Lying About Future Intentions Can Cost You

Satnam Education Foundation v. MB Dream Construction & Supplies Ltd., 2020 BCSC 1089

Lying About Future Intentions Can Cost You Negotiating contractsWhen doing business, saying one thing and doing another can sometimes get you into hot water. This turned out to be the case for MB Dream Construction & Supplies Ltd. (MB Dream) who mislead Satnam Education Foundation (Satnam) and hid their true intentions to make a profit.

In 2016, Satnam was a non-profit society that generated funds to support their private school association. Over the years, the school began to grow and new facilities were needed to manage its capacity of children. As the foundation had a 10-lot subdivision in Surrey, BC, they concluded that selling the property would raise the money needed to support an additional campus.

In order to generate income while maintaining their interests, Satman was willing to sell the lots for a discounted rate. Their intention was to sell to someone who would immediately take steps to build residential homes. The hope was that new houses would improve the area and reduce crime. This is why Satnam agreed to sell 9 of 10 lots to the owner of MB Dream for a purchase price of $380,000.00 for each lot.

When the deal was made, MB Dream claimed that it intended to build residential homes in a timely manner. Satnam also alleged that the owner of MB Dream had made statements the lots were going to be used for members of a Sikh congregation. However, it turned out this was not the case. Shortly after entering into the contract, the owner of MB Dream entered into another contract to assign or resell 8 of the 9 lots for $480,000.00 each.

The first 5 lots were set to close between March 31 and May 9, 2016, however, the remaining lots were set to close post May 12, 2016. Because MB Dream was attempting to resell the lots for a higher price with no intention of development, Satman refused to sell the remaining lots. They alleged that MB Dream fraudulently induced Satman into entering into the contracts.

At trial, Satnam argued that they would have developed the lots but received financial advice that it would be more beneficial to subdivide and sell each lot. They believed MB Dream was undertaking this project for the benefit of the Sikh congregation and not to attempt to flip the parcels for a profit. In turn, MB Dream took the position that they made no such representation and in support of that position, they specifically negotiated an assignment clause into the contract.

Due to the fact that Satnam discounted the price of the lots to have residential homes built on the property quickly, the Court found that the MB Dream fraudulently misrepresented its intentions and that MB Dream did not intend to develop the lots. The Court found that MB Dream intended to “flip” the lots for a profit. Damages of $375,000 were paid based on the gains made by MB Dream’s sale of the five properties.

This case is important as it highlights that a representation about a “future intention” can lead to unintended consequences when the opposing party relies on those representations to enter into a contract. The representation need not be the only factor or even the most important factor that led to the making of the contract. It is sufficient that the representation is a factor contributing to the decision to enter into the contract.

In addition, contracts typically provide for a provision that the contract contains a standard form exclusion clause, meaning that the contract embodies the entire agreement between the parties and there are no other representations if they are not within the contract. However, when a fraudulent misrepresentation is made to induce the other party to enter into a contract, the contract then cannot be used as protection for the fraudulent party.

The key take away from this case is that a representation of a future intention may induce a party into a contract and if that future intention is false, then the contract can be considered void.

Negotiating contracts can be a complicated process which is why it is always recommended to seek legal advice before entering into one. If you have any questions or are having contract issues of your own, don’t hesitate to get in touch with our Business Law team anytime.