¶11. Usury (§ 115*)—Pabol Evidence—Written Contract—'Validity. Where a contract evidencing a loan of money and the employment of
¶2. the lender was attacked for usury, parol evidence of the conversations of the parties prior to the execution of the contract was not objectionable on the ground that ail prior negotiations must be deemed merged in the written contract.
¶3[Ed. Note.—For other cases, see Usury, Cent. Dig. § 326; Dec. Dig. '§ 115 ;* Evidence, Cent. Dig. § 2029.]
¶42. Bankruptcy (§ 467*)—Review of Evidence.
¶5The Circuit Court of Appeals, on an appeal in bankruptcy proceedings, is not required to weigh testimony on the printed record, where the questions of fact are doubtful, and it is desirable that the facts be first passed on by the District Court or a referee. •
¶6[Ed. Note.—For other cases, see Bankruptcy, Dec. Dig. § 467.*
¶7Appeal and review in bankruptcy cases, see note to In re Eggert, 43 C. C. A. 9.]
¶8Appeal from the District Court of the United States for the Southern District of New York.
¶9In the matter of Ralph Straschnow and another, bankrupts. From an order confirming the report of a referee, directing the payment of dividends op the claim of Henry L,. Ketcham, assignee of Eli Bernays, William H. Roberts appeals.
¶10Reversed and remanded.
¶11The bankrupts carried on business in New York City under the name of “International Electrical and Engineering Company” and said Bernays was the fatlier-in-law of the bankrupt Wiener. About April, 1908, the bankrupts borrowed of said Bernays the sum of $10,000 and executed an agreement, a copy of which is printed in the margin.†
¶12*338The .claim presented against the bankrupt estate by the assignee of Bernays was based upon this written agreement. The trustee moved to expunge the claim upon the ground, among others, that the agreement was invalid because it reserved a usurious rate of interest, and the question presented to the trustee was, as stated by him in his report, “whether the loan made by Eli Bernays to the bankrupts was tainted with usury, and whether, therefore, the claim of Henry L. Ketcham, the assignee of the claim, must be stricken out on motion of the trustee.”
¶13Upon the hearing before the referee that official first excluded proof of any conversations between the bankrupt and Bernays before the execution of said agreement, but finally permitted the trustee to show such conversations. .In his report, however—which was confirmed upon the law and the facts by the District Court—the referee said: “I think it was error to have admitted evidence of conversations between the bankrupts and Bernays before the agreement was signed, and that -all such conversations must be held to have been merged in the agreement.”
¶14The referee found that the evidence did not, in his judgment, establish the fact that the agreement was usurious. The statutes of New York, which determine the validity of the agreement, provide that the lawful rate of interest is 6 per cent., and that no person shall, directly or indirectly, take or receive a greater rate, and that all agreements reserving a greater rate shall be void.
¶15Benno Loewy and Leon A. Malkiel, for appellant.
¶16J. Garfield Moses and M. S. & I. S. Isaacs, for appellee.
¶17Before LACOMBE, WARD, and NOYES, Circuit Judges.
¶32(after stating the facts as above). The statement of the referee in his report that conversations between the bankrupts and Bernays before the agreement was signed “must be -held to have been merged in the agreement,” and that they had been improperly admitted in evidence, was manifestly erroneous. Of course, as a rule of interpretation, parol evidence is not received to contradict or vary the terms of a written instrument; but, when the question is whether the instrument has any validity at all, such evidence is always received. The courts never permit form to shield illegality. *339Statutes cannot be evaded by shams and pretenses. Testimony concerning the conversations of the parties to a written agreement prior to its execution might be the best and most persuasive evidence to show that, instead of being what it purports to be, it is merely a cover for a usurious transaction.
¶33It is true that, notwithstanding his erroneous view of the law, the referee stated in his report some of the testimony concerning conversations between the bankrupts and Bernays, and that he reached the conclusion that the agreement was not usurious. But it is impossible to say that the error of the referee was not prejudicial to the appellant. It was the duty of the referee to give careful consideration to the testimony concerning the antecedent conversations—that testimony was probably the most important in the case as showing the real transaction between the parties—and how can it be said that he gave it such consideration when he was of the opinion that it had been erroneously received and could not alter the written agreement?
¶34The error of the referee calls for a reversal of the order, unless we are satisfied, from our own examination of the evidence as shown upon the record, that the ultimate conclusion reached by the referee was right. But, as already pointed out, the question in this case is whether the agreement was what it purports to be—in part a contract of employment—or was in fact intended as a cover for obtaining unlawful interest upon money loaned. The character of the transaction depends upon the intention of the parties, and the question of intent is one which, in ordinary actions, must be determined by the jury, and which, in a proceeding in bankruptcy, should be determined by a court or official having opportunity to see the witnesses and determine the weight to be given to their testimony. There is testimony in this case which, if credited, would warrant a jury—or other trier of the facts—in finding that the alleged contract of employment was an afterthought, intended to cover an agreement to pay a share of the profits of thé business in addition to the legal rate solely for the loan of the money. On the other hand, we cannot say that the evidence is such as would have required a jury to reach such conclusion. Much would depend upon the credibility of the witnesses.
¶35In some cases this court is required to weigh testimony upon the mere printed record; but it is obvious that we cannot do so to advantage, and that we should not do so unless necessary or unless the cases are entirely clear. In the present case the questions of fact seem doubtful, and we do not feel called upon to determine them. We think it much more desirable for all concerned that the District Court should, by itself or through a reference to a special master or to another referee, ascertain the intention of the parties to this agreement in the light of all proper evidence and determine its legality.
¶36The order of the District Court is reversed, with costs, and the matter remanded for further proceedings in accordance with this opinion.