The appellant loaned money to limited-dividend housing companies to build low-rental housing, secured by first mortgages and operating agreements prohibiting sale or encumbrance without consent.
The companies granted second mortgages and later sold the properties without consent.
The second mortgagee sought a judicial sale in a foreclosure action, and the purchasers sought a declaration that they were not bound by the operating agreements.
The Supreme Court of Canada held that the transactions were not illegal under the National Housing Act, nor were they ultra vires the companies' powers.
The equitable 'clean hands' doctrine did not bar relief.
However, the Court allowed the appeal in part, holding that the purchasers were not entitled to prepay the mortgages because the unauthorized sales constituted a default under the mortgages.
