OPINION OF THE COURT BY
NAKAMURA, J.
. We granted certiorari because of an inconsistency between the Intermediate Court of Appeals’ application of the usury statute
in this case and our reading of the statute in
Dang v. F and S Land Development Corp.,
62 Haw. 583, 618 P.2d 276 (1980). Although the intermediate appellate court correctly set aside the circuit court’s award of summary judgments to defendants-appellees, it nonetheless erred in other respects. For a review of the underlying transaction indicates the loan was not necessarily usurious, even though the promissory note evidencing the loan called for the payment of interest at an ostensibly usurious rate. We therefore affirm the reversal of the award of summary judgments to defendantsappellees, but remand the case to the circuit court for further proceedings consistent with this opinion, Tather than that of the intermediate appellate court.
I.
The parties to the transaction giving rise to the controversy were Plaintiff-appellant Maurice Lee Silver (Silver), Defendant-appellee Peter T. George (George), and Defendant-appellee William H. Krutzer, III (Krutzer). Krutzer is Silver’s stepson, and George was a close personal friend and a former business associate of Silver. The
pertinent transaction was a purported loan of $100,000 made in 1973 by Silver which was memorialized by a promissory note specifying the payment of interest at the rate of 20%.
The note was prepared by Defendant-appellee Robert J. Smolenski (Smolenski), then an associate in the law firm of Torkildson, Katz & Conahan, a Law Corporation (also a defendant-appellee).
Silver maintains he borrowed $100,000 from the First Hawaiian Bank, the Bank of Hawaii, and Bache & Company at the instance of George and Krutzer, who were engaged in a natural gas venture and in urgent need of money to complete a pipeline to deliver natural gas to Monroe, Louisiana. He claims the money was obtained through separate loans at interest rates ranging from ten to fourteen percent and delivered to Defendant-appellee Pace Corporation, a corporation of which George was the principal stockholder and Krutzer an officer, pursuant to an agreement that they would repay the principal sum and the “costs of borrowing the $ 100,000, plus interest at 6%.” He further maintains there was an understanding among the parties that Smolenski would prepare “the necessary papers” and that the Pace Corporation would pay the “legal fees”. Silver also asserts the high “interest” recited in the promissory note was intended to cover the “costs of borrowing” the principal amount, as well as interest at six percent. Thus he believed the “20% interest on the face of the note was a legal and proper rate of interest,” and would not have entered into the agreement if Smolenski, George;
Krutzer, “or any lawyer from the firm of Torkildson, Katz & Conahan had informed him that the transaction was usurious.”
When the loan was not repaid, Silver brought suit in the circuit court to enforce the terms of the promissory note. But George and Krutzer asserted the defense of usury; and since HRS § 478-4 limits recovery under a usurious loan to the principal sum, Silver was only able to secure a judgment for such amount.
He therefore sought recompense through another means. And in the action now before us he prayed for a reformation of the promissory note to reflect the actual agreement of the parties, damages occasioned by the fraud allegedly committed by defendants-appellees, and damages flowing from Smolenski’s alleged negligence in drafting the instrument.
All of the defendants-appellees were granted summary judgments by the circuit court. The summary judgment awarded Smolenski and Torkildson, Katz & Conahan was obviously based on the court’s assumption that there was no attorney-client relationship between the lawyers and Silver. His appeal from the award of summary judgments emphasized those aspects of the suit covering attorney malpractice. The appeal was assigned to the Intermediate Court of Appeals for hearing and disposition.
We find no fault with the court’s ultimate decision to reverse the circuit court’s award of summary judgments to defendantsappellees. But we chose to review the case because of the serious implications in the appellate court’s conclusions that there was a “flat out violation of § 478-6, HRS,”
the criminal provisions of our usury
statute, and it was a “per se violation of an attorney’s duty for him to draw a note which is on its face usurious,”
Silver v. George,
1 Haw. App. 331, 332-33, 618 P.2d 1157, 1159 (1980).
II.
The precepts governing the review of summary judgments are succinctly summarized in
Technicolor, Inc. v. Traeger,
57 Haw. 113, 551 P.2d 163 (1976), where we said:
On review of a summary judgment proceeding, the standard to be applied by this court is identical to that employed by the trial court. Wright & Miller, Federal Practice and Procedure: Civil § 2716. This means that “. . . the inferences to be drawn from the underlying facts alleged in the materials (such as depositions, answers to interrogatories, admissions and affidavits) considered by the court in making its détermination must be viewed in the light most favorable to the party opposing the motion.”
Gum v. Nakamura,
57 Haw. 39, 549 P.2d 471
(1976); Aku v. Lewis,
52 Haw. 366, 477 P.2d 162 (1970);
Abraham v. Onorato Garages,
50 Haw. 628, 446 P.2d 821 (1968). Further, in considering the validity of the granting of summary judgment under H.R.C.P. Rule 56(c), the appellate court must determine whether any genuine issue as to a material fact was raised and, if not raised, whether the moving party was entitled to judgment as a matter of law.
Abraham v. Onorato Garages, supra.
57 Haw. at 118-19, 551 P.2d at 168. Thus we are obliged to view the inferences to be drawn from the materials considered by the circuit court in a most favorable light to Silver. When this is done, we cannot conclude the relevant transaction was usurious.
A.
We held in
Dang v. F and S Land Development Corp., supra,
that a transaction is tainted by usury when five elements are present:
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OPINION OF THE COURT BY
NAKAMURA, J.
. We granted certiorari because of an inconsistency between the Intermediate Court of Appeals’ application of the usury statute
in this case and our reading of the statute in
Dang v. F and S Land Development Corp.,
62 Haw. 583, 618 P.2d 276 (1980). Although the intermediate appellate court correctly set aside the circuit court’s award of summary judgments to defendants-appellees, it nonetheless erred in other respects. For a review of the underlying transaction indicates the loan was not necessarily usurious, even though the promissory note evidencing the loan called for the payment of interest at an ostensibly usurious rate. We therefore affirm the reversal of the award of summary judgments to defendantsappellees, but remand the case to the circuit court for further proceedings consistent with this opinion, Tather than that of the intermediate appellate court.
I.
The parties to the transaction giving rise to the controversy were Plaintiff-appellant Maurice Lee Silver (Silver), Defendant-appellee Peter T. George (George), and Defendant-appellee William H. Krutzer, III (Krutzer). Krutzer is Silver’s stepson, and George was a close personal friend and a former business associate of Silver. The
pertinent transaction was a purported loan of $100,000 made in 1973 by Silver which was memorialized by a promissory note specifying the payment of interest at the rate of 20%.
The note was prepared by Defendant-appellee Robert J. Smolenski (Smolenski), then an associate in the law firm of Torkildson, Katz & Conahan, a Law Corporation (also a defendant-appellee).
Silver maintains he borrowed $100,000 from the First Hawaiian Bank, the Bank of Hawaii, and Bache & Company at the instance of George and Krutzer, who were engaged in a natural gas venture and in urgent need of money to complete a pipeline to deliver natural gas to Monroe, Louisiana. He claims the money was obtained through separate loans at interest rates ranging from ten to fourteen percent and delivered to Defendant-appellee Pace Corporation, a corporation of which George was the principal stockholder and Krutzer an officer, pursuant to an agreement that they would repay the principal sum and the “costs of borrowing the $ 100,000, plus interest at 6%.” He further maintains there was an understanding among the parties that Smolenski would prepare “the necessary papers” and that the Pace Corporation would pay the “legal fees”. Silver also asserts the high “interest” recited in the promissory note was intended to cover the “costs of borrowing” the principal amount, as well as interest at six percent. Thus he believed the “20% interest on the face of the note was a legal and proper rate of interest,” and would not have entered into the agreement if Smolenski, George;
Krutzer, “or any lawyer from the firm of Torkildson, Katz & Conahan had informed him that the transaction was usurious.”
When the loan was not repaid, Silver brought suit in the circuit court to enforce the terms of the promissory note. But George and Krutzer asserted the defense of usury; and since HRS § 478-4 limits recovery under a usurious loan to the principal sum, Silver was only able to secure a judgment for such amount.
He therefore sought recompense through another means. And in the action now before us he prayed for a reformation of the promissory note to reflect the actual agreement of the parties, damages occasioned by the fraud allegedly committed by defendants-appellees, and damages flowing from Smolenski’s alleged negligence in drafting the instrument.
All of the defendants-appellees were granted summary judgments by the circuit court. The summary judgment awarded Smolenski and Torkildson, Katz & Conahan was obviously based on the court’s assumption that there was no attorney-client relationship between the lawyers and Silver. His appeal from the award of summary judgments emphasized those aspects of the suit covering attorney malpractice. The appeal was assigned to the Intermediate Court of Appeals for hearing and disposition.
We find no fault with the court’s ultimate decision to reverse the circuit court’s award of summary judgments to defendantsappellees. But we chose to review the case because of the serious implications in the appellate court’s conclusions that there was a “flat out violation of § 478-6, HRS,”
the criminal provisions of our usury
statute, and it was a “per se violation of an attorney’s duty for him to draw a note which is on its face usurious,”
Silver v. George,
1 Haw. App. 331, 332-33, 618 P.2d 1157, 1159 (1980).
II.
The precepts governing the review of summary judgments are succinctly summarized in
Technicolor, Inc. v. Traeger,
57 Haw. 113, 551 P.2d 163 (1976), where we said:
On review of a summary judgment proceeding, the standard to be applied by this court is identical to that employed by the trial court. Wright & Miller, Federal Practice and Procedure: Civil § 2716. This means that “. . . the inferences to be drawn from the underlying facts alleged in the materials (such as depositions, answers to interrogatories, admissions and affidavits) considered by the court in making its détermination must be viewed in the light most favorable to the party opposing the motion.”
Gum v. Nakamura,
57 Haw. 39, 549 P.2d 471
(1976); Aku v. Lewis,
52 Haw. 366, 477 P.2d 162 (1970);
Abraham v. Onorato Garages,
50 Haw. 628, 446 P.2d 821 (1968). Further, in considering the validity of the granting of summary judgment under H.R.C.P. Rule 56(c), the appellate court must determine whether any genuine issue as to a material fact was raised and, if not raised, whether the moving party was entitled to judgment as a matter of law.
Abraham v. Onorato Garages, supra.
57 Haw. at 118-19, 551 P.2d at 168. Thus we are obliged to view the inferences to be drawn from the materials considered by the circuit court in a most favorable light to Silver. When this is done, we cannot conclude the relevant transaction was usurious.
A.
We held in
Dang v. F and S Land Development Corp., supra,
that a transaction is tainted by usury when five elements are present:
(1) money or its equivalent as the subject matter; (2) a loan or
forbearance, either express or implied; (3) an understanding that the principal is absolutely repayable; (4) the exaction of interest in excess of that allowed by law; and (5) an intent to engage in a transaction that carries a rate of interest disallowed by law.
62 Haw. at 591, 618 P.2d at 281. There is no question that the agreement among Silver, George, and Krutzer contained the first three integrants of an illegal arrangement. Moreover, the promissory note gives evidence of at least an attempt to exact “interest in excess of that allowed by law” as well as “an intent to engage in a transaction that carries a rate of interest disallowed by law.” Still, we have said it is the substance of an arrangement, rather than its outward form, that determines whether a particular agreement is usurious.
Id.
at 588, 618 P.2d at 280.
See also Kawauchi v. Tabata,
49 Haw. 160, 171, 413 P.2d 221, 227 (1966). Looking at the actual agreement among the parties in the most favorable light to Silver, we are unable to conclude the transaction in question harbored all of the elements of usury.
In the affidavit submitted to the circuit court, Silver claimed there was no intent on his part to enter into a usurious agreement. However, we have said that the necessary showing in this regard “is not proof of a willful design to violate the statute.”
Dang v. F and S Land Development Corp., supra,
62 Haw. at 592, 618 P.2d at 282. “The applicable test is whether the agreement, if performed according to its terms, would produce a higher rate of interest than allowed by law for the lender, and whether such result was intended.”
Id.
The agreement in question was not a typical commercial transaction. It involved a stepfather on one hand and his stepson and his close personal friend and business associate on the other; its purpose was to fulfill an urgent short-term need for a substantial sum of money on the part of the borrowers and their apparent inability to otherwise secure the necessary sum. The parties were fully aware the lender would obtain the money from lending institutions through short-term loans at prevailing interest rates specifically for this purpose. That the borrowers further understood the “20% interest on the face of the note” was not the actual interest exacted for the loan may be inferred under the circumstances. And since Silver had obligated himself to pay the commercial lenders interest at ten to fourteen percent, his claim that the “20% interest” was actually
meant to cover “the costs of borrowing the $100,000” and to produce interest at a legal rate is not unreasonable. Viewing the transaction as a whole and drawing the inferences most favorable to him, we agree the requisite intent to engage in usury was probably absent.
Richard E. Stifel (Goodsill, Anderson & Quinn,
of counsel) for defendants-appellees Robert J. Smolenski and Torkildson, Katz & Conahan.
Dennis E. W. O’Connor
and
Erik R. Zen (Hoddick, Reinwald, O’Con-nor & Marrack,
of counsel) for defendants-appellees George, et al.
Joseph A. Ryan
and
George T. Davis (Ryan Ryan,
of counsel) for plaintiff-appellant.
B.
Our holding that the promissory note was not a “flat out violation of § 478-6, HRS” also leads to the further conclusion that its preparation in the form presented to the parties was not a “per se violation of an attorney’s duty.” While the instrument did not reflect the agreement in the most accurate manner, we cannot conclude the preparation of the note in itself represented legal malpractice.
The decision of the Intermediate Court of Appeals reversing the circuit court’s award of summary judgments to defendantsappellees is affirmed. The case, however, is remanded to the circuit court for further proceedings consistent with this opinion.