No. 85-123 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1985 

CITIZENS BANK OF MONTANA, 

Plantiff and Respondent, 

ROBERT L. BROWN, FLORENCE K. 

BROWN, husband and wife, and 

HOWARD T. BROWN, INC. , 

Defendants, Counterclaimants 

and Appellants. 

APPEAL FROM: District Court of the Twelfth Judicial District, 

In and for the County of Hill, 

The Honorable Chan Ettien, Judge presiding. 

COUNSEL OF RECORD: 

For Appellant: 

John Keith, Great Falls, Montana 

For Respondent: 

Alexander & Baucus; Ward Taleff, Great Falls, 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 the Hill County District Court's denial of 

their motion for relief from judgment. The issue on appeal 

is whether there was a valid judgment under which respondent 

Citizens Bank of Montana could obtain a writ of 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 to secure payment 

of the note. One trust indenture covered real property known 

as the Warehouse property. The other covered real property 

known as the Gambles property. Browns later transferred the 

Warehouse and Gambles properties to a corporation, Howard T. 

Brown, Inc. 

Citizens Bank filed a complaint in February 1982, and an 

amended complaint in March 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 to Execute," 

whereby the Bank agreed not to execute on the judgment. 

Shortly thereafter, Browns signed an agreement entitled 

"Consent to Entry of Judgment." The agreement requested the 

District Court to enter judgment 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 

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, 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 dismissing with 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 of 
Citizens 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 or had against the Citizens Bank and further that the liens and 

encumbrances which the Citizens Bank had 

against the Gambles and Warehouse property are specifically preserved. 

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 lifted the 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 

to the writ of execution, a sheriff's sale of the Gambles and 

Warehouse properties was scheduled for January 9, 1985. On 

January 8, 1985, Browns filed a motion for relief from judgment in an attempt to halt the sheriff's sale. The basis of 

Browns' motion was that the Bankruptcy Court order dated 

April 9, 1984, allegedly invalidated Citizens Bank's judgment 

liens on the Gambles and Warehouse properties. Therefore, 

Browns contend, there was no judgment upon which the writ of 

execution and sheriff's sale could be based. The District 

Court rejected their argument and allowed the sheriff's sale 

of the Warehouse 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, the 
District Court should have granted appellants' motion for 

relief from judgment. 

The bankruptcy judge, in his order 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 additiona 1 

liens against property of the Browns and 

released and dismissed with prejudice 

claims which the Browns may have had 

against the Citizens Bank . . . 

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 last phrase was meant to preserve 

any liens which Plaintiff had before the entry of the July 

13, 1983, District Court order. We disagree with appellants' 

strained interpretation. If the Bankruptcy Court had 

intended this meaning, it could have easily said so. 

We note that "when there is no testimony and this Court 

is limited to the record, it is free to make its own examination of the entire case and to make a determination in accordance with its findings.'' Steadman v. Halland (Mont. 1982), 

641 P.2d 448, 452, 39 St.Rep. 343, 347. This rule applies to 

the instant case. Further, this Court has stated that, " [a] 

judgment should be so construed as to give effect to every 

word and part of it, including such effects and 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 disputed 
order. 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 the Bankruptcy 

Code. The July 13, 1983, judgment, entered pursuant to the 

consent to entry of judgment agreement, created a 

preferential transfer for the purposes of § 547. The entry 

of judgment granted to Citizens 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 assert a paramount right, -- does not 

constitute a voidable preference. Thus, 

the confession of a judgment on a 

non-preferential and otherwise valid 

security interest in persona 1 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, at 48-49 (15th 

ed. 1979). 

Citizens Bank had a valid and subsisting lien on the 

Gambles and Warehouse properties long before Browns 

petitioned for bankruptcy. The judgment arising out of that 

valid lien was not a preferential transfer. We hold that the 

July 13, 1983, judgment lien was a valid lien as to the 

Gambles and Warehouse properties. 
This interpretation is in accord with a straightforward 

reading of the Bankruptcy Court order. The order specifically preserved "the liens and encumbrances which the Citizens 

Bank had against the Gambles and Warehouse property" as judgment liens. The District Court properly denied Browns1 

motion for relief from judgment. 

Having reached a decision on the merits of the case, we 

have no need to address the questions of whether appellants' 

counsel properly filed the notice of appeal, or whether 

appellants motion for relief from judgment was timely made, 

or whether res judicata or collatpral estoppel apply. 

Affirmed. 

We concur: