Loan from lottery winner must be repaid
In a decision that changes contract law, family friend must pay back $600,000
A $600,000 loan to a friend made by a B.C. lottery winner must be repaid even though she waited seven years to collect, says the province’s chief justice in a ruling that modifies existing contract law.
Enone Rosas, who came to Canada from the Philippines in 1990 to be a nanny, won $4.2 million in January 2007 and made the interest-free loan to pal Hermenisabel Toca so she and husband Gener Visaya could buy a home.
They moved out of a basement apartment into a $700,000 house on Dumfries Street in Vancouver.
But a year later, when the loan was due, Toca pleaded for more time saying, “I will pay you next year.”
Rosas always agreed to the extension, but year after year the routine wore down her patience. In July 2014 she sued, seeking repayment more than seven years after transferring the money.
But B.C. Supreme Court Justice Marguerite Church concluded Rosas had been too patient, waited too long to bring her suit, and she was out of luck.
She said the original term of the loan was for one year and based on the limitation period for bringing a lawsuit — the legal deadline of six years had expired.
Church held that the subsequent promises from Toca to repay did not change the original terms and were unenforceable. Rosas appealed. Supported by Justices Lauri Ann Fenlon and Barbara Fisher, Court of Appeal Chief Justice Robert Bauman overturned the lower court, saying there has been an evolution in the doctrine of consideration in the context of contract modifications.
“It has been famously said that ‘hard cases make bad law’; sometimes, however, hard cases make new law,” Bauman began in a 25,000-plus-word decision.
“Or, at least, they very much encourage the court to do so lest we give credence to Mr. Bumble’s lament in Oliver Twist: ‘If the law supposes that … the law is an ass.’”
The chief justice then embarked on a lengthy review of case law, from the doctrine’s roots in a 19th-century suit about deserting sailors and promises amid a storm, and surveyed legal literature before agreeing change was needed.
“Is it the law that Ms. Rosas cannot rely on Ms. Toca’s various promises to pay ‘next year’ because Ms. Toca gave no consideration for Ms. Rosas’s forbearance to sue?” Bauman asked.
“That is the effect of the judgment before us on appeal. In the trial judge’s view, Ms. Rosas’s patience was ‘nothing more than a ‘voluntary abstention’ from exercising her rights to enforce repayment of the loan which did not affect the running of the applicable limitation period.’
“In my view that is not the law, or at least not what the law should be for variations of existing contracts. The time has come to reform the doctrine of consideration as it applies in this context, and modify the pre-existing duty rule, as so many commentators and several courts have suggested.”
When parties to a contract agree to vary its terms, Bauman said, the variation should be enforceable without fresh consideration absent duress, unconscionability or other public policy concerns that would render an otherwise valid term unenforceable:
“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.”
In this case, Rosas and her husband in 2004 became friends with Toca and her husband Visaya, who often drove Rosas and her family around because they didn’t have a vehicle.
After winning the lottery, Rosas’s life was transformed and she generously shared her good fortune with friends — giving one $100,000, another $40,000, and even giving Toca $30,000.
But she maintained the $600,000 was a loan.
It has been famously said that ‘hard cases make bad law’; sometimes, however, hard casesmake new law.
Rosas and Toca rarely saw each other during the rest of 2007 as Rosas travelled often, enjoying her winnings. They rekindled their friendship in early 2008.
Toca and her husband continued to drive Rosas around and, after Rosas purchased a convenience store, Visaya helped out regularly without being paid.
The friendship waned, however, and they did not see each other from 2013 until after Rosas commenced litigation.
Bauman said the two women repeatedly agreed to modify the repayment date each time Toca told Rosas, “I will pay you next year.”
There was no suggestion those modifications were procured under duress, were unconscionable or unenforceable on the basis of public policy, he added.
As a result, he said, the limitation period had not expired.
“I would not disturb the judge’s conclusion that Ms. Toca alone is liable on the loan,” Bauman added. “Mr. Visaya was not a party to any negotiations, and Ms. Toca made no promises on his behalf. Since the trial judge made all the other necessary findings of fact to dispose of the claim I would therefore allow the appeal and grant judgment for Ms. Rosas in the amount of $600,000 plus prejudgment interest against Ms. Toca alone.”