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November 19, 1951


The opinion of the court was delivered by: KAUFMAN

I have before me a petition by Lester Getz for a review of an order of the Referee in Bankruptcy adjudging void a chattel mortgage and promissory notes. The order also declares that the net proceeds of the sale of the chattels covered by the mortgage are free of Getz's alleged lien and claim.

The facts are as follows: On March 20, 1951, the Trustee procured an order directing Lester Getz to show cause before the Referee why his claim to a balance of $ 3,200 and interest under a chattel mortgage executed by the bankrupt for $ 5,000 should not be declared usurious and void and the lien claimed by Getz against the proceeds of the sale of the trucks secured by the chattel mortgage be declared null and void.

 The chattel mortgage was executed on December 16, 1949, by the bankrupt Gurinsky to secure a loan of $ 5,000. The petition of the Trustee alleged that the loan was entered into pursuant to a usurious agreement with the bankrupt. Under its terms the bankrupt was to pay Lester Getz the sum of $ 45 weekly as interest on the loan over a period expiring January 10, 1952. The Trustee stated that Getz had at various times received the weekly rate of $ 45, a sum in excess of the 6% rate of interest permitted under the laws of the State of New York.

 Getz appeared in the proceedings before the Referee by an attorney and denied in his answer that there was a usurious agreement to receive interest in excess of the legal rate. Testimony was taken before the Referee for several days and the stenographic record exceeds 300 pages.

 The Referee declared the transaction usurious and expunged the claim of Lester Getz.

 The first problem that presents itself is the reviewing authority of the district judge. The power of the district judge to review the orders of the Referee and the scope to be given the orders and findings of the Referee are set forth in General Order 47, 11 U.S.C.A. following section 53. *fn1"

 Inherent in Rule 52 of the Federal Rules of Civil Procedure, 28 U.S.C.A., which is now applicable to bankruptcy, is a similar pronouncement with respect to the setting aside of findings of fact. *fn2"

 Thus, the district judge starts with a clear mandate to accept the Referee's findings of fact unless clearly erroneous. The reason for this is obvious. The trier of the facts- in this case the Referee- has had the opportunity of weighing the evidence in conjunction with his personal reaction to the conduct of the witnesses who have appeared before him. His inferences drawn from the evidence require acceptance by the reviewing court in the absence of clear error. In re Madelaine, Inc., 2 Cir., 1947, 164 F.2d 419. *fn3"

 Judge Frank has set out rules guiding an appellate court's review of trial court findings. By analogy, these rules may be applied to the trial judge's review of a Referee's finding:

 'We accept, as we must, those of the trial judge's inferences of fact which he drew directly from his estimates of the credibility of witnesses whom he observed as they testified in his presence- i.e., his inferences (sometimes called 'testimonial inferences') that certain facts existed because he believed some witness or witnesses who testified before him that those facts did exist.' *fn4"

 'Where the evidence is partly oral and the balance is written or deals with undisputed facts, then we may ignore the trial judge's finding and substitute our own, (1) if the written evidence or some undisputed fact renders the credibility of the oral testimony extremely doubtful, or (2) if the trial judge's finding must rest exclusively on the written evidence or the undisputed facts, so that his evaluation of credibility has no significance. * * * But where the evidence supporting his finding as to any fact issue is entirely oral testimony, we may disturb that finding only in the most unusual circumstances.' *fn5"

 It is apparent, therefore, that subject to the principles enunciated in the cases, the district judge will not substitute his own judgment for that of the Referee who heard the evidence where the Referee evaluated the testimony in the light of witness demeanor.

 We approach, therefore, the major problem in this case. Did the Referee base his decision mainly upon his appraisal of witnesses? I believe he did. In the Memorandum attached to his findings the Referee stated that he found the testimony sharply contradictory.

 'There is testimony by the bankrupt, that he made the payments described in finding No. 8 as excessive interest in pursuance of an agreement with the respondent to do so. The respondent denied that the checks were given for that purpose and declared that they were given in payment of one or several cash loans made by him to the bankrupt from time to time. The bankrupt unlike the respondent has no pecuniary interest in the outcome, but he, together with his daughter, displayed and voiced a strong bias and sharp animus ...

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