provisions of 11 U.S.C.A. § 67, to review a decision and order of the Referee entered January 10, 1967, in this matter. The order complained of allowed but partial payment, on a secured claim, of Rosenthal's against the bankrupt, Advance Printing & Litho Company.
On May 6, 1963, Advance, a Pennsylvania corporation, executed a judgment note in the face amount of $26,000, payable to Rosenthal in 35 consecutive monthly installments of $722.22 and a final, monthly installment of $722.30, each due the 6th of each month succeeding. The note also provided for interest on each installment at the rate of 6% per annum from date, acceleration in case of default of any of the installments, and a 15% attorney's collection fee. Advance executed 36 promissory notes, corresponding in amount, maturity date and interest to the 36 installments due under the judgment note. Advance also executed a security agreement which granted Rosenthal, as collateral for payment of the $26,000, a security interest in all its machinery and equipment, including future acquisitions. The security agreement was filed of record in accordance with the provisions of Article IX of the Uniform Commercial Code, and so had become, prior to four months preceding this bankruptcy, a perfected security interest.
In return for the notes and security interest, Rosenthal disbursed $26,000 as follows: $732.98 for appraisal charges, attorney fees and expenses; $19,267.02 to Advance or its other creditors; and $6,000 to itself for "charges in connection with this loan." The practical effect of this transaction was that Advance, in return for a net loan of $19,267.02, had obligated itself to repay $26,000, together with 6% interest, over a three-year period.
The petition in this involuntary proceeding was filed on May 14, 1964, one year and eight days after the date of the judgment note. At the time of bankruptcy, Advance had made payment of eight installments, those corresponding to notes numbered 1 through 7, and 9; and had defaulted on four installments, those corresponding to notes numbered 8, and 10 through 12. Rosenthal did not enter judgment on the note or take any steps to enforce its rights under the security agreement until after bankruptcy.
The receiver [now the trustee] had the bankrupt's machinery and equipment appraised; since the appraisal figure, $41,880, indicated that the bankrupt estate might have an equity in the machinery beyond the lien of the Rosenthal security interest, the receiver petitioned the Referee for leave to sell the machinery and equipment at public sale, divested of liens. Rosenthal opposed this petition and filed its own petition for reclamation. The Referee ordered that the public sale be held, and that the lien of Rosenthal be transferred to the fund realized by the sale, which aggregated, before expenses, $30,596.50.
After the sale, the trustee opposed Rosenthal's claim to payment of the entire unpaid balance of the $26,000 as a secured claim. The Referee allowed payment of Rosenthal's claim as a secured claim only to the extent of $14,222.24, a figure arrived at by subtracting the total of the installments paid from $20,000, the amount the Referee found to be the loan. Payment of the additional $6,000 was allowed but was subordinated to payment in full of the claims of all priority and general creditors, or in effect disallowed. The Referee also concluded that no attorney's collection commission was allowable on Rosenthal's claim.
In its petition for review, Rosenthal alleges that the Referee erred in three respects: first, in failing to grant its petition for reclamation of the personalty which was security for the loan made by it to Advance; second, by failing to allow it the full amount of its claim as a secured claim; and third, by depriving it of certain of its constitutional rights.
On brief, Rosenthal has concentrated on one of these assignments of error: the failure of the Referee to allow it the full amount of its claim as a secured claim. In its brief, Rosenthal states the question before the Court in this fashion:
"[Whether] a referee can change the terms of a written obligation to conform to the trustee's or his own standards of what constitutes a proper charge for the use of money."
The Referee, in his Certificate, states the question a bit differently:
"[Whether] the Referee erred in allowing the claim of Rosenthal * * * in the amount of the balance of $14,222.24 due it in respect to its loan of the sum of $20,000.00 fully secured under a security interest against printing machinery and equipment sold by the trustee in bankruptcy for the sum of $30,596.50 which had a value at all times in excess of the amount of said loan * * * instead of the additional $6,000.00 plus interest at the rate of 6% per annum claimed by said creditor under notes and a security agreement it required the debtor to execute in the sum of $26,000.00 plus interest at 6% per annum when said creditor had said machinery and equipment appraised at an expense to the debtor of $377.73 which it deducted from its $20,000.00 advance to the debtor along with attorney fees and other additional expense totaling in all $732.98, and in subordinating its claim for said additional $6,000.00 and interest to payment in full of all priority and general claims."