Scenario:2

Elwood is keen on a musical career. Having failed to reach the finals of NZ Idol he decides to exploit his talents himself. He asks his brother Jake for a loan of $10,000 to record a CD of his own music to be entitled "BigE's Back". His marketing plan anticipates sales through dance clubs and over the Internet. Jake is not a fan of Elwood's music but, since he enjoyed NZ Idol he decides that maybe Elwood does know something about music after all and lends him the money.

Unfortunately Elwood's sales are not as successful as he has hoped. Dance club patrons do not agree with Jake's assessment of Elwood's musical ability. Elwood himself is warned by the police to stay away from school playgrounds where he has been trying to sell his CD. When Jake asks for repayment of the $10,000 Elwood says he can't pay him in full. He has other pressing creditors and bankruptcy looks like a real prospect. He still owes his panelbeater for repairs to his car that he wrecked street racing. But he has a plan.

"If you'll accept $7,500 in final settlement of the debt then I'll be able to record another CD. TI be able to use those proceeds to pay off the panelbeater guy. If you don't accept $7,500 then it's bankruptcy and no one'll get anything at all"

Jake reluctantly agrees because at least this way he gets something and maybe Elwood will have better luck with his new CD. He tells Elwood to drop the money off at his flat.

"If I'm not there, give the money to Carrie, my flatmate".

Elwood borrows $7,500 from his father and calls at Jake's flat. Jake is out so he gives it to Carrie, as instructed. In order to protect himself from any unpleasant suggestions that he hasn't paid he asks for a receipt.

"Just to dot the i's and cross the t's. Then we know where we stand and I've got something for the tax man"

Carrie signs and dates a receipt which says, "Received from Elwood the sum of $7,500".

Elwood's subsequent CD, "BigE's Back Again", is a commercial success. Jake wants to recover the balance of $2,500 from Elwood.

Questions:

Question1

In Scenario 2, the whole debt is discharged and Jake is not entitled to recover the unpaid balance according to the third party (the Father) payment exception to the Pinnel's case.

O True

False

Question 2:

In Scenario 2, the whole debt is discharged and Jake is not entitled to recover the unpaid balance under s 27A of the Property Law Act 2007.

• True
• False

Question 3:

Elwood says to Jake: "I will pay you $7500 and give you 100 of my CDs in discharge of the debt I owe you". Jake agrees. The CDs are really rubbish and cannot be sold even for one dollar. So Jake later sends them to his Facebook friends as Christmas gifts, after which all the fiends defriend him on Facebook. Assuming the relevant facts are otherwise the same as in Scenario 2,

• the whole debt is discharged because there is both accord and satisfaction.
• the whole debt is still not discharged because, although there is accord (agreement that the whole debt will be discharged), there is no satisfaction (consideration).
• the whole debt is still not discharged because, although there is satisfaction (consideration), there is no accord (agreement that the whole debt will be discharged.

question:4

By agreeing to Elwood's proposal, Jake has obviated a disbenefit, ie the possibility that he will get less than $7500 if Elwood becomes bankrupt.

• Therefore, the practical benefit to Jake is good consideration for his promise to discharge the whole debt under the Williams decision.
• However, the Power Sports World case holds that the Williams decision does not apply to a relationship that is purely one between a debtor and a creditor. Therefore, even though a creditor can derive a practical benefit from accepting part payment in discharge of the whole debt, the benefit is not good consideration for the creditor's promise to discharge the whole debt.

Questions:5

The correct conclusion for Scenario 2 is:

O there is no valid discharge of the whole debt, and Jake is entitled to recover the unpaid balance.

the whole debt is discharged and Jake is not entitled to recover the unpaid balance.