''National Westminster Finance NZ Ltd v South Pacific Rent-a-Car Ltd''

985 Year 985 (Roman numerals, CMLXXXV) was a common year starting on Thursday (link will display the full calendar) of the Julian calendar. Events By place Europe * Summer – Henry II, Duke of Bavaria, Henry II (the Wrangler) is rest ...

1 NZLR 646 is a cited case in New Zealand regarding the validation of illegal contracts under the

Illegal Contracts Act 1970 The Illegal Contracts Act 970'' is a New Zealand law that manages how contracts are deemed illegal under either common law or under Statute. Under this law, all such contracts are deemed illegal, but it gives wide discretionary powers to grant r ...

Background

South Pacific ran a

Christchurch Christchurch ( ; mi, Ōtautahi) is the largest city in the South Island of New Zealand and the seat of the Canterbury Region. Christchurch lies on the South Island's east coast, just north of Banks Peninsula on Pegasus Bay. The Avon River / ...

-based

rental car Renting, also known as hiring or letting, is an agreement where a payment is made for the temporary use of a good, service or property owned by another. A gross lease is when the tenant pays a flat rental amount and the landlord pays for al ...

agency. Over the years, it had purchased 80 cars under hire purchase from the NZ Motor Corporation, paying a 10% deposit, plus a further 15% in instalments over the next 8 months, with the NZMC purchasing the vehicles back. Problems arose however in 1979, when Mr Mullaly sold the company to another company owned by Mr Cooper, after his lawyer advised him that these agreements were illegal, as under the Hire Purchase and Credit Sales Stabilisation Regulations 1957, hire purchase agreements are illegal if they have a deposit of less than 60%. As a result, Cooper took the drastic action of demanding that the

finance company Financial institutions, sometimes called banking institutions, are business entities that provide services as intermediaries for different types of financial monetary transactions. Broadly speaking, there are three major types of financial insti ...

take all the vehicles back, which the duly did, and after selling the vehicles, sent South Pacific a demand for $44,922.74, as well as to Mr Mullaly under his

personal guarantee A personal guarantee is a promise made by a person or an organization (the guarantor) to accept responsibility for some other party's debt (the debtor) if the debtor fails to pay it. In the case of a personal guarantee made by an individual on behal ...

. After neither party was prepared to pay, the finance company sued both parties. South Pacific lodged a

counter-claim In a court of law, a party's claim is a counterclaim if one party asserts claims in response to the claims of another. In other words, if a plaintiff initiates a lawsuit and a defendant responds to the lawsuit with claims of their own against th ...

that as the contracts were illegal, not only were they not liable for the shortfall, that they were also entitled to the $55,238.14 that they had paid under these contracts to be refunded, and NatWest subsequently filed in the court for a validation order.

Held

The court made an order for validation of the HP contracts, but only on the basis that they first release Mr Mullaly from his guarantee.

References

Court of Appeal of New Zealand cases New Zealand contract case law 1985 in case law 1985 in New Zealand law NatWest Group litigation {{NewZealand-case-law-stub