No. 90-058 

IN THE SUPREME COURT 

1990 

In the Matter of the Estate of 

EDITH S. HAGGERTY, a/k/a Edith 

Haggerty, a/k/a Edith S. Sagunsky, 

a/k/a Edith Sagunsky, Deceased. 

APPEAL FROM: District Court of the Eighteenth Judicial District, 

In and for the County of Gallatin, 

The Honorable Larry W. Moran, Judge presiding. 

COUNSEL OF RECORD: 

For Appellant: 

John S. Warren, Schulz, Davis & Warren, Dillon, 

Montana 

For Respondent: 

W. Cecil Jones, Jones & Erb, Dillon, Montana 

James J. Screnar, Nash, Guenther, Zimmer & Screnar, 

Bozeman, Montana 

Filed: 

Submitted: June 7, 1990 

Decided: November 20, 1990 

'Clerk 
Justice William E. Hunt, Sr., delivered the opinion of the Court. 

Appellant, a legatee to the estate of Edith S. Haggerty, 

appeals from two orders, one granting a motion to invalidate a 

successorls agreement between himself and his brother, and, another 

denying a motion to offset his brother's inheritance by an 

indebtedness of his brother to the estate. We affirm. 

The issue before us is whether the District Court of the 

Eighteenth Judicial District, Judge Larry Moran presiding, abused 

its discretion in denying appellant's motion on the ground that the 

issue of the offset had been decided in an earlier motion before 

the court, Judge Gary presiding. The parties present the following 

issues or arguments relating to the disallowance of an offset by 

the court as follows: 

1. Is the estate's right to offset Paul Sagunskyls 

inheritance against his indebtedness to the estate superior to Judy 

Sagunsky's claims as Paul's judgment creditor? 

2. Should the District Court have disregarded the corporate 

entity of Tipp, Inc. and offset Paul Sagunsky's inheritance against 

Tipp's debt owed to the estate? 

3. What is the value of Paul Sagunsky's debt to the estate 

for offset purposes? 

Paul and Judith Sagunsky were married in 1978. During the 

marriage, Mrs. Sagunsky lent her husband money for his business, 

Halse Motors, Inc., which later became Tipp, Inc. The money came 

from a trust set up for the benefit of Mrs. Sagunsky and her two 

children after her first husband's death in an airplane accident. 
When the Sagunskys were divorced in 1982, the court determined 

that Paul owed Mrs. Sagunsky over $50,000. Mrs. Sagunsky obtained 

a judgment against Paul for that amount in 1986. 

Edith Haggerty died testate December 18, 1987, leaving her 

entire estate to her two sons, Paul and Byron Sagunsky. Mrs. 

Haggerty's will had been executed April 15, 1977, before her 

marriage to Thomas H. Haggerty in 1979 and before any of the 

transfers of property in question had been made to Paul in 1983 

through 1986. Haggerty served as her personal representative and 

is not a legatee. The value of the estate was approximately 

$150,000. In May 1988, Mrs. Sagunsky attempted to levy against 

Paul's half interest in the estate, but the levy was not paid. 

On September 2, 1988, Paul and Bryon entered into a 

successors~ agreement. According to the terms of the agreement, 

Byron would receive Paul's share of the estate since Paul had 

received money from his mother totalling approximately $75,000 plus 

a $175,000 secured loan to Paul's business, Tipp, Inc. At the time 

of his mother's death, Paul's business was insolvent, and Paul 

testified that the corporation was a "non-operating entity." 

Mrs. Sagunsky moved to set aside the successors~ agreement, 

and on March 16, 1989, a hearing was held. The court invalidated 

the agreement and ordered that one-half of the net estate be 

distributed to each of the brothers. The court also held that Mrs. 

Sagunsky had a valid claim against Paul's half-interest. The court 

stated that if Byron wished to further contest the issue, he could 

request an additional hearing under the provisions of 5 72-3-912, 

MCA, regarding the offset of the debt against the estate. 
Byron requested a second hearing. Judge Moran ruled that the 

issue had been previously determined in ruling on Mrs. Sagunsky's 

motion and denied Byron's motion. From this judgment Byron 

appeals. 

I 

Issue one is whether the District Court abused its discretion 

in dismissing Byron Sagunsky's motion. 

We must first examine whether the District Court decided the 

issue of the offset of Paul Sagunskyls indebtedness to the estate 

when it heard the motion brought by Mrs. Sagunsky. On November 1, 

1988, Mrs. Sagunsky moved to invalidate the successors~ agreement 

between Paul and Byron Sagunsky. The brothers had agreed that 

Byron would receive Paul's share of the estate because the decedent 

had loaned to Paul and his business, Tipp, Inc., amounts in excess 

of $250,000. 

The court stated that I1[i]t would appear1' that the debts "are 

not an offset against Paul Is distributive share. In addition, the 

court stated that the offset issue 'lcould be declared moot based 

upon the findings of the Court hereinafter set forth." We agree 

that the conclusions of the court regarding the successors~ 

agreement were also dispositive of the offset issue. 

In reaching its decision regarding the successors~ agreement 

the court considered several factors: 1) the successors~ agreement 

was entered into on September 2, 1988, after Mrs. Sagunsky had 

filed a claim against the estate on May 27, 1988; 2) the 

successors~ agreement had the effect of defeating a legitimate debt 

owed to Mrs. Sagunsky; 3) the will contained no provision 
regarding the amounts advanced to Paul; 4) no contemporaneous 

writings with the advances stated that the amounts should be 

deducted from Paul's share of the estate; 5) the personal 

representative filed an amended inventory declaring the loans to 

Paul to be valueless; and 6) Byron and his family received gifts 

from his mother, including money for schooling and $16,000 as 

successor to a trust fund. The court thereby gave effect to 5 72- 

2-515, MCA, which states: 

Property which a testator gave in his lifetime to a 

person is treated as a satisfaction of a devise to that 

person, in whole or in part, only if the will provides 

for deduction of the lifetime gift or the testator 

declares in a contemporaneous writing that the gift is 

to be deducted from the devise or is in satisfaction of 

the devise or the devisee acknowledges in writing that 

the gift is in satisfaction. For purpose of partial 

satisfaction, property given during lifetime is valued 

as of the time the devisee came into possession or 

enjoyment of the property or as of the time of death of 

the testator, whichever occurs first. 

The court invalidated the successors1 agreement, treating the 

amounts the decedent advanced to Paul as gifts, rather than 

advances or loans. 

Byron claims that the Uniform Probate Code requires the estate 

to offset Paul Sagunskyls inheritance against his indebtedness to 

the estate: 

The amount of a noncontingent indebtedness of a successor 

to the estate if due, or its present value if not due, 

shall be off set against the successor s interest; but the 

successor has the benefit of any defense which would be 

available to him in a direct proceeding for recovery of 

the debt. 

Section 72-3-912, MCA. This section of the Uniform Probate Code, 

now adopted in Montana, is the codification of the common law 
"right of retainer." See Matter of Will of Cargill (Minn. App. 

1988), 420 N.W.2d 268. The earliest reported case involving this 

equitable doctrine was Jeffs v. Wood (1723), 2 P.Wms. 128, 24 

Eng.Rep. 668. At that time, the rationale of the right of retainer 

was to avoid multiple lawsuits. Later the courts emphasized the 

moral and legal obligation of the debtor to pay his debt to the 

estate before participating in its distribution. Johnson v. 

Huntley (Wash. 1951), 236 P.2d 776, 777. 

The Uniform Probate Code does not address the priority of 

repayment when the successor owes both the estate and another 

creditor, as here. When the Code does not afford guidelines, Itthe 

principles of law and equity supplement its provision^.^^ Section 

72-1-104, MCA. Most courts have ruled that the right of the estate 

to repayment is superior, even though the creditor's claim is 

reduced to judgment. Hustad v. Reed (1958), 133 Mont. 211, 219, 

321 P.2d 1083, 1088; In re Bergmannls Estate (Fla. App. 1974), 305 

So.2d 273; In re Eaton1s Estate (N.Y.A.D. 3 Dept. 1953), 121 

N.Y.S.2d 836, 839; Smith v. Citizens National Bank in Okmulgee 

(Okla. 1957), 313 P.2d 505, 509. 

Mrs. Sagunsky claims that the right of retainer statute does 

not apply because the sums in question were gifts, rather than 

loans. No doubt exists that the $117,690 transfer to Tipp, Inc., 

evidenced by a promissory note and mortgage, was a loan. However, 

the statute specifies that Itthe amount of noncontingent 

indebtedness of a successor to the estate" shall be offset. 

Section 72-3-912, MCA. (Emphasis added.) 
The corporation is a separate and distinct entity and is not 

a successor to the estate. See In re Russell's Estate (1936), 102 

Mont. 301, 308, 59 P.2d 777, 780 (creditors of corporation cannot 

ordinarily assert claims against estate of controlling 

shareholder). Tipp, Inc., rather than Paul, owed $117,690 to the 

decedent. Since a corporation is not a successor to the estate, 

corporate indebtedness is not subject to the right of retainer. 

At issue, then, are the other approximately $80,000 in bank 

drafts made out to Paul during the period from 1983 to 1986. As 

noted above, the court treated these amounts as gifts, although 

Paul and Mr. Haggerty testified that they were loans. The test is 

whether the parties considered these transfers to be binding 

obligations. See In re Tarbell's Estate (N.Y. Sur. 1950), 99 

N.Y.S.2d 902. In the Tarbell case the widow of the decedent 

claimed that a promissory note, executed by her son to her, which 

she later endorsed to her husband, should be offset against the 

son's legacy. The transfer from the widow to the decedent of the 

note, which was void because of the statute of limitations, was 

made for business or tax reasons. The court found that no binding 

obligation existed between the decedent and the son where the only 

evidence of the debt was an entry made in the decedent's account 

book. The court stated that If[t]he entry made in his book of 

account is not a written agreement, sisned by him [the decedent]." 

Tarbell, 99 N.Y.S.2d at 907. 

In this case, while the $80,000 in bank drafts were noted as 

loans in records kept by the decedent, Mr. Haggerty and Paul 

testified that no demand had ever been made for the sums. No 
promissory notes or agreements were signed, and Paul did not 

attempt to repay the sums. In his testimony, Mr. Haggerty agreed 

that the decedent knew the likelihood of repayment was not very 

great and did not seriously expect repayment from Paul. 

An obligation arises either from the contract of the parties 

or by operation of law. Section 28-1-102, MCA. In Montana, all 

contracts may be oral except as prohibited by statute. Section 28- 

2-901, MCA; Keil v. Glacier Park, Inc. (1980), 188 Mont. 455, 460, 

614 P.2d 502, 505. However, a contract cannot be created when 

performance is entirely optional with the promisor. Gray v. 

American Express Co. (1984) , 743 F. 2d 10, 19 ; Restatement (Second) 

of Contracts $j 77 comment a (1979). Thus, Paul did not have a 

binding obligation to repay the loans. 

Further, a close relationship between the parties, such as a 

husband-wife or parent-child relationship, gives rise to a 

presumption that the transfer is a gift. Detra v. Bartoletti 

(1967), 150 Mont. 210, 217, 433 P.2d 485, 488. Here the parentchild relationship and the absence of evidence of a binding 

obligation, as well as inter vivos gifts to the other devisee, 

Byron, and his family, support a finding that the transfers to Paul 

were gifts. In addition, Byron received $16,000 as successor to 

a trust fund after his mother's death. The evidence supports the 

District Court and we will not overturn the court's orders 

regarding probate of an estate absent clear abuse of discretion. 

In re Estate of Nelson (Mont. 1990), 794 P.2d 677, 679, 47 St.Rep. 

1218, 1221. 
Since the court in ruling on Mrs. Sagunsky's motion found the 

transfers to be gifts, rather than advances or loans, the decision 

is also dispositive of the issue concerning the offset of Paul's 

filindebtednessu to the estate pursuant to the right of retainer 

statute, 9 72-3-912, MCA. We affirm the District Court's dismissal 

of Bryon Sagunsky's motion on the ground that the issue had been 

previously decided in the ruling on Mrs. Sagunsky's motion. 

I1 

The second issue is whether the District Court should have 

disregarded the corporate entity of Tipp, Inc. and offset Paul 

Sagunsky's inheritance against Tipp's debt owed to the estate. 

We need not discuss this issue because of our holdings above. 

The third issue is the value of Paul Sagunsky's debt to the 

estate for offset purposes. 

Mrs. Sagunsky argues that the value of Paul Is personal debt 

to the estate for offset purposes should be the same as the value 

of the debt for inventory purposes. Since we have affirmed the 

District Court's decision that the inter vivos transfers to Paul 

should not be offset, we need not consider this argument. 

However, we note that the value the personal representative 

must use for estate inventory purposes is the "fair market value 

as of the date of the decedent Is death. It Section 72-3-610 (2) , MCA. 

The right of retainer statute, 5 72-3-912, MCA, on the other 

hand, does not call for the fair market value of the debt to be 

deducted, but instead mandates that the llamountM of the successor^ s 

indebtedness be deducted from his share or, if the indebtedness is 
not due, its "present value.It To hold that a past due 

uncollectible debt is to be valued at fair market value for 

purposes of offset against the indebted successor~s share of the 

estate would render the offset provision, 5 72-3-912, MCA, 

meaningless. 

In many cases, the debt of the successor to the estate will 

be uncollectible and thus valueless. That a debt cannot be 

collected does not mean, if a binding obligation between the 

decedent and the successor exists, that the amount of the debt 

should not be offset as the statute demands. Therefore, a 

situation may arise where a debt is given different values for the 

estate inventory and the offset provisions of 5 72-3-912, MCA. 

The judgment of the District Court is affirmed. 

chief Justice