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May 23rd, 2018

A case surrounding an interest-free loan between friends is helping make reforms to consideration in the context of contract variations. In Rosas v. Toca, 2018 BCCA 191, the appellant won the lottery and loaned $600,000 interest-free to her friend. Approximately one year after the loan was formed, the appellant’s friend told her “I will pay you next year”, and the appellant agreed to the extension on payment and declined to bring suit. This request was repeated for several years, but the loan was never repaid. Eventually, the appellant brought a claim against her friend.

Canadian courts have generally adopted the rule that there must be added consideration where the promise from one party is simply to do something they are already obligated to do under contract. At trial, the judge found that the original term of the loan was for one year, and, based on the original repayment date, the limitation period had expired. The judge held that the subsequent promises from the friend to repay a year later were unenforceable for lack of consideration as the friend was already under an obligation to pay. The appellant’s claim was therefore dismissed as statute-barred and now subject to appeal.

The decision on appeal marks a shift in the law. At paragraph 183 of Chief Justice Bauman’s written reasons we see this shift: “When parties to a contract agree to vary its terms, the variation should be enforceable without fresh consideration, absent duress, unconscionability, or other public policy concerns, which would render an otherwise valid term unenforceable. A variation supported by valid consideration may continue to be enforceable for that reason, but a lack of fresh consideration will no longer be determinative.”

The modification of contract law principles as a result of this decision could have a significant effect on future debtor/creditor or employee/employer contractual relationships.

For the full court decision see: Rosas v. Toca, 2018 BCCA 191 (CanLII), http://canlii.ca/t/hs3c5

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