I had a "quarrel" with my bachelor thesis advisor, should I ask him to be my one of my referees for grad application?
Based on your history with him, and the fact that he insinuated that you were "mentally unstable" in a previous email - no, you should avoid this individual like the plague.

Perhaps ask the head of the department for a recommendation, explaining the situation?  They may be able to write about your work in the department and explain why your first adviser was not asked to provide a letter.