No. 85-123 INTHE SUPREME COURT OF THE STATE OF MONTANA 1985

CITIZENS BANK OF MONTANA, Plantiff andRespondent,

ROBERT L. BROWN, FLORENCE K. BROWN, husband and wife, and HOWARD T. BROWN, INC.

## , Defendants, Counterclaimants and Appellants.

APPEAL FROM: DistrictCourtof theTwelfth

### JudicialDistrict, 

### In and forthe County

### of Hill, TheHonorable Chan Ettien, 

### Judge presiding.

COUNSEL OF RECORD:

ForAppellant: John Keith, GreatFalls, Montana

ForRespondent: Alexander & Baucus; Ward Taleff, GreatFalls, Montana

-- Submitted

### on Briefs: 

### June 28, 1985 ~ecided: September 27, 1985

Filed:Mr. Justice L. C. Gulbrandson delivered the Opinion of the Court.

Browns appeal theHillCounty DistrictCourt's denial of their motion for relief from judgment. The issue on appeal 

### is whether there was a valid judgment under which respondent CitizensBank of Montana could obtaina

### writof execution and

a sheriff's sale. We hold that there was such a judgment and, accordingly, 

### we affirm the decision of the District Court. In March 1980, Robert L. Brown and Florence K. Brown (Browns)

## , for consideration, executed a promissory note and delivered 

### it to Citizens Bank. Browns also executed two trust indentures in favor of Citizens Bank tosecurepayment of thenote. One trust indenturecovered realproperty known

as the Warehouse property. The other covered real property known asthe Gambles property. Browns latertransferred the Warehouse and Gambles properties toa corporation, Howard T. Brown, Inc. CitizensBank fileda complaint inFebruary 1982, and an amended complaint inMarch 1982, against Browns and Howard T. Brown, Inc., alleging that Browns 

### were in default on both trust indentures. Citizens Bank sought foreclosure of the trust indentures. The defendants responded with a counterclaim and a third-party complaint. 

### In November 1982, the 

### District Court granted Citizens Bank's motion for partial summary judgment on the issue of Browns' default on the trust indentures. In July 1983, Citizens Bank and Browns signed a "Covenant Not toExecute," whereby the Bank agreed not to execute on the judgment. Shortly thereafter, Browns signed an agreement entitled "Consent toEntry of Judgment." The agreement requested the 

### District Court toenterjudgment in Citizens Bank" favor in

### 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 judgment 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 Gamblesproperty. Subsequently, Browns and Howard T. Brown, Inc., signed an agreement entitled "Consentto Entry of Judgment Nunc Pro Tunc." Among other things, the agreement requested the District Court to dismiss Howard T. Brown, Lnc. 's, counterclaims 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 Bankruptcy Court entered an order regarding the Browns' bankruptcy 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 dismissingwith prejudice 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 ofCitizens Bank and against the Browns which, amongst other things, created additional liens against property of the Browns and released and dismissed with prejudice claims which the Browns may have had against the Citizens Bank are 

### set aside pursuant to 11 U.S.C. 547 as preferences and specifically that the Browns may pursue any and all claims which they have orhad against theCitizens Bank and further that the 

### liens and encumbrances which the Citizens Bank had against theGambles and Warehouse propertyare specificallypreserved. Pursuant to Citizens Bank's motion, the Bankruptcy Court later amended 

### its order so that the last line quoted above would read, 

### "

# .

# . . are specifically preserved 

## - as judgment liens." (Emphasis supplied.) 

### In November 1984, the Bankruptcy Court liftedthe automatic stay in bankruptcy as to the Gambles and Warehouse properties. In December 1984, Citizens Bank obtained a 

### writ of execution from the Clerk of the District Court. Pursuant tothe

### writof execution, a sheriff's saleof theGambles and Warehouse properties was scheduled for January 9, 1985. On January 8, 1985, Browns filed a motion forrelief from judgment inan attempt tohaltthe sheriff's sale. The basis of Browns' motion was that the Bankruptcy Court order dated April 9, 1984, allegedlyinvalidated Citizens Bank's judgment liens on the Gambles and Warehouse properties. Therefore, Browns contend, therewas no judgment upon which the

### writof execution and sheriff's sale could be based. The District Court rejected their argument and allowed the sheriff's sale of theWarehouse and Gambles properties. Appellants advance one main contention on appeal. They contend that the Bankruptcy Court order of April 9, 1984, completely set aside Citizens Bank's judgment liens against the Gambles and Warehouse properties and, therefore, theDistrict Court should have granted appellants' motion for relief fromjudgment. The bankruptcyjudge, inhisorder of April 9, 1984, 

### set aside: [TJhe Covenant Not to Execute and all resulting judgments in favor of Citizens Bank and against the Browns which, amongst other things, created additiona1 liens against property of the Browns and released and dismissed with prejudice claims which the Browns may have had againsttheCitizensBank 

# ..

# . On 

### its face, this portion of the order 

### set aside Citizens Bank's judgment liens resulting from the July 13, 1983 judgment. However, the order goes on to specifically preserve "the liens and encumbrances which the Citizens Bank had against the Gambles and Warehouse property

# ..." Appellants argue that this lastphrase was meant topreserve any liens which Plaintiff had before the entry of the July 13, 1983, DistrictCourt order. Wedisagreewith appellants' strained interpretation. If the Bankruptcy Court had intended thismeaning, 

### it could have easily said so. We note that "when there 

### isno testimony and thisCourt 

### is limited totherecord, 

### it is freetomake 

### itsown examination of theentirecaseand tomake a determination inaccordance with 

### its findings.'' Steadman v. Halland (Mont. 1982), 641P.2d 448, 452, 39 St.Rep. 343, 347. This rule appliesto the instant case. Further, this Court has stated that, 

## "[a] judgment should be so construed as to give effect toevery word and part of 

### it, including such effectsand consequences
as follow by necessary legal implication from 

### its terms, although not expressed." State 

### ex rel. Foot v. 

### ~istrict Court et al. (1925), 72 Mont. 374, 379, 233 P. 957, 959. A perfunctory review of bankruptcy law reveals the necessary legal implications to be drawn from the disputedorder. The Bankruptcy Court had authority to 

### set aside "preferential transfers" made by Browns. The Banlcruptcy Court's authority 

### is under 11 U.S.C. § 547 of theBankruptcy Code. The July 13, 1983, judgment, entered pursuant tothe consent to entry of judgment agreement, created a preferential transfer for the purposes of § 547. The entry of judgment granted toCitizens Bank a judgment lien on all 

## - real property Browns owned in Hill County. Thus, the preferential transfer was that Citizens Bank received a lien interest against real property which was not previously 

# - collateral for Browns' debt to the Bank. The Bankruptcy Court order 

### set this preferential transfer aside. This did not affect Citizens Rank's lien on the original collateral; Section 547, however, 

### is concerned primarily with judgments or judicial proceedings that create liens within the 90-day period to secure claims that previousle 

## -- had no preferential standinq. Accordingly, a judgment entered on or within 90 days before the petition 

### is filed and arisinq out of the enforcement of 

### a valid and subsisting lien, which has priority over the claims of general creditors and against which the trustee cannot asserta paramount right, does not 

### -- constitute a voidable preference. Thus, the confession of a judgment on a non-preferential and otherwise valid security interest in persona1 property and a consequent sale of the property does not give 

### rise to a preference. (Emphasis supplied.) 4 Collier on Bankruptcy, ch. 547, 4[ 547.12, at48-49 (15th ed. 1979). Citizens Bank had a valid and subsisting lien on the Gambles and Warehouse properties long before Browns petitioned forbankruptcy. The judgment arisingout of that valid lienwas not a preferentialtransfer. Wehold thatthe July 13, 1983, judgment lien was a valid lien as to the Gambles andWarehouse properties.This interpretation 

### is in accord with a straightforward reading of theBankruptcy Court order. The order specifical

### lypreserved "the liens and encumbrances which the Citizens Bank had againsttheGambles and Warehouse property" asjudgment 

### liens. The 

### District Court properly denied Browns1 motion forrelief fromjudgment. Having reached a decision

### on the

### merits of the case, 

### we have no need 

### toaddress the questions of whether appellants' counsel properly filed the notice of appeal, or whether appellants motion for relief from judgment was timely made,

orwhether resjudicata orcollatpral estoppel apply. Affirmed.

Weconcur: