Kawauchi v. Tabata

Decision Date30 March 1966
Docket NumberNo. 4399,4399
Parties, 49 Haw. 255 Toichi KAWAUCHI and Matsu Kawauchi v. Ichiro TABATA et al.
CourtHawaii Supreme Court

Syllabus by the Court

1. A mortgagor is not allowed to renounce beforehand his privilege of redemption.

2. Though the parties intend the form of words used, and intend to cut off all rights of the grantor of property unless he exercises, within the agreed period, an option to repurchase given him at the time he makes his conveyance, the court will not permit the true nature of the transaction to be obscured and will enforce the policy against renunciation beforehand of a mortgagor's right of redemption and the statute against usury if the transaction in reality was a mortgage.

3. When the question is whether a conveyance with a contemporaneous option to repurchase is a mortgage, the absence of personal liability on the part of the grantor-optionee is a factor indicative of a conditional sale, but one which nevertheless may be outweighed by other circumstances.

4. The value of the property as compared with the sum paid is an important factor in determining whether a transaction was a sale or a mortgage.

5. When the parties dealt on the basis that the sum advanced was inadequate in relation to the value of the property and that the grantor would be given an option to repurchase at another sum including a premium in excess of what could have been exacted as interest; and where neither the sum advanced nor the sum to be repaid was fixed by negotiations seeking to evaluate the property as affected by the repurchase provision but only by the amount of money required by the grantor and the premium he offered to get it-the true nature of the transaction was a usurious loan.

6. Though R.L.H. 1955, § 191-4, provides that: 'If a greater rate of interest than one per cent per month is contracted for, the contract shall not, by reason thereof, be void,' nevertheless under R.L.H. 1955, § 191-6, which makes it a misdemeanor to arrange for the receipt of interest at more than 1% per month, and R.L.H. 1955, § 1-9, which provides that whatever is done in contravention of a prohibitory law is void, a usurious contract is void with respect to interest in excess of 1% per month. However, the contract is not entirely void as to interest.

7. Where a borrower comes into equity seeking relief on the ground that, and it appears that, a purported sale was actually a mortgage securing a usurious loan; and it further appears that the borrower himself instigated the entire scheme, that he rejected offers which would have enabled him to redeem the property under a three-year 'option to purchase' held by him, and that he sought an extension of time in which to pay and filed suit seeking still further time in which to raise the money to pay the balance of the loan as determined by the court; under the circumstances the borrower is not entitled to the aid of equity in obtaining an extension of time in which to pay and the maxim that 'he who seeks equity must do equity' requires that he pay interest at the maximum rate of 1% per month to the extent that such rate or a higher rate was contracted for, and where no contractual rate is applicable, then 6% per annum pursuant to R.L.H. 1955, § 191-1.

R. G. Dodge, Heen, Kai & Dodge, Honolulu, for appellant.

George R. Ariyoshi, Russell K. Kono, Yasutaka, Fukushima, and O. Vincent Esposito, Honolulu, for appellees.

Before WIRTZ, LEWIS, and MIZUHA, JJ., KING, Circuit Judge in place of CASSIDY, J., disqualified, and KITAOKA, Circuit Judge, assigned by reason of vacancy.

LEWIS, Justice.

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 wad 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 posibility did not materialize.

After the obortive public auction another sale was 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 remeber 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.

'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 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 metting with Dr. Kusunoki and some of his medical associates to explain the proposition. Thereafter, a group...

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