49 Haw. 160 (1966) 413 P.2d 221

TOICHI KAWAUCHI AND MATSU KAWAUCHI
v.
ICHIRO TABATA, MITSUYE TABATA, DAVID PANG, BETTY PANG, COOKE TRUST COMPANY, LIMITED, AS EXECUTOR OF THE ESTATE OF RICHARD KAINUMA, DECEASED, MILDRED KAINUMA, WILFRED OHTA, OKIMI YAE OHTA, EDWARD YAMADA, ALBERT YAMADA, VERNON NUNOKAWA, CHIYO NUNOKAWA, ISAAC KAWASAKI, TOKI KAWASAKI, KAZUO MIYAMOTO, SEIKO MIYAMOTO, HONG CHONG CHANG, LORRAINE CHANG, BISHOP TRUST COMPANY, LIMITED, AS EXECUTOR OF THE ESTATE OF CLARENCE KUSUNOKI, DECEASED, BISHOP TRUST COMPANY, LIMITED, AS EXECUTOR OF THE ESTATE OF MEREDITH KUSUNOKI, DECEASED, AND FIRST NATIONAL BANK.

No. 4399.

Supreme Court of Hawaii.

March 30, 1966.

WIRTZ, LEWIS, MIZUHA, JJ., CIRCUIT JUDGE KING IN PLACE OF CASSIDY, J., DISQUALIFIED, AND CIRCUIT JUDGE KITAOKA, ASSIGNED BY REASON OF VACANCY.

*161 R.G. Dodge (Heen, Kai & Dodge of counsel) for appellants.

George R. Ariyoshi (Russell K. Kono with him on the briefs) attorney for 17 individual appellees (members of the doctors' group) and for the Estate of Richard Kainuma, Deceased (also a member of the doctors' group).

Yasutaka Fukushima, attorney for the Estate of Clarence Kusunoki, Deceased, and O. Vincent Esposito, *191 attorney for the Estate of Meredith Kusunoki, Deceased (remaining members of the doctors' group), joined in the briefs but did not argue.

*162 OPINION OF THE COURT BY LEWIS, J.

Plaintiffs sued to obtain a declaration that a transaction entered into in 1958 was a mortgage securing a usurious loan, and to establish a right of redemption upon payment of the sum of $90,000 received by them in the transaction, less "all moneys paid on the loan." The court held that the transaction was a sale, coupled with a lease back of the premises and an option to repurchase. Judgment was entered for defendants and plaintiffs appealed.

Plaintiffs are husband and wife. Toichi Kawauchi, the husband, hereinafter will be referred to as "plaintiff." When both plaintiffs are referred to they will be designated as "the Kawauchis." Defendants are a group of ten husbands and wives,^[1] hereinafter referred to as the "doctors' group," or "defendants," who entered into the transaction in question under the circumstances hereinafter set out. A bank, hereinafter referred to as "the bank," also was named as a defendant but it is not concerned in the questions at issue.

At the time of the transaction, first and second mortgages on plaintiff's property were about to be foreclosed. Plaintiff had not been able to obtain refinancing. He was, as found by the court, "considered a bad credit risk." The sum of $70,000 was required to save the property from foreclosure. The property was appraised by the court-appointed appraiser at $160,000 and the upset price fixed at $150,000. At the public auction there were no bidders at that price, though previously a written offer of $150,000 had been received by the court. The offer was withdrawn when plaintiff obtained time to pursue the possibility of selling a portion of the property in order to save the balance. This possibility did not materialize.

After the abortive public auction another sale was *163 ordered without an upset price. This order was entered on February 18, 1958, and the sale was advertised for March 26, 1958.

Plaintiff, since the latter part of 1957, had been in touch with Mr. Joseph Ahuna, a stockbroker and real estate broker, whom he had approached to help him get a loan on the property. He was trying to raise $90,000, and was willing to repay $120,000, "something to that effect," as testified by Mr. Ahuna. Plaintiff testified he offered a 30% premium, or $27,000, plus 5 1/2% interest on the $117,000.

On one occasion Mr. Ahuna introduced plaintiff at the bank and unsuccessfully tried to help plaintiff get a bank loan. He also inquired whether, if a lender were found with less than the $90,000 required, such lender could go to the bank and borrow the difference. He ascertained that the bank would not lend money to a mortgagee on the strength of a mortgage held by him.

After plaintiff had visited Mr. Ahuna several times and Mr. Ahuna still did not know of anyone interested in making a loan, plaintiff in February 1958 came in with a proposition the nature of which Mr. Ahuna related as follows:

"A. I asked him exactly what he had in mind, and he says, `If you find someone who would like to buy the property, why I would be willing to sell providing the buyer will allow me to lease the property from him on a sort of a sale and lease-back with an option to repurchase the property at the end of three years,' and I asked him what he would want for a property that size, and he told me about $90,000, and I remember telling him that $90,000 is pretty cheap in view of the fact that he had previously stated that he thought the property was worth anywhere from $400,000 to $600,000.

*164 "Q. When you told him that it was pretty cheap, did he make any reply to that statement?

"A. Well, he told me that since the property was due for foreclosure that he was interested in trying to protect his interest and that he would want to sell it with the lease-back and by-back [sic] option, and he agreed that the price of $90,000 was low in relation to his own appraisal of the value of the property, but he stated that because time was short and he needed the money as quickly as possible, he figured that $90,000 would be a very, what you call, an inducing deal for anyone who might be interested in it, and all he wanted was that he be permitted to buy the property back.

"I told him that the appraised value was about $160,000 or $175,000. He says he only is interested in enough money to pay off the mortgage and he was confident he would be able to sell the property in view of the development that was upcoming in the Bishop Estate property where the present Star Supermarket is now, and he told me that with the development of that property and surrounding areas that his property value could be enhanced considerably and, if given the chance to buy it back within three years, he could swing it.

"And he also stated another reason why he was asking for $90,000 instead of much more was he wanted to be sure that the price is not so high that he could not buy it back later on. In other words, he wanted to sell it and yet make the price to suit him. He stated at that time that he wanted to buy it back for about $117,000, I believe, and with the property value much higher he figured it would be easier for him to arrange financing to buy it back, whereas if he asked for a much *165 higher price it would be difficult to sell and he might not be able to buy it back at a later date."

Sometime after this Dr. Kusunoki called Mr. Ahuna about an investment in stocks, and Mr. Ahuna mentioned plaintiff's proposition as a possible investment. After ascertaining the location of the property, Dr. Kusunoki told Mr. Ahuna "that man must be crazy to want to sell it for $90,000." Mr. Ahuna's testimony continues:

"So I told him the reason and he said if the offer was real, and I said yes. He felt that it was a steal. I felt he knew what he was doing and that his actions were based on a calculated risk, and I told Dr. Kusunoki at that time that this fellow feels he can buy it back, and if he couldn't I told him, `You will just fall into a pot of gold.'

"On the other hand, if he is able to buy it back, I told him, `You will have received a fair lease rental on the property with interest, and no doubt you will be making a profit of somewhere of $25,000 to $30,000.' * * *"

The upshot of the matter was that Mr. Ahuna attended a meeting with Dr. Kusunoki and some of his medical associates to explain the proposition. Thereafter, a group of ten was formed, of whom eight put up $5,000, while one put up $4,000 and the tenth $1,000. Mr. Ahuna assisted the group to obtain bank financing for the remaining $45,000. After the bank had tentatively approved the loan to the doctors' group, Mr. Ahuna "having promised Dr. Kusunoki that the deal is as stated" took it upon himself to seek the advice of an attorney he knew^[2] as to whether "such a deal was proper." He was advised, as he testified: "`Yes, there have been many deals like that.'"

*166 Mr. Thomas W. Flynn, plaintiff's attorney, drew up the documents to complete the transaction. Mr. Ahuna went with plaintiff to Mr. Flynn's office where, as he testified, they "talked about the deal." Mr. Flynn was the attorney representing plaintiff in the foreclosure proceeding. Mr. Flynn testified that he drew these documents on a request made by "Mr. Ahuna and Mr. Kawauchi both jointly and individually * * *." He further testified: "I had no initiative whatever in this part of the long drawn-out problem of Mr. Kawauchi's mortgage situation, the delinquent mortgage situation."

By the time the transaction had taken shape it was very close to March 26, 1958, the date on which the foreclosure sale was to be held under the supplemental order rescinding the fixing of an upset price. As a temporary measure in order to make funds available to clear the title, the bank made a collateral loan to the doctors' group for two years, secured by the assignment by the doctors' group of a note and mortgage given by the Kawauchis to the doctors' group. This note was in the amount of $117,000, payable over a three-year period in monthly installments of $650, including 5 1/2% interest. However, the amount plaintiff was to receive was $90,000, as agreed throughout.

The note and accompanying mortgage were dated March 24, 1958. On the same day the Kawauchis signed a letter addressed to the doctors' group, reading as follows:

"Reference is made to the negotiations between us, under which you are willing to enter into an agreement with us so as to prevent the foreclosure sale of our property on North School Street in Honolulu, and which requires you to raise certain funds for the complete transaction. Because of the fact that time is so *167 extremely short, we have had prepared and have delivered to you a mortgage, which mortgage you are assigning to the Bishop National Bank of Hawaii in order to obtain some of the funds required for completion of our transaction. We hereby covenant and agree with you, that this mortgage is a purely temporary arrangement, so that required funds can be raised before the foreclosure deadline, and that the true arrangement or agreement between us will be expressed by the other documents to be prepared hereafter, when time will allow.

"Accordingly, we hereby covenant and agree that we will execute and deliver to you a deed of our North School Street property and improvements, it being understood that you will execute back to us a lease of the premises upon the terms and conditions previously agreed to among all of us, which lease will likewise contain a provision allowing us to buy back the property for the sum of $117,000.00 at any time within three years from the date of such deed and lease."

On March 25, 1958, $70,000 was paid into court in the foreclosure proceeding, the sale was cancelled, and satisfaction of judgment was entered. In conjunction therewith the court held a hearing the transcript of which shows:

"THE COURT: I want the record to show that I received a caller yesterday in regards to this case and he informed me that they were in the process of negotiating with the bank and Mr. Kawauchi. However, they were concerned about the legality of their agreement with Mr. Kawauchi. I informed them that I was not interested in any agreement he might enter, they might enter into with Mr. Kawauchi nor was I interested in any agreement or mortgage they might enter into with the bank.

*168 "The only thing I was concerned about was the payment of these judgments and where Mr. Kawauchi got the money from, under what circumstances he got the money, I was not interested in it at all and I advised them if there is any question to contact Mr. Flynn, counsel for Mr. Kawauchi, and he was representing Mr. Kawauchi in this matter and I presume he represents Mr. Kawauchi in any other subsequent or ancillary agreement he might have. Whether they have contacted you, I don't know.

"MR. FLYNN: Yes."

On April 1, 1958 the Kawauchis executed a deed of the property, which according to the revenue stamps was for the consideration of $90,000. Thereafter the doctors' group as owners of the property executed a mortgage to the bank for $45,000,^[3] the temporary bank loan to the doctors' group was marked "paid," and the March 24, 1958 note and mortgage were returned to plaintiff with the note rubber-stamped "cancelled."

After the payment of $70,000 into court, payment of $20,000 was required to complete the promised sum, and this was paid by the doctors' group over a period of time. Of the money thus received, $4,500 or $4,000^[4] was paid by plaintiff to Mr. Ahuna as his fee. It further appears that plaintiff made improvements of the property. By the supplemental judgment incorporating the accounting between the parties it was determined that these improvements came to more than $10,000.

A lease for a term of three years from April 1, 1958 was executed by the doctors' group as lessors, and by *169 plaintiff Toichi Kawauchi as lessee, at a monthly rent of $650 payable on the 21st of each month. It contained an option for the lessee to purchase the property at any time before the termination of the lease for $117,000, less a credit to be computed at the rate of $110 for each month's rent paid under the lease.^[5] The $650 monthly payments were made, but at the end of the three-year term plaintiff had not raised the contemplated $117,000, though according to his testimony he had received offers of $350,000 and $400,000 for the property.

Through an attorney, plaintiff in July 1961 sought "an extension of the lease dated April 1, 1958 and the period of the option to re-purchase the property covered thereby, to December 31, 1961." The sum of $12,000 was offered for this extension. This request was denied by a letter of August 28, 1961, and at the same time a notice was given of termination of tenancy as of September 30, 1961. This suit was commenced September 29, 1961.

Plaintiff contends that the court erred in failing to make any finding as to the execution of the note and mortgage of March 24, 1958, and that if the court had taken into account these omitted facts, it would have been forced to view the case as one of subsequent release, without consideration, of an existing equity of redemption. We do not so view the case. The letter of March 24, 1958 constituted a promise by plaintiff to replace the note and mortgage with other instruments. The note, mortgage, deed and lease were parts of a single transaction, and the $90,000 was consideration for the whole. Since the note, mortgage, deed and lease were tied together by the letter *170 there can be no difficulty in connecting them. Cf., Oliveira v. Silva, 18 Haw. 602; Waterhouse v. Capital Inv. Co., 44 Haw. 235, 244-45, 353 P.2d 1007. Therefore the case is one of renunciation of the privilege of redemption at the time of making of the loan (if there was a loan). This brings us to plaintiff's alternative argument, based on the case being one of a deed and defeasance executed at the same time. In this type of case, as stated in Jones, Mortgages, § 301 (8th ed.):

"When it is once established that the separate instrument is a defeasance,^[6] the conveyance assumes the character of a mortgage with the inseparable incident of redemption, which no agreement of the parties, that the estate shall be absolute if the money be not paid at the day fixed, can waive. * * *"

The policy back of this rule is explained in section 302 of the same text as follows:

"The mortgagor is not allowed to renounce beforehand his privilege of redemption. Generally, every one may renounce any privilege or surrender any right he has; but an exception is made in favor of debtors who have mortgaged their property, for the reason that their necessities often drive them to make ruinous concessions in order to raise money. When one borrows money upon the security of his property, he is not allowed by any form of words to preclude himself from redeeming."

These principles prevail in Hawaii. Thus in Kahau v. Booth, 10 Haw. 332, 334, it is stated: "Once a mortgage always a mortgage, and the mortgagor is allowed to redeem." This states the traditional rule. 4 Pomeroy, Equity Jurisprudence, § 1193 (5th ed.).

Since the right of redemption may not be waived, the *171 form of the instruments cannot control the case if in reality the transaction was a mortgage. See Annots., 79 A.L.R. 937; 129 A.L.R. 1435, 1473; 154 A.L.R. 1063. As was said in Hess v. Paulo, 38 Haw. 279, 286: "* * * [N]either artifice nor form nor superficial declaration of intention will successfully obscure the true nature of the transaction." It is here that the court erred. In finding it to be the intention of all parties^[7] that the transaction should constitute a sale subject only to an option to repurchase, the court put undue emphasis on the form of the transaction. We do not doubt that the parties intended the form of words that was used, and intended thereby to cut plaintiff off from all rights unless he exercised his option within the three-year period. But will the court permit this purpose to be accomplished? We must enforce not only the policy against renunciation beforehand of the right of redemption but also the statute against usury.^[8] As well explained in Fiedler v. Darrin, 50 N.Y. 437, 443:

"* * * [O]ne who deliberately and intentionally secures to himself $1,650 at the end of four months, in return for a present advance of $1,500, cannot avoid the consequences of the act by testifying that he did not intend to take usury; that is, that he intended to give the transaction a different name from that which *172 the law gives it, and call that a purchase and sale which the law calls a loan of money, secured by mortgage. * * *"

And as stated in Cannon v. Seattle Title Trust Co., 142 Wash. 213, 252 Pac. 699, 700:

"* * * Where there has been a sale absolute in form and an option to repurchase given, and the claim of usury is made, the form of the transaction will be disregarded and its substance will control. * * *"

Accord: Wilcox v. Moore, 354 Mich. 499, 93 N.W.2d 288; Britz v. Kinsvater, 87 Ariz. 385, 351 P.2d 986, 990; Milana v. Credit Discount Co., 27 Cal.2d 335, 163 P.2d 869, 871-72; Ferguson v. Sutphen, 8 Ill. 547, 567; Heytle v. Logan, 1 A.K. Marsh. (8 Ky.) 529; Monroe v. Foster, 49 Ga. 514, 519; Ringer v. Virgin Timber Co., 213 Fed. 1001, 1008 (E.D. Ark.). But see Stark v. Bauer Cooperage Co., 3 F.2d 214, 217 (6th Cir.).

A separate instrument (here the lease with option to repurchase) is a defeasance if it grants an absolute right to a reconveyance upon payment, is contemporaneous with the deed, and the two together constitute security for a debt. 1 Jones, Mortgages, §§ 294-96 (8th ed.). In conformity with the general rule R.L.H. 1955, § 196-1, provides:

"Sec. 196-1. Lien of mortgages; priority. Every transfer of an interest in property, real or personal, made as security for the performance of another act or subject to defeasance upon the payment of an obligation * * * is to be deemed a mortgage * * *."

This statute "is comprehensive in scope and should be liberally construed." Hess v. Paulo, supra, 38 Haw. 279, 285.

Defendants contend that there can be no debt — hence no mortgage — unless the plaintiff was personally liable for repayment of the money. Under this reasoning plaintiff *173 must fail unless defendants could have obtained a personal judgment against him. Some of the writers on the subject afford qualified support for defendants' contention,^[9] while others state that the weight of authority is contrary thereto.^[10] The court below did not rule that the absence of personal liability was conclusive, but put considerable stress on the fact that: "There is nothing before this court which indicates any right on the part of the Defendants to compel the payment of any sums of money."

In Hess v. Paulo, supra, 38 Haw. 279, 286-87, it is stated, by quoting from Guilford-Chester Water Co. v. Town of Guilford, 107 Conn. 519, 141 Atl. 880, that "a test generally accepted as decisive is the mutuality and reciprocity of the remedies of the parties; that is to say, if the grantee enjoys a right, reciprocal to that of the grantor to demand a reconveyance, to compel the latter to pay the consideration named in the stipulation for reconveyance, the transaction is a mortgage, while if he has no such right to compel payment, the transaction is a *174 conditional sale. * * *'" However, the conclusiveness of this test where personal liability is lacking was not before the court, as there was an outstanding promissory note. The quotation in the opinion continues with recognition of the fact that personal liability is not always regarded as the "sine qua non" of a mortgage. It may be regarded simply as "a factor whose existence or nonexistence points strongly to the factor that a conveyance is or is not a mortgage." The source of the quotation is 19 Ruling Case Law 266, where the following appears, following the text quoted:

"* * * Accordingly, in those jurisdictions wherein personal liability is an essential element of a mortgage, want of mutuality is, of course, conclusive that the transaction is a conditional sale. Where a contrary rule prevails, want of mutuality is strongly indicative of a sale, but is not conclusive."

In 36 Am. Jur., Mortgages, §§ 58-59 and § 151, which has replaced Ruling Case Law, it is stated that while the existence of an obligation to be secured is essential to a mortgage, and under some authority there must be a personal liability of the mortgagor on such obligation, under other authority "personal liability, express or implied, is not necessarily incident to a mortgage * * *." The latter is stated to be the general view, though the existence or nonexistence of personal liability of the grantor is strongly indicative either that the transaction was or was not a mortgage. See Annots., 17 A.L.R. 714, 717; 129 A.L.R. 1435, 1499.

The following are illustrative of the cases holding that personal liability for the debt secured is not an absolute requisite of a mortgage: Campbell v. Dearborn, 109 Mass. 130, 144; Cook v. Johnson, 165 Mass. 245, 43 N.E. 96; Graham v. Stevens, 34 Vt. 166; Britz v. Kinsvater, supra, 87 Ariz. 385, 351 P.2d 986, 990; Welsh v. Griffith-Prideaux, *175 Inc., 60 N.J. Super. 199, 158 A.2d 529, 535; Vreeland v. Dawson, 55 N.J. Super. 456, 151 A.2d 62; Bailey v. Poe, 142 Md. 57, 120 Atl. 242, 248; Pioneer Gold Mining Co. v. Baker, 23 Fed. 258, 268; Seieroe v. First Nat'l Bank, 50 Neb. 612, 70 N.W. 220; Federal Trust Co. v. Wolman, 134 Me. 86, 181 Atl. 815. This rule is lent support in this jurisdiction by cases such as Campbell v. Kamaiopili, 3 Haw. 477; Kaikainahaole v. Allen, 14 Haw. 527, Castle v. Smith, 17 Haw. 32, 35; and Maile v. Carter, 17 Haw. 49, 52, holding that a mortgage may be foreclosed even though the note which accompanied it is barred by failure to present a claim to the executor of the maker, now deceased. And the use of the word "obligation" in our statute does not necessarily import that personal liability is a requisite. Schexnailder v. Fontenot, 147 La. 467, 85 So. 207, 210.

Neither in Hess, nor in the Guilford-Chester Water Co. case there cited, was there any question of usury or of inadequacy of the price figuring in the supposed sale. Where the transaction, if it is a loan, is usurious, the personal liability of the borrower is of no real significance. Under the usury law, R.L.H. 1955, § 191-4, a suit against the borrower personally could produce only the sum advanced, without interest or profit. In this type of case the lender relies on the property for his security, being satisfied that he is protected by its high value in relation to the amount advanced. Thus in Campbell v. Dearborn, supra, 109 Mass. 130, 144, it is stated:

"A mortgage may exist without any debt or other personal liability of the mortgagor. If there is a large margin between the debt or sum advanced and the value of the land conveyed, that of itself is an assurance of payment stronger than any promise or bond of a necessitous borrower or debtor. * * *"

*176 And as stated in Russell v. Southard, 12 How. (53 U.S.) 139, 152:^[11]

"* * * [T]his circumstance [absence of any promise to repay the money] * * * is not only entirely consistent with the conclusion that a mortgage was intended, but in a case where it was the design of one of the parties to clothe the transaction with the form of a sale, in order to cut off the right of redemption, it is not to be expected that the party would, by taking personal security, effectually defeat his own attempt to avoid the appearance of a loan."

In Heytle v. Logan, supra, 1 A.K. Marsh. (8 Ky.) 529, 531, a usury case, the court put the matter very well, saying:

"From the case before us, nothing is more plain, if such contracts are free from the operation of the [usury] statute, than the ease with which the law may be evaded. For it is only so to scale the interest with the value of the property received, as to induce the re-purchase of the property, in order to save, by the payment of the interest exacted, the greater injury in the loss of the property."

Particularly when a question of usury is involved it would be most unrealistic to lay down any absolute requirement that the borrower must be personally liable in order for the transaction to be a mortgage. The result would be to provide a ready avenue of escape from the requirements of the usury law. The absence of personal liability is a factor indicative of a conditional sale but one which nevertheless may be and in this case is outweighed by other circumstances.

*177 In Campbell v. Dearborn, supra, the court pointed out that under the foregoing reasoning "inadequacy of price * * * becomes an important element in establishing the character of the transaction." Inadequacy of price is a point much argued by the parties here. It is an accepted principle that the value of the property as compared with the sum paid is an important factor in determining whether the transaction was a sale or a mortgage. Hess v. Paulo, supra, 38 Haw. 279, 287; Heytle v. Logan, supra, 1 A.K. Marsh. (8 Ky.) 529, 530; Sheets v. Huben, 354 Mich. 536, 93 N.W.2d 168, 170; Osipowicz v. Furland, 218 Wis. 568, 260 N.W. 482; Beeler v. American Trust Co., 24 Cal.2d 1, 147 P.2d 583, 592; Dickens v. Heston, 53 Idaho 91, 21 P.2d 905; Annots., 90 A.L.R. 953; 89 A.L.R. 2d 1040.

Ordinarily we would be guided by the findings of the court below on a matter such as adequacy or inadequacy of the $90,000 advanced in relation to the value of the property. However, the court in its findings ignored the fact that the parties to the transaction dealt on the basis that $90,000 was "a steal." The figure was deliberately set low by the plaintiff in order that he might be able to "buy it back" and defendants knew it. There were no negotiations for a sale at a fair price, and neither side contemplated or intended that plaintiff was to realize the value of the property in this transaction. It is this which unmistakably marks the transaction as a loan.

In the usual case a court is left to infer from the value of the property whether the parties deemed the price to represent the value. Here there is direct evidence that they did not so regard the matter. This overweighs all other circumstances, including absence of personal liability on the part of plaintiff. When the case is judged against the applicable principles of law there is no room for the conclusion that the transaction was a sale.

*178 The court erred in placing a value of $125,000 on the property on the basis of an appraisal report tucked away in the files of the bank.^[12] This appraisal was made for another bank, evidently in connection with efforts of plaintiff to refinance the mortgage under foreclosure. There is no evidence that the parties here involved ever saw it, or if they did that it figured in their negotiations. An employee of the bank, a witness, made "a guess" that it was brought in to the bank by Mr. Ahuna. The bank was taking a mortgage from the doctors' group and it evidently was in that connection that it came into possession of this report. Mr. Ahuna's own opinion was that the property was worth $160,000 to $175,000. This is significant since he was the broker who handled the transaction. He represented to Dr. Kusunoki that he stood to "fall into a pot of gold" if plaintiff couldn't exercise the option. The property also had been appraised by the court-appointed appraiser at $160,000. Though there were no buyers at the auction at the upset price of $150,000, there had been an offer of $150,000 received by the court which fell through only because of plaintiff's unwillingness that the property go at that price. In any event, as we have said, the fact that the parties did not intend the $90,000 to represent the value is established without resort to inferences from the court's own valuation of the property.

*179 It is argued that, in considering the adequacy of the price, plaintiff's option to buy back the property must be taken into consideration. The court below reasoned that "this option and the time that it gave to the Plaintiff had considerable value * * *." Undoubtedly, an option to repurchase would affect the selling price, but it is not possible to approach the matter in that light, because neither the $90,000 nor $117,000 figure was fixed by negotiations seeking to evaluate the property as affected by this provision. The $90,000 represented the amount of money plaintiff required, and the additional $27,000 included in the $117,000 represented the premium he offered to get it.

The court below regarded it as significant that plaintiff received $90,000 when only $70,000 was needed to stop the foreclosure, the court noting that plaintiff received "some money for his own use." Plaintiff, however, was undertaking to make monthly payments of $650 when he had been unable to keep up mortgage payments of $587.50 per month to meet the mortgages under foreclosure. He also had to pay Mr. Ahuna's fee (approximately $4,000). So far as appears, the extra $16,000 was the amount plaintiff deemed that he needed to maintain and improve the property,^[13] provide a cushion for monthly payments, and enable plaintiff to carry out his plan, which was to use the three years as a grace period in which to sell the property on the rising market which he expected.

Plaintiff retained possession of the property throughout, at a "rent" which represented 5 1/2% interest on $117,000, or $536.25 per month, plus $110 creditable to the $117,000 sum on "repurchase," or a total of $646.25 rounded out to $650 per month. This is easily seen upon *180 comparison of the "lease" with the promissory note of March 24, 1958. On this phase of the argument we agree with plaintiff that the note of March 24, 1958^[14] and the accompanying mortgage colored the entire transaction, particularly in view of the letter of March 24, 1958 agreeing that the deed and lease with option to repurchase would be given to take the place of the note and mortgage. The court erred in omitting the documents of March 24, 1958 from consideration, and in failing to consider the agreement as a whole.

Plaintiff not only remained in possession of the property but was active in seeking to have it rezoned. This was in October 1958 and again in 1959. Plaintiff endeavored to have the application for rezoning signed by the doctors' group, as was necessary under the then state of the record. Though plaintiff offered to pay the expenses of this application, there was no reply to his request. Mr. Ahuna acted as agent for collections for the doctors' group, and there is no evidence that they took any interest in the property.

We conclude that the true nature of the transaction was a loan, and that the finding to the contrary was "clearly erroneous" and reversible under H.R.C.P., Rule 52(a), for the reasons we have stated.^[15] Were we to hold otherwise our usury statute would be emasculated.

At the same time we agree with certain findings of the court below which are purely factual in nature. These findings show that the entire scheme was instigated by plaintiff, who set up the transaction as a sale, and caused *181 defendants to be approached with that proposition. Defendants were not in the loan business, and would never have considered the transaction except for the manner in which it was presented at plaintiff's instigation. Defendants did not, directly or indirectly, instill the idea that this form of transaction should be used.^[16] Mr. Ahuna, as agent of plaintiff in obtaining the money,^[17] "promised Dr. *182 Kusunoki that the deal is as stated," that is, a sale, and took steps to check on the matter, consulting an attorney as has been noted. Since the present suit sounds in equity, there is a question whether plaintiff is in an equitable position in seeking to take advantage of his own actions by redeeming the property for only the principal of $90,000 less all payments made, as sought by the prayer for relief contained in his complaint. Cf., Gund v. Ballard, 73 Neb. 547, 103 N.W. 309, 317, as explained in MacRackan v. Bank of Columbus, 164 N.C. 24, 80 S.E. 184, 188. We proceed to the question of the form of relief to be allowed plaintiff, having disposed of all of the specifications of error which, on our view of the case, are material.

Many authorities hold that one seeking equitable relief from a usurious contract must offer to pay^[18] the principal with legal interest. Annots., 17 A.L.R. 123; 70 A.L.R. 693; 135 A.L.R. 808; 166 A.L.R. 458; 3 Pomeroy, Equity Jurisprudence, § 937, at 719 (5th ed.); 1 Bisphan, Principles of Equity, § 43 (10th ed.); 1 Story, Equity Jurisprudence, §§ 424-25 (14th ed.). On the other hand, as the cited annotations show, there is authority that no interest at all need be paid in case of a usurious contract though the borrower comes into equity seeking relief.

According to some of the courts which require an offer *183 of interest such offer must be, not at the rate prescribed when none is fixed by the contract (here 6% under R.L.H. 1955, § 191-1), but instead at the maximum legal rate of interest (here 1% per month under R.L.H. 1955, §§ 191-3 and 191-6). Goodwin Co. v. National Discount Corp., 5 Wash.2d 521, 105 P.2d 805; Waters v. Garris, 188 N.C. 305, 124 S.E. 334, 335