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Corporations - Indoor Management Rule. Curridor v. Millstone Homes Inc.
In Curridor v. Millstone Homes Inc. (Ont CA, 2026) the Ontario Court of Appeal allowed an APS appeal, here where "the trial judge ordered the vendor to pay the purchaser damages, pre-judgment interest, and costs - and where the central issue was whether "the APS was a valid and binding agreement".
Here the court considers the corporate 'indoor management rule':[1] ... The parties met and agreed the vendor would extend a “family and friends deal” (the “Friends and Family Deal”) to the purchaser. Under the Friends and Family Deal, the corporate vendor sold homes to friends and family at a discounted price but only the vendor’s owner could approve such deals ...
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[3] The central question at trial was whether the APS was a valid and binding agreement. The trial judge found that it was, relying on the “indoor management rule” as codified by s. 19 of the Ontario Business Corporations Act, R.S.O. 1990, c. B.16 (the “OBCA”). At common law, the indoor management rule provides that a good faith third party is entitled to assume that a corporation’s internal policies and procedures have been followed.
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[49] Section 19 states that it applies “except 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”. While the trial judge found that Kevin was “entitled to reasonably assume that the signature was genuine and that all internal protocols had been followed”, she did not address the evidence that could have supported a finding that the exception in s. 19 was satisfied. Based on the record, Kevin may have had sufficient knowledge that the exception was triggered. He knew that Vasile alone decided who got the Friends and Family Deal and that the terms of such a deal were outside Millstone’s usual business practices. He also knew that the terms had not been settled before Vasile went on extended holiday. Yet he relied on Gianni – without checking with Vasile – to finalize the terms of the Family and Friends Deal and have the APS prepared and signed. He also knew that the APS did not reflect the one term that he and Vasile had agreed on, namely to share the profit when the Property was sold.
[50] The indoor management rule is designed to protect third parties in their dealings with corporations. In deciding whether it applies, the court must look to the relationship, interaction, business, and dealings between the parties to determine whether a person had knowledge that the company processes were not followed or a signature not genuine: 1264777 BC Ltd. v. 0694813 BC Ltd., 2023 BCCA 410, at paras. 50-52. . Inuksuk I (Ship) v. Sealand Marine Electronics Sales and Services Ltd
In Inuksuk I (Ship) v. Sealand Marine Electronics Sales and Services Ltd (Fed CA, 2023) the Federal Court of Appeal considered a lawsuit in maritime law, where - amongst other interesting things - one 'arrests' ships, and once security is paid, they are released again. In this quote the court identifies the SOR for questions regarding the 'indoor management rule' as one of mixed law and fact:[39] As mentioned, the appellants characterized the errors made as errors of law to which the standard of correctness applies. However, the Federal Court was using the appropriate test with respect to the Indoor Management Rule (see paragraph 185 of the Federal Court Decision, reproduced at paragraph 30 above). One would normally understand that it was implicit that the Federal Court was satisfied that the respondent met that test (which included good faith) when it concluded as it did at paragraph 264 that the respondent could rely on the Indoor Management Rule. In such circumstances, the only error that the appellants could rely upon was whether, in making this finding of fact or mixed fact and law, the Federal Court made a palpable and overriding error, which could justify this Court’s intervention. . Inuksuk I (Ship) v. Sealand Marine Electronics Sales and Services Ltd
In Inuksuk I (Ship) v. Sealand Marine Electronics Sales and Services Ltd (Fed CA, 2023) the Federal Court of Appeal considered a lawsuit in maritime law, where - amongst other interesting things - one 'arrests' ships, and once security is paid, they are released again. In this quote the court cites a lower court definition of the 'indoor management rule':[30] At paragraph 185, the Federal Court described the Indoor Management Rule as follows:[185] The meaning and scope of the Rule is that a party dealing with a corporation, acting in good faith and unaware of any defect in authority, is entitled to assume that the corporation’s internal policies have been followed and adhered to. ... . AOD Corporation v. Miramare Investment Incorporated
In AOD Corporation v. Miramare Investment Incorporated (Ont CA, 2022) the Court of Appeal describes the 'indoor managment rule' for corporations:[20] Section 18(1) incorporates the indoor management rule at common law. That rule provides that parties dealing with a corporation, acting in good faith and without knowledge of any irregularity, are entitled to assume that a corporation's internal policies and proceedings have been followed and complied with: The Midas Investment Corporation v. Bank of Montreal, 2016 ONSC 3003, at para. 4. For the purposes of this appeal, the relevant provisions of s. 18(1) are as follows:18 (1) No corporation and no guarantor of an obligation of a corporation may assert against a person dealing with the corporation or against a person who acquired rights from the corporation that
(a) the articles, by-laws and any unanimous shareholder agreement have not been complied with;
…
(d) a person held out by a corporation as a director, officer, agent or mandatary of the corporation has not been duly appointed or has no authority to exercise the powers and perform the duties that are customary in the business of the corporation or usual for a director, officer, agent or mandatary;
(e) a document issued by any director, officer, agent or mandatary of a corporation with actual or usual authority to issue the document is not valid or genuine; or
(f) a sale, lease or exchange of property referred to in subsection 189(3) was not authorized.
[Emphasis added.]
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