In Rosas v. Toca, 2018 BCCA 191, the British Columbia Court of Appeal held that a borrower’s promises to repay a loan modified the original loan agreement, and thereby extended the time during which the lender could file a lawsuit to collect the loan. The reasons in this decision have far-reaching implications for the law of contract in British Columbia. The Court of Appeal has held that it is no longer necessary for a party to provide fresh consideration to modify a contract.

After winning the lottery, Ms. Rosas lent her friend Ms. Toca $600,000 to buy a home. Ms. Toca agreed to repay the loan in a year without interest. Each year until 2013, Ms. Toca asked for an extension to repay the loan. She said she would repay the following year. Finally, on July 17, 2014, Ms. Rosas filed a notice of civil claim in the Supreme Court of British Columbia to collect the loan.

The trial judge found that Ms. Rosas was too late in filing her notice of claim. The limitation period was six years from the date of default, which was when the loan was originally due. (The limitation legislation has undergone a significant legislative overhaul, but under the transition rules the six-year period applied as opposed to a two-year period under the current legislation).

Ms. Rosas appealed the decision to the Court of Appeal.

One of her arguments was that the agreement was modified each time Ms. Toca asked for an extension to repay the loan. Because the last extension was in 2013, Ms. Rosas was well within the limitation period. The problem with this argument is that Ms. Toca was already under a duty to repay the loan. Under traditional contract rules there had to be new consideration, in other words, some benefit flowing to Ms. Rosas in exchange for her forbearance in collecting the loan.

There was some evidence that might support the view that there was consideration for the extensions, in that Ms. Toca’s husband provided Ms. Rosas with assistance including driving her places, and volunteering in her store.

However, Chief Justice Bauman approached this case on the basis that the rule that fresh consideration is required to modify a contract needs to be reconsidered. In the reasons, he considered authorities both in Canada and England, as well as academic articles on this issue. He concluded that the absence of fresh consideration should not be a bar to enforcing a modification of a contract. There may be other reasons for refusing to give effect to modification, such as when one party pressures another to the point of duress or unfairly takes advantage of the other.

The Chief Justice wrote:

[176]    In the final analysis, I am persuaded that the legitimate expectations of the parties in the case of a modification to a going transaction should be protected. This is the motivating premise in the many cases where courts have struggled to find “consideration” so as to do justice between the litigants. It is but an incremental evolution of the law to say that in these cases, in the absence of duress, unconscionability or other proper policy considerations, such modifications should be enforceable. I would modify the pre‑existing duty rule to the extent necessary to accomplish this in the vein of the thesis advanced by Professors Waddams and Reiter. In my view, it is not necessary to justify such enforcement on the imaginative bases advanced by some—whether it be the theory of practical benefits or otherwise, which themselves amount to changes in the doctrine of consideration. Classic consideration is, as the cases have shown, something that the law recognizes as a legal right that can be enforced or compensated for in damages, but as Professor Chen-Wishart discussed, practical benefits cannot be so enforced or compensated. I agree with Professor Waddams when he says of the jurisprudence in this area of the law (The Law of Contracts, at para. 136):In view of this wide assortment of enforcement devices, all, on occasion employed by the courts, there is a strong case for assuming prima facie enforceability of such promises and for concentrating attention on what Professor Reiter called the only substantive issue, namely unconscionability.

Chief Justice Bauman wrote further:

[179]     Still in the search for consideration mode, one could also turn the pre‑existing duty rule on its head and preserve a semblance of the bargain theory of contract by concluding that in these types of cases performance in accordance with a pre‑existing contract (i.e., duty) is legally operative as consideration absent duress or other appropriate considerations to the contrary. It could be said that what motivates the additional promise is the return promise of the original consideration, which is still something that the promisor is capable of putting to their use, (i.e., something the promisor is capable of exercising an ownership interest in) since it was enough to ground the original contract. But are such machinations necessary? [180]     Enforcement of the modification in cases like this reflects the notion in a going transaction situation that the parties are already in a contractual relationship and are simply adapting it to changed circumstances. This is not the case of the “unwary signor or the casual promisor” being “hooked” too easily into a contractual relationship as feared by Professor Chen-Wishart. Surely the fact of the existing contractual relationship in the going transaction scenario attenuates much of such concern. Further, as with any bargain, certainty of terms and proof of mutual intention to be bound will have to be proved by the party seeking to rely on the variation agreement. In any event, the bargain theory of contracts—the notion that contracts are enforced and expectation damages justified because the promisor has been paid the value of the thing promised—is inconsistent with the longstanding enforcement of contracts under seal, or based on nominal consideration of $1.00 or a peppercorn. [181]     While the rationale for the enforcement of going transaction modifications is often based on the realities facing commercial actors in business transactions, friends and neighbours who make significant loans and agreements face similar realities: circumstances change and contractual modifications may be desirable and beneficial to both parties. [182]     As the Court in Antons said, “®he importance of consideration is as a valuable signal that the parties intend to be bound by their agreement, rather than an end in itself” (at para. 93). [183]     In my view, that is the case before this Court. 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 Court of Appeal held that the loan agreement was modified each time Ms. Rosas accepted Ms. Toca’s promise to pay the following year. In the result, the claim was not barred by the limitation period and Ms. Toca will have to repay the loan.