When are Agreements to Accept Part-Payment of Debt in New Zealand Enforceable?
(2016) 22 NZBLQ 153-161
9 Pages Posted: 24 Jul 2017 Last revised: 5 Aug 2017
Date Written: June 1, 2017
In the last twenty years the law in New Zealand relating to the enforceability of variation agreements has witnessed some notable developments. The traditional rule was that a one-sided variation to an existing contract whereby party A agrees to pay more in return for party B’s agreement to perform its obligations under the existing contract was not a binding contract due to a lack of consideration flowing from party B. This is no longer good law in New Zealand. Instead, two Court of Appeal decisions have held that such variations will be binding if party A receives a benefit “in practice”, even if that benefit was already owing to party A under the original contract. Further, both cases suggested that there was no need for consideration in variation cases and that such agreements would be legally binding as long as there was no duress or illegitimate pressure present. These cases involved agreements where party A agreed to pay more in return for party B’s agreement to perform its original obligations (what I shall call adding variations). What is not clear is what effect they have had on variation agreements where party A promises to accept less from party B (subtracting variations), in particular cases where party A agrees to accept less money from B in satisfaction of the whole debt that B owes. In light of the recent England and Wales Court of Appeal decision, MWB Business Exchange Centres Ltd v Rock Advertising Ltd, where the “practical benefit” test was extended to at least some subtracting variations, it is a good opportunity to revisit the law relating to part-payment cases. When are such agreements binding in law? What role does estoppel have to play?
Keywords: debt, part-payment, variation, consideration, estoppel
JEL Classification: K12
Suggested Citation: Suggested Citation