Background
Kevin Curridor agreed with Millstone Homes Inc.’s owner that he could purchase a newly constructed home in Komoka, Ontario, under a discounted “Friends and Family Deal.” They also agreed to divide equally any profit when the property was eventually sold. While the owner was on vacation, Curridor received an agreement of purchase and sale setting a $600,000 price and bearing the owner’s stamped signature. Millstone later alleged that Curridor’s father, its general manager, had caused the agreement to be fraudulently prepared and executed without authority.
The trial judge held that the agreement was valid and enforceable under the indoor management rule codified in s. 19 of Ontario’s Business Corporations Act. She awarded Curridor $538,349.75 in damages and later increased the applicable prejudgment interest rate from 0.5% to 3.17%. During the trial, however, she excluded evidence concerning the general manager’s alleged misconduct and an affidavit from Millstone’s office administrator addressing how the agreement was prepared.
The Court’s Holding
The Court of Appeal allowed Millstone’s appeal, set aside the judgment, and ordered a new trial before a different Superior Court judge. It held that the trial judge failed to analyze adequately how the parties’ profit-sharing term affected the agreement’s validity and enforceability. She also failed to decide whether wrongdoing produced the stamped signature or properly assess whether Curridor knew or ought to have known that Millstone’s internal procedures had not been followed, which could engage the exception to the indoor management rule.
The court further held that excluding the evidence concerning the general manager’s alleged misconduct was legally erroneous and procedurally unfair because that evidence was relevant to the agreement’s creation and Curridor’s knowledge. Excluding the office administrator’s affidavit after it had been admitted and after Millstone had closed its case likewise unfairly deprived Millstone of an opportunity to call her as a witness.
The trial judge also committed legal errors in increasing prejudgment interest. Rent from this single property did not establish changes in general market interest rates; Millstone could not be faulted for failing to prove fraud after being prevented from presenting relevant evidence; rejection of a settlement offer was a costs matter rather than a basis for adjusting interest; and fluctuations in statutory prejudgment interest rates could not be used as a proxy for market rates.
Key Takeaways
- Applying the indoor management rule requires attention to the claimant’s relationship and dealings with the corporation and to what the claimant knew or ought to have known about possible internal irregularities.
- A trial court may not dismiss a significant profit-sharing term as merely collateral without identifying and applying the governing legal principles.
- Late exclusion of previously admitted evidence can be procedurally unfair when a party relied on that evidence in deciding how to present its case.
- Property-specific rental income, rejected settlement offers, and fluctuations in statutory interest rates did not justify increasing prejudgment interest under s. 130 of the Courts of Justice Act.
Why It Matters
The decision emphasizes that apparent corporate authority does not automatically validate a transaction when the third party’s relationship with the corporation may have alerted that person to unauthorized conduct. Courts must examine the full factual setting before applying statutory protection for outsiders dealing with corporations.
It also reinforces procedural safeguards governing evidentiary rulings and limits the factors courts may use to vary statutory prejudgment interest. The Court of Appeal did not decide whether the disputed agreement was ultimately valid or whether fraud occurred; those questions remain for the new trial.