Court Upholds Corporate Shield Director Not Liable in Failed Real Estate Deal
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In a recent Ontario Superior Court case, a real estate transaction failed to close when the buyer's corporation was unable to complete the purchase. The seller pursued legal action against both the corporation and its sole director, seeking damages for the failed deal. However, the court determined that the director was not personally liable, emphasizing the legal separation between a corporation and its individual shareholders or directors. This decision underscores the principle that, in the absence of personal guarantees or evidence of misconduct, corporate entities shield their directors from personal financial responsibility in contractual breaches.
The court's ruling highlighted the importance of the corporate veil, which protects individuals from personal liability for corporate actions, provided there is no fraud or misuse of the corporate structure. The judge found no evidence that the director had acted improperly or that the corporation was merely a facade for personal dealings. Consequently, the director's personal assets remained protected, and the liability for the failed transaction rested solely with the corporation.
This case serves as a critical reminder for parties entering into agreements with corporate entities. Sellers should conduct thorough due diligence and consider requiring personal guarantees when dealing with corporations, especially those with limited assets. Such precautions can provide additional security and recourse in the event of a breach, ensuring that individuals cannot evade responsibility solely by operating through a corporate entity.
Read the full article on: REAL ESTATE MAGAZINE
