Case Title: CITIZENS BANK OF MONTANA v BROWN

Citation: 

Docket Number: 85-123

State: montana

Court: Montana Supreme Court

Date: 1985-09-27T00:00:00Z

Document:
N o . 8 5 - 1 2 3 I N THE SUPREME COURT OF THE STATE OF MONTANA 1 9 8 5 C I T I Z E N S BANK OF MONTANA, P l a n t i f f a n d R e s p o n d e n t , ROBERT L. BROWN, FLORENCE K. BROWN, husband and w i f e , and HOWARD T. BROWN, INC. , D e f e n d a n t s , C o u n t e r c l a i m a n t s and A p p e l l a n t s . APPEAL FROM: D i s t r i c t C o u r t of t h e T w e l f t h J u d i c i a l D i s t r i c t , I n a n d f o r the C o u n t y of H i l l , T h e H o n o r a b l e C h a n E t t i e n , Judge presiding. COUNSEL OF RECORD: F o r A p p e l l a n t : J o h n K e i t h , G r e a t F a l l s , M o n t a n a F o r R e s p o n d e n t : A l e x a n d e r & B a u c u s ; Ward T a l e f f , G r e a t F a l l s , M o n t a n a - - S u b m i t t e d on B r i e f s : June 2 8 , 1 9 8 5 ~ e c i d e d : S e p t e m b e r 2 7 , 1 9 8 5 F i l e d : M r . J u s t i c e L. C. Gulbrandson d e l i v e r e d t h e Opinion of t h e Court. Browns appeal t h e H i l l County D i s t r i c t C o u r t ' s d e n i a l o f t h e i r motion f o r r e l i e f from judgment. The i s s u e on appeal i s whether t h e r e was a v a l i d judgment under which respondent C i t i z e n s Bank o f Montana could o b t a i n a w r i t o f execution and a s h e r i f f ' s s a l e . W e hold t h a t t h e r e was such a judgment and, accordingly, w e a f f i r m t h e d e c i s i o n of t h e D i s t r i c t Court. I n March 1980, Robert L. Brown and Florence K. Brown (Browns) , f o r c o n s i d e r a t i o n , executed a promissory n o t e and d e l i v e r e d it t o C i t i z e n s Bank. Browns a l s o executed two t r u s t i n d e n t u r e s i n f a v o r o f C i t i z e n s Bank t o s e c u r e payment o f t h e note. One t r u s t i n d e n t u r e covered r e a l p r o p e r t y known a s t h e Warehouse property. The o t h e r covered r e a l p r o p e r t y known a s t h e Gambles property. Browns l a t e r t r a n s f e r r e d t h e Warehouse and Gambles p r o p e r t i e s t o a c o r p o r a t i o n , Howard T. Brown, Inc. C i t i z e n s Bank f i l e d a complaint i n February 1982, and an amended complaint i n March 1982, a g a i n s t Browns and Howard T. Brown, I n c . , a l l e g i n g t h a t Browns w e r e i n d e f a u l t on both t r u s t indentures. C i t i z e n s Bank sought f o r e c l o s u r e o f t h e t r u s t indentures. The defendants responded w i t h a counterclaim and a t h i r d - p a r t y complaint. I n November 1982, t h e District Court granted C i t i z e n s Bank's motion f o r p a r t i a l summary judgment on t h e i s s u e o f Browns' d e f a u l t on t h e t r u s t i n d e n t u r e s . I n J u l y 1983, C i t i z e n s Bank and Browns signed a "Covenant Not t o Execute," whereby t h e Bank agreed not t o execute on t h e judgment. S h o r t l y t h e r e a f t e r , Browns signed an agreement e n t i t l e d "Consent t o Entry o f Judgment." The agreement requested t h e District Court t o e n t e r judgment i n C i t i z e n s Bank" f a v o r i n its suit on the trust indentures. The agreement further requested the court to dismiss with prejudice all of the Browns' remaining counterclaims and third-party claims. Pursuant to this document, the District Court entered judg- ment on July 13, 1983, in Citizens Bank's favor against Browns. The judgment specifically created judgment liens in Citizens Bank's favor on the property which had been subject to the trust indentures; the Warehouse property and the Gambles property. Subsequently, Browns and Howard T. Brown, Inc., signed an agreement entitled "Consent to Entry of Judgment Nunc Pro Tunc." Among other things, the agreement requested the District Court to dismiss Howard T. Brown, Lnc. 's, counter- claims and third-party claims. The agreement acknowledged that Howard T. Brown, Inc. Is, interest in the Warehouse and Gambles properties was subject to Citizens Bank's interest. Shortly after these agreements were entered into, the Browns filed a voluntary Chapter 11 Bankruptcy petition in the United States Bankruptcy Court for the District of Montana, Great Falls Division. On April 9, 1984, the Bank- ruptcy Court entered an order regarding the Browns' bankrupt- cy petition. With reference to Citizens Bank's suit against Browns, this order stated: The execution of the COVENANT NOT TO EXECUTE and the filing of the subsequent judgments and judgments nunc pro tunc in favor of the Citizens Bank and against the Browns, creating judgment liens against the real property of the Browns and releasing and dismissing with preju- dice all of the claims which the Browns might have against the Citizens Bank, constituted preferential transfers under 11 U.S.C. Section 547 of the Bankruptcy Code. The Bankruptcy Court further ordered: . . . that the Covenant not to Execute and all resulting judgments in favor of C i t i z e n s Bank and a g a i n s t t h e Browns which, amongst o t h e r t h i n g s , c r e a t e d a d d i t i o n a l l i e n s a g a i n s t p r o p e r t y o f t h e Browns and r e l e a s e d and dismissed with p r e j u d i c e claims which t h e Browns may have had a g a i n s t t h e C i t i z e n s Bank a r e set a s i d e pursuant t o 11 U.S.C. 547 a s p r e f e r e n c e s and s p e c i f i c a l l y t h a t t h e Browns may pursue any and a l l claims which t h e y have o r had a g a i n s t t h e C i t i - zens Bank and f u r t h e r t h a t t h e l i e n s and encumbrances which t h e C i t i z e n s Bank had a g a i n s t t h e Gambles and Warehouse proper- t y a r e s p e c i f i c a l l y preserved. Pursuant t o C i t i z e n s Bank's motion, t h e Bankruptcy Court l a t e r amended i t s o r d e r s o t h a t t h e l a s t l i n e quoted above would r e a d , " . . . a r e s p e c i f i c a l l y preserved - a s judgment l i e n s . " (Emphasis s u p p l i e d . ) I n November 1984, t h e Bankruptcy Court l i f t e d t h e auto- matic s t a y i n bankruptcy a s t o t h e Gambles and Warehouse p r o p e r t i e s . I n December 1984, C i t i z e n s Bank obtained a w r i t o f execution from t h e Clerk of t h e D i s t r i c t Court. Pursuant t o t h e w r i t of e x e c u t i o n , a s h e r i f f ' s s a l e o f t h e Gambles and Warehouse p r o p e r t i e s was scheduled f o r January 9 , 1985. O n January 8 , 1985, Browns f i l e d a motion f o r r e l i e f from judg- ment i n an attempt t o h a l t t h e s h e r i f f ' s s a l e . The b a s i s o f Browns' motion was t h a t t h e Bankruptcy Court o r d e r d a t e d April 9, 1984, a l l e g e d l y i n v a l i d a t e d Citizens Bank's judgment l i e n s on t h e Gambles and Warehouse p r o p e r t i e s . Therefore, Browns contend, t h e r e was no judgment upon which t h e w r i t o f execution and s h e r i f f ' s s a l e could be based. The D i s t r i c t Court r e j e c t e d t h e i r argument and allowed t h e s h e r i f f ' s s a l e o f t h e Warehouse and Gambles p r o p e r t i e s . Appellants advance one main contention on appeal. They contend t h a t t h e Bankruptcy Court o r d e r o f A p r i l 9 , 1984, completely s e t a s i d e C i t i z e n s Bank's judgment l i e n s a g a i n s t t h e Gambles and Warehouse p r o p e r t i e s and, t h e r e f o r e , t h e District Court should have granted a p p e l l a n t s ' motion f o r r e l i e f from judgment. The bankruptcy judge, i n h i s o r d e r of April 9, 1984, set a s i d e : [TJhe Covenant Not t o Execute and a l l r e s u l t i n g judgments i n f a v o r of C i t i z e n s Bank and a g a i n s t t h e Browns which, amongst o t h e r t h i n g s , c r e a t e d a d d i t i o n a 1 l i e n s a g a i n s t p r o p e r t y o f t h e Browns and r e l e a s e d and dismissed w i t h p r e j u d i c e claims which t h e Browns may have had a g a i n s t t h e C i t i z e n s Bank . . . O n i t s f a c e , t h i s p o r t i o n o f t h e o r d e r set a s i d e C i t i z e n s Bank's judgment l i e n s r e s u l t i n g from t h e J u l y 1 3 , 1983 judgment. However, t h e o r d e r goes on t o s p e c i f i c a l l y p r e s e r v e " t h e l i e n s and encumbrances which t h e C i t i z e n s Bank had a g a i n s t t h e Gambles and Warehouse p r o p e r t y . . ." Appellants argue t h a t t h i s l a s t phrase was meant t o p r e s e r v e any l i e n s which P l a i n t i f f had b e f o r e t h e e n t r y o f t h e J u l y 13, 1983, D i s t r i c t Court o r d e r . W e d i s a g r e e w i t h a p p e l l a n t s ' s t r a i n e d i n t e r p r e t a t i o n . If t h e Bankruptcy Court had intended t h i s meaning, it could have e a s i l y s a i d so. W e n o t e t h a t "when t h e r e i s no testimony and t h i s Court is l i m i t e d t o t h e r e c o r d , it i s f r e e t o make i t s own examina- t i o n o f t h e e n t i r e c a s e and t o make a determination i n accor- dance w i t h i t s findings.'' Steadman v. Halland (Mont. 1982), 641 P.2d 448, 452, 39 St.Rep. 343, 347. This r u l e a p p l i e s t o t h e i n s t a n t case. F u r t h e r , t h i s Court has s t a t e d t h a t , " [ a ] judgment should be s o construed a s t o g i v e e f f e c t t o every word and p a r t of it, i n c l u d i n g such e f f e c t s and consequences a s follow by necessary l e g a l i m p l i c a t i o n from i t s t e r m s , although n o t expressed." S t a t e ex rel. Foot v. ~ i s t r i c t Court e t a l . (1925), 72 Mont. 374, 379, 233 P. 957, 959. A perfunctory review of bankruptcy law r e v e a l s t h e necessary l e g a l i m p l i c a t i o n s t o be drawn from t h e d i s p u t e d o r d e r . The Bankruptcy Court had a u t h o r i t y t o set a s i d e " p r e f e r e n t i a l t r a n s f e r s " made by Browns. The Banlcruptcy C o u r t ' s a u t h o r i t y is under 11 U.S.C. § 547 o f t h e Bankruptcy Code. The J u l y 13, 1983, judgment, e n t e r e d pursuant t o t h e consent t o e n t r y o f judgment agreement, c r e a t e d a p r e f e r e n t i a l t r a n s f e r f o r t h e purposes o f § 547. The e n t r y o f judgment granted t o C i t i z e n s Bank a judgment l i e n on a l l - r e a l p r o p e r t y Browns owned i n H i l l County. Thus, t h e p r e f e r e n t i a l t r a n s f e r was t h a t C i t i z e n s Bank received a l i e n i n t e r e s t a g a i n s t r e a l p r o p e r t y which was n o t p r e v i o u s l y - c o l l a t e r a l f o r Browns' d e b t t o t h e Bank. The Bankruptcy Court o r d e r set t h i s p r e f e r e n t i a l t r a n s f e r a s i d e . T h i s d i d n o t a f f e c t C i t i z e n s Rank's l i e n on t h e o r i g i n a l c o l l a t e r a l ; Section 547, however, i s concerned p r i - marily with judgments o r j u d i c i a l pro- ceedings t h a t c r e a t e l i e n s w i t h i n t h e 90-day p e r i o d t o secure claims t h a t previousle - - had no p r e f e r e n t i a l standinq. Accordingly, a judgment e n t e r e d on o r w i t h i n 90 days b e f o r e t h e p e t i t i o n i s f i l e d and a r i s i n q o u t of t h e enforcement o f a v a l i d and s u b s i s t i n g l i e n , which has p r i o r i t y over t h e claims o f g e n e r a l c r e d i t o r s and a g a i n s t which t h e t r u s t e e cannot a s s e r t a paramount r i g h t , does not -- c o n s t i t u t e a v o i d a b l e preference. Thus, t h e confession o f a judgment on a n o n - p r e f e r e n t i a l and otherwise v a l i d s e c u r i t y i n t e r e s t i n persona 1 p r o p e r t y and a consequent s a l e of t h e p r o p e r t y does n o t g i v e rise t o a preference. (Emphasis supplied. ) 4 C o l l i e r on Bankruptcy, ch. 547, 4[ 547.12, a t 48-49 (15th ed. 1979). C i t i z e n s Bank had a v a l i d and s u b s i s t i n g l i e n on t h e Gambles and Warehouse p r o p e r t i e s long before Browns p e t i t i o n e d f o r bankruptcy. The judgment a r i s i n g o u t o f t h a t v a l i d l i e n was n o t a p r e f e r e n t i a l t r a n s f e r . W e hold t h a t t h e J u l y 13, 1983, judgment l i e n was a v a l i d l i e n a s t o t h e Gambles and Warehouse p r o p e r t i e s . This i n t e r p r e t a t i o n is i n accord with a s t r a i g h t f o r w a r d reading o f t h e Bankruptcy Court o r d e r . The o r d e r s p e c i f i c a l - l y preserved " t h e l i e n s and encumbrances which t h e C i t i z e n s Bank had a g a i n s t t h e Gambles and Warehouse p r o p e r t y " a s judg- ment l i e n s . The D i s t r i c t Court p r o p e r l y denied Browns1 motion f o r r e l i e f from judgment. Having reached a d e c i s i o n on t h e merits o f t h e c a s e , we have no need t o a d d r e s s t h e q u e s t i o n s o f whether a p p e l l a n t s ' counsel p r o p e r l y f i l e d t h e n o t i c e o f appeal, o r whether a p p e l l a n t s motion f o r r e l i e f from judgment was t i m e l y made, o r whether r e s j u d i c a t a o r c o l l a t p r a l e s t o p p e l apply. Affirmed. W e concur: