Citizens Bank of Montana v. Brown ( 1985 )

No. 85-123
I N THE SUPREME COURT OF THE STATE OF MONTANA
1985
CITIZENS BANK OF MONTANA,
P l a n t i f f and Respondent,
ROBERT L. BROWN, FLORENCE K .
BROWN, h u s b a n d and w i f e , a n d
HOWARD T . BROWN, I N C . ,
Defendants, Counterclaimants
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 t h e 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 p r e s i d i n g .
COUNSEL O F RECORD:
For Appellant:
J o h n K e i t h , G r e a t F a l l s , Montana
F o r Respondent:
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 : September 27, 1 9 8 5
Filed :
Mr. J u s t i c e L. C. Gulbrandson d e l i v e r e d t h e O p i n i o n o f the
Court.
Browns a p p e a l 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 a p p e a l
i s w h e t h e r t h e r e was a v a l i d judgment u n d e r which r e s p o n d e n t
C i t i z e n s Bank o f Montana c o u l d o b t a i n a w r i t o f e x e c u t i o n and
a sheriff's sale. W e hold t h a t t h e r e was s u c h a judgment
and, accordingly, we affirm the decision of the District
Court.
In March 1980, Robert L. Brown and F l o r e n c e K. Brown
(Browns) , f o r c o n s i d e r a t i o n , e x e c u t e d a p r o m i s s o r y n o t e and
delivered it to Citizens 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
of t h e note. One t r u s t i n d e n t u r e c o v e r e d r e a l p r o p e r t y known
a s t h e Warehouse p r o p e r t y . The o t h e r c o v e r e d r e a l p r o p e r t y
known a s t h e Gambles p r o p e r t y . 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, I n c .
C i t i z e n s Bank f i l e d a c o m p l a i n t i n F e b r u a r y 1 9 8 2 , and an
amended c o m p l a i n t i n March 1 9 8 2 , a g a i n s t Browns and Howard T .
Brown, Inc., 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 b o t h
trust indentures. C i t i z e n s Bank sought f o r e c l o s u r e o f the
trust indentures. The defendants responded with a
c o u n t e r c l a i m and a t h i r d - p a r t y c o m p l a i n t .
I n November 1982, t h e District Court granted C i t i z e n s
B a n k ' s motion for partial summary judgment on t h e i s s u e o f
Browns' default on the trust indentures. In July 1983,
C i t i z e n s Bank and Browns s i g n e d a "Covenant Not t o E x e c u t e , "
whereby the Bank agreed not to execute on the judgment.
Shortly thereafter, Browns signed an agreement entitled
" C o n s e n t t o E n t r y o f Judgment." The a g r e e m e n t r e q u e s t e d t h e
D i s t r i c t C o u r t t o e n t e r judgment i n C i t i z e n s Bank" favor i n
its suit on the trust indentures. The agreement further
requested the court to dismiss with prejudice a l l 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 other things, created
additional l i e n s against property of the
Browns and r e l e a s e d and d i s m i s s e d w i t h
p r e j u d i c e c l a i m s which t h e Browns may
h a v e had a g a i n s t t h e C i t i z e n s Bank a r e
s e t a s i d e p u r s u a n t 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 p u r s u e any and a l l c l a i m s
which t h e y h a v e o r had a g a i n s t t h e C i t i -
z e n s 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 p r o p e r -
t y a r e s p e c i f i c a l l y preserved.
Pursuant to Citizens Bank's motion, the 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 read, ". .. are specifically preserved -
as judgment
liens." (Emphasis s u p p l i e d . )
I n November 1 9 8 4 , t h e B a n k r u p t c y C o u r t l i f t e d t h e a u t o -
matic stay in bankruptcy as to the Gambles and Warehouse
properties. I n December 1984, C i t i z e n s Bank o b t a i n e d a w r i t
o f e x e c u t i o n from t h e C l e r k o f t h e D i s t r i c t C o u r t . Pursuant
t o t h e w r i t o f 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 s c h e d u l e d f o r J a n u a r y 9 , 1985. On
J a n u a r y 8 , 1985, Browns f i l e d a m o t i o n f o r r e l i e f from judg-
ment i n an a t t e m p t 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 that the Bankruptcy Court order dated
A p r i l 9 , 1984, a l l e g e d l y i n v a l i d a t e d C i t i z e n s B a n k ' 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 c o n t e n d , t h e r e was no judgment upon which t h e w r i t o f
e x e c u t i o n 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
C o u r t r e j e c t e d t h e i r argument and a l l o w e d 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 .
A p p e l l a n t s a d v a n c e o n e main c o n t e n t i o n on a p p e a l . They
contend that the 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 liens against
the Gambles and Warehouse properties and, therefore, the
District Court should have granted appellants' motion for
r e l i e f from judgment.
The b a n k r u p t c y j u d g e , i n h i s o r d e r of A p r i l 9, 1984, s e t
aside:
[ T J h e Covenant Not t o E x e c u t e and a l l
r e s u l t i n g judgments i n f a v o r o f C i t i z e n s
Bank and against the 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 d i s m i s s e d w i t h p r e j u d i c e
c l a i m s which t h e Browns may h a v e had
a g a i n s t t h e C i t i z e n s Bank . ..
On i t s face, t h i s portion of the order set a s i d e C i t i z e n s
Bank's judgment liens resulting from the July 13, 1983
judgment. However, the order goes on to specifically
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 against the Gambles and Warehouse property . . ."
A p p e l l a n t s a r g u e t h a t t h i s l a s t p h r a s e was meant t o p r e s e r v e
a n y 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 disagree with appellants'
strained interpretation. If the Bankruptcy Court had
i n t e n d e d t h i s meaning, it c o u l d h a v e e a s i l y s a i d s o .
W e n o t e t h a t "when t h e r e i s no t e s t i m o n y and t h i s C o u r t
i s 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 d e t e r m i n a t i o n i n a c c o r -
dance w i t h i t s findings.'' Steadman v . Halland (Mont. 1 9 8 2 ) ,
641 P.2d 448, 452, 39 St.Rep. 343, 347. This r u l e applies 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 give e f f e c t t o every
word and p a r t o f i t , i n c l u d i n g s u c h e f f e c t s and c o n s e q u e n c e s
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 i m p l i c a t i o n s t o b e drawn from t h e d i s p u t e d
order. The Bankruptcy Court had authority to set aside
"preferential transfers" made by Browns. The Banlcruptcy
C o u r t ' s a u t h o r i t y i s u n d e r 11 U.S.C. § 547 o f t h e B a n k r u p t c y
Code. The J u l y 1 3 , 1 9 8 3 , judgment, entered pursuant t o t h e
consent to entry of judgment agreement, created a
preferential t r a n s f e r f o r t h e purposes of § 547. The e n t r y
o f judgment g r a n t e d t o C i t i z e n s Bank a judgment l i e n on -
all
real property Browns owned in H i l l County. Thus, the
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 r e c e i v e d a l i e n
interest against real property which was -
not previously
collateral for Browns' debt to the Bank. The B a n k r u p t c y
Court o r d e r set t h i s p r e f e r e n t i a l transfer aside. This did
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 ;
S e c t i o n 547, however, i s c o n c e r n e d p r i -
m a r i l y w i t h judgments o r j u d i c i a l p r o -
ceedings t h a t c r e a t e l i e n s within t h e
90-day period t o secure claims t h a t
previousle - - p r e f e r e n t i a l standinq.
had no
A c c o r d i n g l y , a judgment e n t e r e d on o r
w i t h i n 90 d a y s 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 o f t h e e n f o r c e m e n t
o f a v a l i d and s u b s i s t i n g l i e n , which h a s
priority over t h e claims of general
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
c a n n o t a s s e r t a paramount r i g h t , --tdoes no
constitute a voidable preference. Thus,
the confession of a judgment on a
non-preferential and otherwise valid
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 c o n s e q u e n t s a l e o f t h e p r o p e r t y
does not give rise t o a preference.
(Emphasis s u p p l i e d . )
4 C o l l i e r on B a n k r u p t c y , ch. 547, 4[ 547.12, a t 48-49 (15th
ed. 1979).
C i t i z e n s Bank had a valid and s u b s i s t i n g l i e n on t h e
Gambles and Warehouse properties 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
July 13, 1983, judgment lien was a valid lien as to the
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 i s i n accord with a straightforward
r e a d i n g 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 p r e s e r v e d " 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 liens. The District Court properly denied Browns1
motion f o r r e l i e f from judgment.
Having r e a c h e d a d e c i s i o n o n t h e m e r i t s o f t h e c a s e , w e
h a v e 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 w h e t h e r a p p e l l a n t s '
counsel properly filed the notice of appeal, or whether
appellants m o t i o n 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: