Dang v. F and S Land Development Corp., 6443

• Citation: 62 Haw. 583,618 P.2d 276
• Decision Date: 07 October 1980
• Docket Number: No. 6443,6443
• Parties: Norman W. H. DANG and Muneo Yamamoto, Plaintiffs-Cross-Appellants, and Norman M. Muranaka, James T. Shaw, and Samuel A. Wong, Plaintiffs-Appellees, v. F AND S LAND DEVELOPMENT CORPORATION, Defendant-Appellant, Cross-Appellee, and Robert Y. Shimada, Defendant.
• Court: Supreme Court of Hawai'i

Page 276

618 P.2d 276

62 Haw. 583

Norman W. H. DANG and Muneo Yamamoto, Plaintiffs-Cross-Appellants, and Norman M. Muranaka, James T. Shaw, and Samuel A. Wong, Plaintiffs-Appellees, v. F AND S LAND DEVELOPMENT CORPORATION, Defendant-Appellant,

Cross-Appellee,

and

Robert Y. Shimada, Defendant.

No. 6443.

Supreme Court of Hawai'i.

Oct. 7, 1980.

Syllabus by the Court

1. Rights and obligations flowing from a transaction are governed by its substance rather than its form or the appellation selected by a party.

2. A joint venture is closely akin to a partnership, and the rules governing the creation and existence of a partnership are generally applicable to joint ventures.

3. A partnership exists where the parties have contracted to share the profits of a business and whether an agreement creates a partnership or not depends upon the intention of the parties.

4. The existence or nonexistence of a partnership is necessarily a legal deduction to be drawn from the agreement.

5. In determining whether a joint venture relationship exists, it is essential that there be an agreement between the parties for a joint venture and that there be a provision in the contract for their sharing, as joint venturers, of the profits of the business.

6. The elements of a usurious transaction are: (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.

7. The required showing of intent to prove usury is not proof of a willful design to violate the usury law as such. 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.

8. A motion for directed verdict must be granted where there is no issue of fact for the jury because the movant is entitled to judgment as a matter of law.

William F. Crockett, Wailuku (Crockett & Nakamura, Wailuku, of counsel), for defendant-appellant, cross-appellee and defendant.

Robert E. Rowland, Kahului (Case, Kay & Lynch, Kahului, of counsel), for plaintiffs-appellees and plaintiffs-cross-appellants.

Before RICHARDSON, C. J., and OGATA, MENOR, LUM and NAKAMURA, JJ.

NAKAMURA, Justice.

Defendant-Appellant-Cross-Appellee F & S Land Development Corporation (hereafter F & S) appeals from the portion of a final judgment of the Circuit Court of the Second Circuit in favor of Plaintiffs-Appellees Norman M. Muranaka, James T. Shaw, and Samuel A. Wong (hereafter Muranaka, Shaw, and Wong respectively); Plaintiffs-Cross-Appellants Norman W. H. Dang and Muneo Yamamoto (hereafter Dang and Yamamoto respectively) appeal from the portion of the same judgment favoring F & S. Although several other issues are raised by the appealing parties, the dispositive questions are those related to the legal consequences of the transactions whereby Muranaka, Shaw, Wong, Dang, and Yamamoto tendered money to F & S to partially finance the construction of a warehouse in Kahului, Maui, on alleged promises that they would receive double the sums tendered within a year. We conclude the transactions were, in essence, usurious loans and reverse that part of the judgment favoring Muranaka, Shaw, and Wong and affirm that part favoring F & S.

I.

Muranaka, Shaw, Wong, Dang, and Yamamoto (hereafter collectively referred to as plaintiffs) filed a joint, six-count complaint against F & S and Robert Y. Shimada (hereafter Shimada) alleging in separate counts that they individually invested money in a joint venture involving the construction of a warehouse on the corporation's promise, delivered orally through its president, Harold Freitas (hereafter Freitas), or its secretary-treasurer, Shimada, that each plaintiff would receive double his investment within one year. ¹ The complaint further averred Shimada personally guaranteed the return of twice the invested sums to Muranaka, Shaw, Wong, and Yamamoto. ² The count delineating the transaction between Dang and F & S, however, did not allege there was a personal guarantee that the investment would provide such a return. A separate count asserted "false representations" by defendants regarding the "promised return of twice (the) original investment", upon which plaintiffs "justifiably relied". ³

The responsive pleading filed by F & S and Shimada characterized the relevant transactions as loans and alleged they had been repaid with interest at a legal rate. It further interposed affirmative defenses premised on HRS § 478-4 (the usury law), ⁴ the Statute of Frauds, laches, and the statute of limitations. Defendants' pre-trial statement added accord and satisfaction as a defense.

Defendants sought summary judgment before trial, contending the usury statute precluded recovery by plaintiffs. The motion was denied and the case proceeded to a trial before a jury. At the close of plaintiffs' evidence and also at the close of all evidence, defendants unsuccessfully sought the direction of a verdict on the ground that the usury statute barred plaintiffs' right to relief.

Upon submission by the trial court, the jury returned the following special verdicts: (1) there were binding agreements between F & S and each of the plaintiffs except Dang; (2) the binding agreements were not usurious loans; and (3) F & S and Yamamoto had reached an accord and satisfaction with respect to the agreement between them. A judgment and an amended judgment, reflecting the foregoing, were subsequently entered in favor of Shaw, Muranaka, and Wong for the amounts they claimed and in favor of F & S on the claims of Dang and Yamamoto. ⁵ Following the denial of post-trial motions, including F & S's motion for a judgment notwithstanding the verdict, F & S, Dang, and Yamamoto filed their appeals to this court.

The dispositive questions, in our opinion, are: (1) whether Muranaka, Shaw, and Wong "invested" money in a joint venture or whether they "loaned" the money to F & S; and (2) if the transactions were loans, whether they were usurious. Dang and Yamamoto also raise these questions: (1) whether the trial court erred in admitting entire depositions into evidence and making the depositions available to the jury during its deliberations; and (2) whether the trial court erred in admitting testimony related to a transaction between F & S and a person who was not a party to the suit.

II.

F & S is the lessee of a parcel of land in Kahului, Maui, zoned for commercial use, on which it planned to erect a condominium warehouse building. The "condominium" concept of marketing warehouse space was apparently favored because it offered the developer a possibility of realizing a relatively quick return of investment. ⁶ The financing scheme for the construction of the building included an expectation on the part of F & S that the manufacturer of the structure's steel components would "finance" a substantial portion of the construction through a forbearance of payment for supplying the components until the completion of construction. When the manufacturer, contrary to expectations, demanded prompt payment, F & S was compelled to seek other means to finance this portion of the construction.

Thus, in November of 1971, Freitas and Shimada sought and secured advances from friends and acquaintances, among whom were the plaintiffs. Some of those advancing money at the urging of Freitas and Shimada subsequently agreed to accept shares of stock in the corporation in lieu of repayment; others, including the plaintiffs, did not. The agreements between F & S and plaintiffs were not reduced to writing and there is substantial disagreement on what they actually were. F & S claims it executed promissory notes reflecting promises to repay plaintiffs the advanced sums with interest at a legal rate sometime after the transactions. Several of these were allegedly delivered to plaintiffs who deny receiving them.

In July and August of 1972, F & S repaid all plaintiffs except Yamamoto ⁷ the sums advanced and what it avers was interest at a rate of more than one per cent per month. Plaintiffs, however, sought a full one hundred per cent return and in March of 1975 filed suit against F & S and Shimada, claiming they were each promised a return of twice the "investment" rather than the amounts they actually received.

III.

Plaintiffs, as we have noted, characterize the pertinent transactions as investments in a joint venture; F & S, on the other hand, describes them as loans. But rights and obligations flowing from a transaction are governed by its substance rather than its form or the appellation selected by a party. Kawauchi v. Tabata, 49 Haw. 160, 171, 413 P.2d 221, 227 (1966). And as "neither artifice nor form nor superficial declaration of intention will successfully obscure the true nature of ... (a) transaction," Hess v. Paulo, 38 Haw. 279 at 286 (1949), we are obliged to seek the substance of the agreements in question from the evidence in the record.

A.

We first consider whether there is evidence demonstrating, or from which it may be inferred, that plaintiffs and F & S formed a joint venture. A "joint venture is closely akin to a partnership, and the rules governing the creation and existence of partnerships are generally applicable to joint ventures." Lau v. Valu-Bilt Homes, Ltd., 59 Haw. 283 at 289, 582 P.2d 195 at 200 (1978), quoting Shinn v. Edwin Yee, Ltd., 57 Haw. 215 at 217-18, 553 P.2d 733 at 736 (1976). ⁸ A partnership in turn "exists where the parties have contracted to share, as common owners or principals, the profits of a business and ... whether an agreement creates a partnership or not depends upon the intention of the parties." Barnes v. Collins, 16 Haw. 340 at 342 (1904). The requisite intent, however, is not to be...