                                             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:
