No New Consideration Required for Contract Adjustments
Parties engage in a contract. Then, there are some extensions and adjustments etc. Both parties expect to be bound by these modifications. But, the contract is only good for so long. After the limitation runs, the aggrieved party can’t sue. So, the issue is whether a clever person could seek indulgences by the innocent party and them claim that the contract is over based upon a “technicality.
The British Columbia Court of Appeal modified the law in British Columbia in Rosas v. Toca, 2018 BCCA 191 on 18 May 2018.
Here’s a summary of the case from the headnote:
“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.
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.
On appeal, the appellant argued that the trial judge erred in finding that the loan was originally repayable within a year, that the subsequent promises were unenforceable, or erred in not finding that the appellant had a property interest in her friend’s home through a resulting trust.
Held: appeal allowed.
There has been an evolution in the doctrine of consideration in the context of contract modifications. 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.
The parties repeatedly agreed to modify the repayment date each time the appellant’s friend told her “I will pay you next year”, and there is no suggestion that the modifications were procured under duress, were unconscionable, or were unenforceable on the basis of public policy. Since those modifications are enforceable, the limitation period has not expired and the claim is granted.”
The Court also stated:
“Consideration is a threshold issue to the enforcement of contracts, but it should not be extended or applied in a mechanical and artificial way. It should not be used to undermine the legitimate commercial expectations of the parties as to the enforceability of their obligations….The courts should not bend over backwards to find that agreements, believed by the parties to be enforceable, are essentially toothless because of the doctrine of consideration.”
“In applying the law of consideration, the courts should refrain, if possible, from relieving the parties of covenants freely entered into, absent some overriding public policy consideration…”
Applicability in Ontario
The BC Court of Appeal also noted:
“ Justice Lauwers, for the Court, wrote at para. 43 that “the developing case law outside Ontario suggests that the time might be ripe for this court to re-consider the role that consideration plays in the enforceability of contractual variations”, though went on to distinguish Gilbert Steel and the rule in that case on the facts. He held that the agreement had clarified an unclear term in a long term contract which created certainty for Urbandale and thus constituted valid consideration (at para. 47). As a result of this, the Court did not engage in a substantive discussion of the case law discussed above.”
 I would also observe that the “Report on Amendment of the Law of Contract” (1987) by the Ontario Law Reform Commission similarly criticized the pre-existing duty rule, and recommended that “an agreement in good faith modifying a contract should not require consideration in order to be binding”: (at 33).
So, all in all, it looks like Ontario would be a ripe place for this new development in the law.
Brian Madigan LL.B., Broker