contract for the sale of
land near Grafton in NSW in November 2007, intending to settle 13
calendar months later.
In the contract was a special condition, clause 33, which
referred to the ability of the contract to be rescinded (i.e.
cancelled without any consequence or penalty) by either party,
prior to completion, if either party died or became mentally
ill.
Seller allows buyer to occupy land subject to occupation
fee
Prior to settlement of the contract, the seller agreed for the
buyer to occupy the land, subject to the contract, with an
occupation fee of $13,000 plus GST per quarter, paid in
advance.
During the time the buyer occupied the land, he had two
problems. The first was that he was having trouble with one of his
neighbours. The second was that his finance approval fell through,
due to the global financial crisis.
The buyer was forced into the position of attempting to sell
eight other properties which he owned, in order to raise the funds
required to pay the seller for the Grafton property.
Seller offers buyer extension of time to settle
In early December 2008, the seller offered to give the buyer an
extension of time to settle the contract, due to the financial
difficulty the buyer was facing.
However, the real estate agent responded to the offer,
suggesting that the buyer was unable to settle or continue paying
the occupation fee at the agreed rate. The seller then made another
offer to the buyer, but that offer was not accepted.
Seller issues Notice to Complete, buyer serves Notice of
Rescission
The contract did not settle, so the seller issued a Notice to
Complete to the buyer, requiring settlement on or before 3pm on 30
January 2009.
On that day, the buyer served a Notice of Rescission, stating
that he terminated the contract in accordance with clause 33(a) of
the contract, because he was suffering from a number of mental
illnesses. These included panic attacks, anxiety, possibly
depression and possibly bipolar disorder.
Seller serves Notice of Termination when contract is not
completed
The seller then served a Notice of Termination on the buyer, on
the basis that the buyer had not settled the contract in accordance
with the Notice to Complete.
The seller then commenced proceedings in the Supreme Court,
seeking a declaration that the Notice of Termination was effective,
and a declaration that the Notice of Rescission issued by the buyer
was invalid.
The buyer made a cross-claim that his Notice of Rescission was
effective and the seller's Notice of Termination was
invalid.
case a - The case for the seller
case b - The case for the buyer
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.
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.