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B.C. Court of Appeal breaks new legal ground in deciding verbal extensions to loan are new contracts

Thursday, May 24, 2018 - Filed in: Court Cases

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.