Corporate directors may be liable for property sales misrepresentation, but not realtors: BC court

Buyer allegedly assured that government approvals for the properties were in place

Corporate directors may be liable for property sales misrepresentation, but not realtors: BC court

The BC Supreme Court has ruled that a cause of action exists against the corporation directors, but not the realtors, who allegedly committed fraudulent misrepresentation during the sale of properties in Chilliwack, BC.

In Bridal Falls Development Corp. v Bridal Falls RV Park Inc., 2023 BCSC 156, Infinite Expansion’s shareholder Joe Duminuco claimed that realtor Don Munro approached him regarding an opportunity to purchase properties at Bridal Falls, Chilliwack, for development purposes. Infinite offered to buy the properties for $8 million from the seller, Bridal Falls RV Park Inc.

Soon after Infinite executed a contract of purchase and sale, it assigned the agreement to Belmar Holdings Inc. Meanwhile, Duminuco incorporated Bridal Falls Development Corp. Belmar later assigned the sale contract to Duminuco’s company.

Duminuco later learned that the seller corporation had failed to obtain the necessary government approvals so development could proceed. He sued the seller, alleging that the corporation had induced him into buying the properties when its directors and Don Munro assured him that various government approvals were in place. After filing a complaint, Duminuco brought an application before the BC Supreme Court, seeking leave to add two directors of the seller corporation as defendants, along with the realtor Don Munro, Don Munro Personal Real Estate Corporation, and West Coast Realty Ltd.

Directors’ fraudulent misrepresentation

In the notice of civil claim, the plaintiff Bridal Falls Development alleged various instances where the directors made fraudulent misrepresentations regarding the status of the approvals, including three meetings between the seller and the first buyer, Infinite.

The court was satisfied that the plaintiff had pleaded the fraudulent misrepresentation claim against the directors with sufficient particularity that it grounded a separate cause of action against them in their personal capacity and did not pierce the corporate veil.

Infinite entered the sale contract as the buyer. The directors argued that the representations they had allegedly made were made to Duminuco as Infinite’s representative and not as a representative of the plaintiff corporation. The directors asserted that a claim of fraudulent misrepresentation must plead a specific representation made to a particular victim, not to a class of victims.

The court observed that the notice of civil claims pled that Infinite, Belmar, and Bridal Falls Development are affiliated and closely held corporations. The court said an entity’s incorporation to purchase a specific property is a common business practice, and the defendant must not be allowed to escape liability for a fraudulent misrepresentation made to a controlling individual before the incorporation of that corporate entity.

The pleadings met the low threshold of whether there was a real issue to be tried between the plaintiff and the directors. The court was satisfied that the proposed pleading alleged that the directors knowingly made false representations to Duminuco, Infinite, Belmar, and Bridal Falls Development’s representative. Further, the plaintiff relied on those representations to its detriment when it agreed to take an assignment of the contract from Belmar. Accordingly, the court allowed the directors to be added as defendants.

No cause of action against realtors

The court reached a different conclusion regarding the realtors, finding that the pleadings as drafted did not sufficiently plead a cause of action against them.

The court explained that to ground a claim in negligence against the realtors successfully, the plaintiff must prove it has a contractual or agency relationship with them. However, the court found that the only agency relationship pleaded was between the realtors and Infinite. No contractual or agency relations were pleaded between the realtors and the plaintiff Bridal Falls Development Corp.

 Further, the court found that material facts were not pleaded to support the allegation that the realtors acted in a dual agency capacity without right or authority. Accordingly, the court concluded that the pleadings as drafted failed to plead a cause of action against the realtors sufficiently.

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