The BC Court of Appeal changed the law regarding the need for consideration when a contract is varied. In Rosas v. Toca, 2018 BCCA 191, Chief Justice Bauman for the Court stated:
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. In this way the legitimate expectations of the parties can be protected. To do otherwise would be to let the doctrine of consideration work an injustice.
Prior to Rosas, if parties negotiated new terms to a pre-existing contract but did not include any consideration, then those terms were not valid. This was called the “pre-existing duty rule” and reflected over two centuries of common law stemming from Stilk v. Myrick,  EWHC KB J58.
The Trial Court
Rosas was litigation regarding the loan of money between acquaintances. Enone Rosas won the lottery and claimed that she loaned Hermenisabel Toca $600,000.00 to purchase a house plus a $30,000.00 gift. Ms. Toca claimed that the entire amount was a gift.
Ms. Rosas claimed that the loan was for a one-year term and that Ms. Toca requested extensions over a number of years for the repayment of the loan. There was no consideration passed between them for the repayment extensions.
Eventually, Ms. Rosas demanded that the loan be repaid and brought a claim against Ms. Toca when it was not. The trial judge believed Ms. Rosas over Ms. Toca. However, she held that the claim was statute barred because it was brought more than 6 years after the loan was supposed to be repaid.
The Court Appeal
Ms. Rosas appealed the decision with a number of arguments including that there was no fixed date for the loan, that there was a forebearance agreement, and that the loan was a resulting trust.
The Court of Appeal did not accept Ms. Rosas’ arguments. However, it invited the parties to provide additional submissions on the “evolution of the law of consideration”.
The trial judge had followed the common law and held that, because there was no consideration, the agreement to extend the loan repayment was not a contractual variation. The trial judge held that Ms. Rosas had voluntarily abstained from exercising her right to have the loan repaid when it was originally agreed. Because there was no new contract, the limitation date started to run when the loan originally came due.
The Court of Appeal allowed the appeal. Chief Justice Bauman carefully reviewed jurisprudence and academic authorities in determining that the doctrine of consideration should be reformed. He noted that the facts in Rosas made for a hard case: Ms. Toca “raises her own failure to provide consideration for the benefit she has received to avoid her contractual obligation to repay the debt.”
The effect on employment contracts will be considerable. Prior to Rosas, variations in employment agreements had to be supported by fresh consideration. Now, the parties can agree to vary the terms of employment contracts without consideration passing between them.
Rosas was specifically about enforcing a debt, not employment. However Chief Justice Bauman referenced a dissenting opinion from the Alberta Court of Appeal in Globex Foreign Exchange Corp. v. Kelcher, 2011 ABCA 240, a case about the enforceability of non-competition clauses added to employment agreements after employees had already begun working. Although the Alberta Court of Appeal held that the non-competition clauses were unenforceable due to lack of consideration, Chief Justice Bauman quoted extensively from Justice Slatter’s dissenting opinion in which he found that parties to an employment agreement “should not have their expectations disappointed by an artificial rule of law”.
With Rosas, the BC Court of Appeal has now emphasized duress and unconscionability as the means with which varied contracts can be disputed. As such, employers will have to be careful when varying contracts without any consideration.
The courts have often found that the balance of power in employment contract negotiation favours employers. As such, employers should be careful when varying the terms of an employment contract to avoid anything that could be construed as duress, unconscionability, or undue influence. For more certainty, parties may wish to continue using consideration to finalize any variations to contracts.
Please see the Court of Appeal decision here: