A Loan Between Friends

In the case of Rosas v. Toca 2018 BCCA 191, the Plaintiff won the lottery and gave her friend, the Defendant, a loan of $600,000.  The parties did not write down the terms of their agreement.  The trial judge found that the Defendant was to pay back the loan, without interest, in one year.  Every year for six years, the Defendant asked for more time to pay and the Plaintiff agreed to wait another year.  When the Plaintiff finally sued the Defendant, the Defendant argued that the Plaintiff’s claim could not proceed because the limitation period had passed.  The Plaintiff argued that the limitation period had been extended each time she agreed to wait another year.  The trial judge did not accept this argument because no new consideration had passed between the parties.

What is consideration?  It is something of value that parties exchange when a contract is made.  In the Rosas case, the Defendant promised to pay back the loan in exchange for the money advanced by the Plaintiff.  The Court of Appeal held that the loan was enforceable although it was interest-free.  This is not new law.

The Rosas case changes the law of contracts in BC because the law as it was would have provided an unfair result.  The problem before the Court is nicely summarized here:

So Hamilton (City) is recent appellate authority supporting the classic or orthodox legal anaysis of these types of cases: hard cases.  Harder still when we appreciate that unlike in many cases it is here the debtor who, having asked for, been granted and enjoyed years of forbearance by the creditor, raises her own failure to provide consideration for the benefit she has received to avoid her contractual obligation to repay the debt (para. 73).

The Court of Appeal decided to enforce the changes that the parties had made to the payment date even though no new consideration was exchanged.  Since the contract was modified annually until 2013, the running of the limitation period was delayed.  The Court found that the Plaintiff had started her court action in time and granted judgment in favour of the Plaintiff in the amount of $600,000.

Here is a concise statement of the new law:

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 (para. 183).

If you need help collecting a debt, contact Jennie Milligan at jmilligan@beckrobinson.com.  She represents clients in both Provincial Court (for amounts under $35,000) and Supreme Court (for amounts over $35,000).

Please don’t rely on this blog post for legal advice!  Contact Beck, Robinson & Company for a consultation on your claim.


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