Victor Contractors Ltd. financed the construction of a high-rise apartment tower in Hamilton by…

Victor Contractors Ltd. financed
the construction of a high-rise apartment tower in Hamilton by receiving
draws on first mortgage financing as work progressed. Rail Canada Pension
Fund held the first mortgage for $10 700 000. The mortgage contained the
following clause:

The Mortgagor [Victor Contractors
Ltd.] covenants and agrees with the Mortgagee [Rail Canada Pension Fund] that,
except with the prior consent of the Mortgagee (which consent shall not be
unreasonably withheld), it will not enter into any agreement for the sale,
transfer or other disposition of the mortgaged premises.

Victor Contractors Ltd. financed
the construction of a high-rise apartment tower in Hamilton by receiving
draws on first mortgage financing as work progressed. Rail Canada Pension
Fund held the first mortgage for $10 700 000. The mortgage contained the
following clause:

The Mortgagor [Victor Contractors
Ltd.] covenants and agrees with the Mortgagee [Rail Canada Pension Fund] that,
except with the prior consent of the Mortgagee (which consent shall not be
unreasonably withheld), it will not enter into any agreement for the sale,
transfer or other disposition of the mortgaged premises.

On May 31, Victor Contractors
agreed to sell the apartment building to Steel City Developers Corp. for $16
000 000. Steel City Developers paid a deposit of $75 000 and agreed to assume
the existing first mortgage. The closing date was December 1, with the balance
due on closing. The contract included the following clause:

This Agreement is conditional upon
the Vendor [Victor Contractors Ltd.] being able to obtain within thirty days
following this date the consent of the first mortgagee [Rail Canada Pension
Fund] to this sale and to the assumption of the first mortgage obligations by
the Purchaser [Steel City Developers Corp.].

When Victor Contractors requested
consent from Rail Canada Pension Fund, its manager stated that he would have to
be satisfied with the financial capability of Steel City Developers and wished
to see its audited financial statements. The secretarytreasurer of Steel City
Developers refused to produce the statements on the grounds that her company
had a firm policy of never disclosing its financial affairs to anyone except
its bank because this policy gave it an advantage over its competitors. With
matters at an impasse, the solicitors for Steel City Developers finally wrote
on June 28, informing Victor Contractors that since, as vendor, it had been
unable to obtain the consent of the first mortgagee as required, This
Agreement is now and void. In reply, Victor Contractors wrote, It is
clear that your letter of June 28 written on behalf of your client constituted
a wrongful renunciation of the contract of sale and purchase. Victor
Contractors then sued Steel City Developers for specific performance or,
alternatively, for damages for breach of contract. Steel City Developers
counter-claimed for the return of the deposit of $75 000. Outline what you
consider to be the main issue that the court will have to resolve in this case,
and offer with reasons an opinion about the probable outcome. Why would Rail
Canada Pension Fund have insisted upon a right to satisfy itself of the
financial capability of any purchaser of the apartment building?