“Indoor Management Rule”
Curridor v. Millstone Homes Inc., 2026 ONCA 571
A recent decision of the Ontario Court of Appeal provides an important warning for anyone dealing with a corporation in a real estate transaction:
- the fact that an Agreement of Purchase and Sale appears to have been properly signed by a corporation does not necessarily mean that the agreement will be enforceable.
In Curridor v. Millstone Homes Inc., the Court of Appeal overturned a trial decision that had found a residential Agreement of Purchase and Sale to be binding. The Court ordered a new trial after finding significant errors in the Trial Judge’s treatment of the corporate signing authority, the evidence surrounding the transaction, and the parties’ underlying agreement.
The decision is particularly important because it examines the limits of the “indoor management rule” under s. 19 of the Ontario Business Corporations Act (“OBCA”).
Facts
Millstone Homes Inc. was a residential builder in the London, Ontario area. Kevin Curridor was acquainted with Millstone’s principal, Vasile Caniuca, through Curridor’s father, who was Millstone’s general manager.
Curridor was interested in purchasing a property in one of Millstone’s developments.
The parties discussed a special “Friends and Family Deal.” The understanding was that Curridor would acquire the property at cost and, when the property was eventually sold, the parties would split the profit 50/50.
Construction began, and Curridor subsequently requested an Agreement of Purchase and Sale.
On January 5, 2021, an APS was provided to Curridor showing a purchase price of $600,000, a $1,500 deposit and a May 28, 2021 closing date. Curridor signed the APS and delivered his deposit cheque. Millstone deposited the cheque.
The problem arose because Millstone’s principal, Vasile, was away on an extended vacation. Before leaving, he had arranged for stamps bearing his signature to be used, but specifically instructed that he was to be contacted for approval before his signature was placed on an APS.
While he was away, his signature was stamped on Curridor’s APS.
When Vasile returned, Millstone
- alleged that Curridor’s father, Gianni,
- had improperly arranged the transaction and
- had used Vasile’s signature stamp without authorization.
- Millstone refused to complete the transaction.
The Trial Decision
At Trial, the Judge concluded that the APS was valid and enforceable.
The Judge relied in large part on s. 19 of the OBCA, which incorporates the common-law indoor management rule.
The rule generally protects third parties dealing with corporations by allowing them to assume that the corporation’s internal procedures have been properly followed.
The Trial Judge concluded that Curridor was entitled to assume that Vasile’s signature was genuine and that Millstone’s internal procedures had been followed.
She awarded Curridor approximately $538,350 in damages, plus interest.
The Trial Judge also increased the applicable prejudgment interest rate from the statutory rate of 0.5% to 3.17%.
Millstone appealed.
The Court of Appeal’s Decision
The Court of Appeal allowed the appeal and ordered a new trial before a different judge.
The Court identified several significant legal and procedural errors.
- The “Indoor Management Rule” Has Limits
The most important aspect of the decision concerns the indoor management rule.
Section 19 of the OBCA generally permits a person dealing with a corporation to assume that the corporation’s internal procedures have been followed.
However, there is an important exception.
The protection does not apply where the person “has or ought to have” knowledge, because of their position or relationship with the corporation, that the internal requirements were not followed.
The Court of Appeal held that the Trial Judge had failed to properly consider this exception.
There were several facts that potentially should have caused Curridor to question the transaction.
He knew:
- Vasile alone had authority to approve the Friends and Family Deals;
- the arrangement was outside Millstone’s normal business practices;
- the terms of the transaction had not been finalized before Vasile left on vacation;
- he was relying on Gianni to finalize the transaction;
- the APS did not contain the important 50/50 profit-sharing term that he and Vasile had actually agreed upon; and
- he did not contact Vasile to confirm the transaction.
The Court emphasized that the application of the indoor management rule requires consideration of the relationship, interaction, business and dealings between the parties.
Therefore, the rule cannot simply be applied because a document appears to contain a corporate signature.
- The Underlying 50/50 Profit-Sharing Agreement Was Important
The Trial Judge treated the agreement to share the eventual profit as a separate “collateral agreement” between Curridor and Vasile personally.
The Court of Appeal found that the Trial Judge had not adequately explained why that was legally the case.
This was significant because the profit-sharing arrangement was not a minor side issue. It was part of the original understanding between the parties.
The Court held that the Trial Judge was required to conduct an appropriate legal analysis of the agreement and explain why it should be treated as collateral to the APS.
Her failure to do so was a legal error serious enough to require a new trial.
- Millstone Was Not Given a Fair Opportunity to Prove Its Case
Millstone’s principal defence was that the APS had been improperly created and that Vasile’s signature had been placed on the document without authorization.
Yet the Trial Judge excluded evidence relating to Gianni’s alleged fraud, forgery and misconduct.
The Court of Appeal found this to be both procedurally unfair and legally wrong.
That evidence was directly relevant to the central issue:
Was the APS actually authorized by Millstone?
It was also relevant to the related question:
Did Curridor know, or ought he to have known, that Millstone’s internal procedures had not been followed?
The Court concluded that excluding this evidence prevented Millstone from properly presenting its principal defence.
- An Affidavit Was Improperly Excluded After the Evidence Had Been Admitted
The Court also criticized the trial judge’s treatment of an affidavit from Millstone’s office administrator, Melissa Watt.
The parties had previously agreed that the affidavits filed during the original application proceeding would form part of the evidentiary record.
The Watt affidavit dealt with important matters, including:
- Gianni’s instructions concerning preparation of the APS;
- the terms normally included in Millstone’s agreements;
- what Gianni told her about the APS; and
- what she understood concerning Vasile’s review and execution of the document.
Curridor did not object to the affidavit when the evidence was being presented.
After the parties had closed their cases, however, Curridor’s counsel asked that the affidavit be excluded because Watt had not testified personally.
The Trial Judge agreed.
The Court of Appeal found this unfair.
Millstone had been entitled to rely upon the affidavit when presenting its case. If the affidavit was going to be excluded, Millstone should have had an opportunity to call Watt as a witness.
The Court also held that there was no proper basis for drawing an adverse inference against Millstone simply because Watt had not testified.
What Does This Mean for Real Estate Transactions?
Curridor v. Millstone Homes Inc. has several practical implications.
- Do Not Assume a Corporate Signature Is the End of the Inquiry
When dealing with a corporation, particularly where the transaction is unusual, the purchaser should consider whether the person signing or delivering the agreement actually has authority to do so.
This is especially important where the purchaser knows that a particular individual has exclusive authority over the transaction.
- Unusual Transactions Require Greater Care
The circumstances surrounding the transaction matter.
If the purchaser knows that the transaction is outside the corporation’s ordinary business practices, that the normal decision-maker is unavailable, or that an important term has not been documented, relying blindly on the indoor management rule may be risky.
- The Entire Deal Matters
The Court of Appeal’s treatment of the 50/50 profit-sharing arrangement is also significant.
An APS cannot necessarily be analyzed in isolation from the surrounding agreements and understandings between the parties.
If an important term was agreed upon but does not appear in the written APS, its legal significance needs to be carefully considered.
- Evidence Must Be Fairly Presented
The decision also serves as an important reminder about procedural fairness.
A party should not be prevented from presenting evidence directly relevant to its defence and then be criticized for failing to establish that defence.
The Court of Appeal was particularly concerned that Millstone’s evidence concerning the alleged fraud had been excluded before the trial judge determined whether the APS had actually been fraudulently created.
- Prejudgment Interest Requires a Proper Evidentiary Foundation
Finally, Curridor reinforces that increasing the statutory prejudgment interest rate requires more than simply pointing to rental income, settlement negotiations or historical fluctuations in statutory rates.
A court must properly apply the statutory factors and have an evidentiary foundation for any departure from the prescribed rate.
Brian Madigan LL.B., Broker