Can you exit a contract by claiming you are mentally ill?

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Struggling with mental illness is not something that is particularly uncommon, nor is it an illness that should prejudice those who are suffering from it from engaging in the same daily activities we all participate in, including work and raising a family. However, there are times when mental illness requires the utmost care, which can cause persons who are suffering from the same to have to step back from their responsibilities. The question is, when does the law support such a need?

In general, the law defines mental illness as;

  • One who is suffering from a mental illness
  • The illness requires care and treatment; or
  • Control of the person in question; due to
  • A concern for the persons physical safety; and/or
  • The safety of others

When these criteria are met in accordance with a legal issue pertaining to contractual obligations, employment or culpability for an unusual act against the self or another, it is highly likely the law will define the person in question as suffering from a mental illness. If this is the case, the person may be exonerated from a variety of actions they may have engaged in, including having entered into a contract.

The grounds for being able to request excusal from a contract entered into during the course of, or the development of, a mental illness include the following;

  • Impairment of judgement and understanding at the time of the signing of the contract
  • Developing an impairment in mental abilities after the signing of the contract if the impairment makes it difficult or impossible for the person to carry out their contractual responsibilities
  • Impairment derived from the use of mind-altering substances in the event that the party new the signer was impaired and took advantage of the circumstances

But what happens if the contract itself contains a clause that releases a party if a mental illness happens prior to the completion of the contract? This question was answered in the case of Brennan v O’Meara [2009] NSWSC 1374. In this case the contract contained a specific clause which stated that if one party or the other became mentally ill prior to the completion of the contract, then with written notice of the same, the contract could be nullified.

In the instant case, Mr. O’Meara entered into a land purchase contract with Mr. Brennan. During the pendency of the contract and prior to its completion, Mr. O’Meara claimed that he could not fulfill his legal obligation to proceed with the full purchase of the property because he and Mr. Brennan had engaged in an argument that caused Mr. O’Meara to experience a mental illness. The notice was provided by Mr. O’Meara to Mr. Brennan in writing, as required by the contract. Mr. Brennan filed with the court to enforce the contract.

The factors the Court reviewed were as follows;

  1. Was Mr. O’Meara mentally ill prior to entering into the contract?
  2. Did Mr. O’Meara become mentally ill during the duration of the incomplete contract?

The Court only reviewed the first question because Mr. O’Meara had a history of mental illness which he had not disclosed to his Solicitor or the party he was contracting with. However, at the time Mr. O’Meara entered into the contract his mental illness was under control and he was of sound mind and able to handle his professional affairs. Hence the Court found Mr. O’Meara capable of entering into the contract, initially.

The Court found in favor of Mr. Brennan on the second question. The Court found that Mr. O’Meara was still working in his professional capacity without his mental illness causing him any inability to adequately perform. Mr. O’Meara was still handling his own affairs and making daily business decisions, which did not lend itself to a finding that his mental illness was created or caused issues, with his professional performance. As such Mr. O’Meara was not exonerated from his contractual obligations with Mr. Brennan.

While mental illness can be a valid reason for the nullification of a contract, it is important to understand the exact factors that will allow this determination to be made.

In the event that you find yourself in need of assistance, please contact the law offices of Owen Hodge Lawyers. At Owen Hodge, we are always happy to assist clients in understanding the full ramifications of any and all of your legal needs. Please feel free to call us at your earliest convenience to schedule a consultation at 1800 780 770.


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