No new consideration required for modification to an agreement

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In a recent case out of the BC Court of Appeal, Rosas v Toca 2018 BCCA 191, the court altered the law surrounding contractual modifications to an existing agreement. Until now, in order for a modification to an existing contract to be legally binding, it has been required that there be some new consideration flowing between the parties. Consideration has been required in order to draw the line between gratuitous or morally based promises and those that were legally enforceable. 

In Rosas, Ms. Rosas won $4.163 million in the lottery in January 2007. She quickly collected her winnings and obtained a bank draft for her friend, Ms. Toca, in the amount of $630,000 ($30,000 of which was a gift and $600,000 was a loan). Ms. Toca and her husband shortly thereafter purchased a home with the majority of the proceeds from the bank draft. The parties agreed that the $600,000 would be repaid one year later but one year later, Ms. Toca requested that she be able to pay Ms. Rosas back the following year. The following year Ms. Toca again requested to pay Ms. Rosas back the following year and this continued until 2013. In July 2014, more than seven years after Ms. Rosas initially transferred the money, Ms. Toca still had not repaid the $600,000 and Ms. Rosas commenced an action seeking repayment of it.

On of Ms. Toca’s defences was to deny liability on the basis of the Limitation Act, as more than seven years had passed since the $600,000 was lent and accordingly Ms. Rosas’ claim was arguably statute barred. Ms. Rosas countered that the parties had entered into multiple forbearance agreements and accordingly had extended the limitation for Ms. Rosas to start her claim. The Supreme Court held that the forbearance agreements were invalid as each time Ms. Toca had asked for and been granted another year to pay Ms. Rosas, she had not given anything new to Ms. Rosas in consideration for the extension or modification. Accordingly from January 2008, Ms. Rosas had six years to commence her action, which she did not do, and accordingly her claim was statute barred.

The BC Court of Appeal looked at the various arguments before it and determined that it was permitted to make incremental changes to the common law where required to bring the law into line with a changing society. The court held that while the prevailing law in Canada had been that there must be new consideration in order for a modification to a contract to be valid, in the absence of duress, unconscionability or other proper policy considerations, a modification to an existing contract should be legally binding. Accordingly the forbearance that Ms. Rosas had granted to Ms. Toca each year had served to prolong the limitation period and Ms. Rosas’ claim was filed in time. Judgment was granted against Ms. Toca for $600,000 plus interest. 

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