Executive Summary: Key Legal and Evidentiary Issues

• The Court of Appeal for Ontario set aside a trial judgment that found an agreement of purchase and sale enforceable under the indoor management rule.
   
• A key issue was whether the purchaser's knowledge of irregularities in how the agreement was prepared and signed triggered the exception to section 19 of the Ontario Business Corporations Act.
   
• Another issue concerned the trial judge's treatment of a profit-sharing arrangement between the parties, which she dismissed as a collateral agreement without legal analysis.
   
• Evidentiary rulings excluding evidence of the general manager's alleged prior misconduct and an affidavit already admitted at trial raised questions of procedural fairness.
   
• Three separate errors were identified in the trial judge's decision to increase the statutory pre-judgment interest rate above the rate set by the Courts of Justice Act.
   
• Ultimately, the court ordered a new trial before a different judge of the Superior Court of Justice.
   

Facts of the case

The dispute concerns ownership of a home built on a property at 121 Crestview Drive in Komoka, Ontario. Millstone Homes Inc., a residential homebuilder owned by Vasile Caniuca and his wife Helen Caniuca, had agreed to sell the property to Kevin Curridor under what the parties called a "Friends and Family Deal," through which Millstone sold homes to friends and family at a discount. Kevin knew Vasile personally and was the son of Gianni Curridor, who was Millstone's General Manager at the time. The parties agreed the property would eventually be sold "at cost," with any profit from a future resale split 50/50 between Kevin and Vasile, but they did not settle further particulars of the deal before Vasile left for an extended vacation in January 2021.

Before leaving, Vasile arranged for two stamps bearing his signature to be created, giving one to his lawyer and one to Millstone's construction manager, with instructions that he be reached by phone for approval before any agreement of purchase and sale (the "APS") was stamped. While Vasile was away, Gianni gave Kevin a partially completed APS showing a purchase price of $600,000, a $1,500 deposit, and a closing date of May 28, 2021. Kevin signed the APS on January 7, 2021, and provided a deposit cheque the same day, which Millstone deposited on January 8, 2021. On February 11, 2021, Millstone's office administrator, Melissa Watt, emailed Kevin a copy of the APS bearing Vasile's stamped signature. Millstone later terminated Gianni's employment on March 29, 2021, based on allegations of theft and fraud, and took the position that the APS had been fraudulently created and signed without Vasile's knowledge or authority. Kevin then commenced proceedings seeking a declaration that the APS was valid, along with damages.

Policy and legislative provisions at issue

Central to the case is section 19 of the Ontario Business Corporations Act, which codifies the common law indoor management rule. That rule generally allows a good-faith third party to assume that a corporation's internal procedures have been followed, but section 19 does not apply where the person "has or ought to have, by virtue of the person's position with or relationship to the corporation, knowledge to that effect." The trial judge relied on this provision to find Millstone could not treat the APS as unenforceable.

Also at issue were procedural rules governing the trial evidence, including rule 53.01(1) of the Rules of Civil Procedure, which provides that evidence at trial is generally to be given orally, and rule 53.02(2), which the trial judge invoked to exclude an affidavit that had previously formed part of the evidentiary record under a consent order. On the question of pre-judgment interest, sections 129 and 130 of the Courts of Justice Act were engaged: section 129 sets a default statutory rate, while section 130 allows a court to depart from that rate where it considers it just, after weighing factors including changes in market interest rates and whether any party's conduct unnecessarily lengthened the proceeding.

Reasoning and analysis

Writing for the panel, Gillese J.A. found two central legal errors in the trial judge's conclusion that the APS was valid and enforceable. First, the trial judge treated the parties' 50/50 profit-sharing arrangement as an irrelevant "collateral agreement" between Kevin and Vasile personally, without explaining the legal basis for that characterization, even though the arrangement bore directly on whether the APS reflected the parties' full agreement. Second, the trial judge failed to consider whether Kevin had sufficient knowledge to trigger the exception to section 19 of the OBCA. The panel noted that Kevin knew Vasile alone could approve Friends and Family deals, knew the deal's terms had not been finalized before Vasile left, and knew the APS omitted the profit-sharing term he and Vasile had discussed, yet he relied on Gianni rather than confirming matters with Vasile.

The panel also found the trial judge erred in excluding evidence concerning Gianni's alleged prior misconduct, holding that this evidence was relevant to whether Kevin knew or ought to have known that the APS was improperly created, and that its exclusion mid-trial was procedurally unfair to Millstone. A related error arose from the exclusion of an affidavit from Melissa Watt describing Gianni's instructions for preparing the APS; the panel found this affidavit had already been admitted into evidence under the parties' consent order before the trial judge excluded it after Millstone closed its case, and that the exclusion unfairly deprived Millstone of the chance to call Melissa Watt as a witness. Finally, on pre-judgment interest, the panel identified three errors: the trial judge improperly treated Millstone's gross rental income from the property as evidence of a market interest rate without deducting expenses; she wrongly considered Millstone's unsuccessful fraud allegations and rejection of a settlement offer as unnecessarily lengthening the proceeding, despite Millstone having been barred from leading key evidence on the fraud issue; and she improperly relied on fluctuations in the statutory interest rate itself as a proxy for market rates, contrary to this court's prior decision in Aubin v. Synagogue and Jewish Community Centre of Ottawa (Soloway Jewish Community Centre), 2024 ONCA 615.

Ruling and overall outcome

The Court of Appeal allowed Millstone's appeal, set aside the trial judgment—including the damages award of $538,349.75 and the increased 3.17% pre-judgment interest rate—and remitted the matter for a new trial before a different judge of the Superior Court of Justice, with costs of the original trial to be determined by the judge presiding over that new trial. The panel ordered Kevin to pay Millstone costs of the appeal in the agreed amount of $25,000, inclusive of disbursements and taxes.