Imbesi v. Carpenter Realty Corp.

³⁷⁷ RODOWSKY, Judge. In this case we construe Maryland Code (1974, 1991 Repl. Vol.), § 8-103(a) of the Estates and Trusts Article (ET). At the time applicable to the instant matter, that statute in relevant part read: “[A]ll claims against an estate of a decedent, whether due or to become due, absolute or contingent, liquidated or unliqui-dated, founded on contract, tort, or other legal basis, are forever barred against the estate, the personal representative, and the heirs and legatees, unless presented within the earlier of the following dates: “(1) Nine months after the date of the decedent’s death; or “(2) Two months after the personal representative mails or otherwise delivers to the creditor a copy of a notice in the form required by § 7-103 or other written notice, notifying the creditor that his claim will be barred unless he presents the claim within 2 months from the mailing or other delivery of the notice.” 1 Statutes such as ET § 8-103(a) are commonly referred to as “nonclaim statutes.” B.R. O’Byrne, Annotation, Presentation of Claim to Executor or Administrator as Prerequisite of Its Availability as Counterclaim or Setoff, 36 A.L.R.3d 693 , 695 n. 1 (1971) (O’Byrne).

The issue presented is whether debtors of a decedent’s estate may set off against the estate’s claim against them the indebtedness of the decedent to a third party which the third party assigned to the estate’s debtors and on which no timely claim had been made against the estate. The petitioner is Dennis Michael Imbesi, as Personal Representative of the Estate of Thomas L. Imbesi, who died March 10, 1992 (the Estate). Prior to June 1, 1982, Thomas L. Imbesi (Imbesi) owned stock in varying amounts in six corporations that were primarily engaged in the soft drink bottling ³⁷⁸ business conducted by the extended Imbesi family in the Middle Atlantic states. Included among these corporations was 7-UP Bottling Company of Baltimore, Inc. (7-UP Baltimore), 7-UP Bottling Company of Philadelphia, Inc. (7-UP Philadelphia), and Carpenter Realty Corporation (CRC).

On June 1,1982, Imbesi sold all of the stock held by him to the six issuing corporations for a total price of $500,000 payable in 120 monthly installments with interest at 5-1/4% per year. Each of the purchasing corporations was severally liable for the portion of the total purchase price attributable to the shares being redeemed by it. Three years earlier than the stock redemption transaction, Imbesi had borrowed $80,000 from 7-UP Philadelphia. That loan to Imbesi is evidenced by his promissory note, under seal, dated October 23, 1979, with interest payable semi-annually at the annual rate of six percent and with the $80,000 principal due as a lump sum on October 28,1989.

Letters of administration of the Estate were granted by the Register of Wills for Baltimore County on March 16,1992, and a notice to creditors was published immediately thereafter. Under ET § 8 — 103(a)(1) the time within which 7-UP Philadelphia was to make any claim against the Estate would expire on December 11, 1992. 7-UP Philadelphia never made a claim against the Estate. At the time of Imbesi’s death there were unpaid balances due from 7-UP Baltimore and CRC to Imbesi under the stock redemption agreement of June 1, 1982. In March 1994 the Estate, in the Circuit Court for Baltimore County, sued CRC and 7-UP Baltimore (collectively, the Respondents), for their respective overdue balances, with interest.

The day before answering the complaint, the defendants, on April 7, 1994, took by assignment from 7-UP Philadelphia, for a recited consideration of one dollar, the $80,000 note that had been executed by Imbesi on October 23,1979. In their joint answer and in a joint counterclaim the Respondents asserted that the claim of the Estate based upon the stock redemption agree ³⁷⁹ ment was offset by the amount due from the Estate on the $80,000 note then owned by the Respondents. This action was tried twice in the circuit court. A bench trial in March 1995 resulted in a judgment in favor of the Estate for $57,447.67 on the complaint and a judgment for the Estate as counterclaim defendant.

On appeal to the Court of Special Appeals those judgments were reversed, in an unreported opinion, on grounds relating to the burden of proving the authenticity of the 1979 note. Declining expressly to rule on the issue now before us, the Court of Special Appeals remanded for further proceedings. On remand the circuit court held that the 1979 note could be used by the Respondents as a setoff against the Estate’s claims. The Estate appealed to the Court of Special Appeals which affirmed.

Imbesi v. Carpenter Realty Corp., 125 Md. App. 676 , 726 A.2d 854 (1999). That court held that ET § 8-103(a) barred affirmative use of the note, i.e., obtaining a judgment against the Estate for the net unpaid balance between the parties running in favor of the Respondents. In the view of the Court of Special Appeals, however, that bar did not extend to use of the note as a setoff against the claims of the Estate. The Court of Special Appeals reasoned that ET § 8-103, “a self-executing statute, bars ‘claims against an estate of a decedent.’ The operative language of the nonclaim statute does not expressly prevent a defendant from using an unpre-sented claim as a defensive set-off to a claim asserted affirmatively by an estate.” Imbesi 125 Md.App. at 682 , 726 A.2d at 857 (citation omitted). 2 Recognizing that the balance remaining unpaid by Imbesi to 7-UP Philadelphia and the balance remaining unpaid by the Respondents to the Estate arose out ³⁸⁰ of separate transactions, the Court of Special Appeals adopted a rule that was not limited to cases in which the claims arose out of the same transaction, between the parties, was not limited to claims arising out of any transactions between the same parties, and was applicable where the setoff was based on a debt that had been assigned for the purpose of setoff.

Id. at 683 , 726 A.2d at 857 (citing Fusting v. Sullivan, 51 Md. 489 (1879)). 3 We granted the Estate’s petition for certiorari. Imbesi v. Carpenter Realty Corp., 354 Md. 570 , 731 A.2d 969 (1999). It presents for review the following question: “May a party acquire an enforceable note from a third party for the purpose of set-off against an estate when the third party holder of the note failed to file a claim against the estate within the statutory time period?” For the reasons set forth below we shall reverse the judgment of the Court of Special Appeals. Analysis of the issue presented requires at the threshold a definition of terms.

In this opinion “recoupment” means a diminution or a complete counterbalancing of the adversary’s claim based upon circumstances arising out of the same transaction on which the adversary’s claim is based; “setoff’ means a diminution or a complete counterbalancing of the adversary’s claim based upon circumstances arising out of a transaction other than that on which the adversary’s claim is based; and “counterclaim” means the assertion of a right to have an affirmative judgment against the adversary based upon a setoff or a recoupment. See Billman v. State of Maryland Deposit Ins. Fund Corp., 88 Md.App. 79, 92-93 , 593 A.2d 684, 690-91 , cert. denied, 325 Md. 94 , 599 A.2d 447 (1991). Here, the Respondents acknowledge that they do not have any right to counterclaim based on the note.

That is the majority ³⁸¹ rule. See O’Byrne, 36 A.L.R.3d at 697 (“[T]he courts generally have held that the unpresented claim can be used only in a defensive character, and not as the basis of an affirmative or originating action by the claimant against the estate, and those cases generally further establish that the plea is limited to the reduction or extinguishment of the plaintiffs claim, and is not available to permit the recovery by the defendant of any excess over the amount of that claim.”). Respondent’s contention, with which the Court of Special Appeals agreed, is that they were entitled to a setoff. In other words, the Court of Special Appeals held that ET § 8-103(a) operates only to bar a counterclaim against a decedent’s estate.

Because the Respondents assert a setoff, our holding will be limited to whether ET § 8-103(a) bars setoff as well as counterclaim. Whether “claims,” as used in ET § 8-103(a), includes or excludes counterclaims, setoffs, and recoupments is not directly addressed in the statutes relating to decedent’s estates, and it is not directly addressed in any Maryland appellate decisions. Consequently, we must apply the familiar rules of statutory construction. The text of ET § 8-103(a) makes clear that the General Assembly intended that “claims” be given a broad meaning.

The statute applies to “all claims against an estate of a decedent, whether due or to become due, absolute or contingent, liquidated or unliquidated, founded on contract, tort, or other legal basis.” Claims falling within the quoted language that are untimely “presented” are “forever barred.” The manner in which claims are presented is set forth in ET § 8-104. Claims, excluding those for which the decedent was covered by liability insurance, must be presented either by delivering a verified written statement of the claim to the personal representative or to the Register of Wills, or by commencing a suit. ET § 8-104(b), (c), (d). Here, 7-UP Philadelphia had a claim against the Estate which could have been, but was not, timely presented in any of the three manners set forth in ET § 8-104.

From this the Estate ³⁸² concludes that the claim on the note was barred in the hands of 7-UP Philadelphia and, accordingly, is barred in the hands of the Respondents. Respondents’ counter argument is that use of the note by 7-UP Philadelphia as a setoff against a claim by the Estate would not be barred, inasmuch as it is a purely defensive use, and that the Respondents may make the same defensive use of the note as 7-UP Philadelphia could have made. Thus, ET § 8-104 will produce different results depending upon the construction of § 8-103(a) that is assumed. 4 The purpose of the nonclaim statute is to expedite the administration of decedents’ estates. Greentree v. Fertitta, 338 Md. 621, 629 , 659 A.2d 1325, 1329 (1995).

The non-claim statute not only benefits the legatees, but also protects the personal representative from “ ‘liability for claims not filed within the time and in the manner prescribed.’ ” Burket v. Aldridge, 241 Md. 423, 429 , 216 A.2d 910, 912 (1966) (quoting Bertonazzi v. Hillman, 241 Md. 361, 367 , 216 A.2d 723, 726 (1966)). In the instant matter the Court of Special Appeals concluded that permitting setoff is at least consistent with this policy, saying, “The use of a set-off does not delay settlement of an estate any more than any other defense to an [estate’s cause of action.” Imbesi, 125 Md.App. at 682 , 726 A.2d at 857 . If we limit our consideration to setoff, recoupment, and a complete bar against defensive use of the untimely asserted claim held by an estate’s debtor, setoff is most likely to complicate and prolong resolution of an estate’s claim against its debtor. Resolution of a setoff defense will require consideration of the facts and circumstances of a separate transaction and consideration of any defenses that an estate might have against a finding of indebtedness by the estate arising out of that separate transaction.

Neither recoupment nor a complete bar to defensive use carry that potential'for prolong ³⁸³ ing resolution of an estate’s claim and, thereby, prolonging completion of administration. The legislative history of Maryland’s nonclaim statutes evidences that the policy has been to increase the scope of those protected by the nonclaim statute and to reduce the time within which an estate’s creditor can avoid the operation of the nonclaim statute. From 1798 until January 1, 1970, the running of the nonclaim statute was triggered by an estate’s rejection of a claim that had been presented. See Acts of 1798, ch. 101, subch. 8, § 18 and Md.Code (1957, 1964 Repl.

Vol.), Art. 98, § 119. From 1798 to 1959 the period from rejection of a claim to the imposition of the bar of the nonclaim statute was nine months. See Acts of 1798, ch. 101, subch. 8, § 18. The nine month period was reduced to six months by Chapter 12 of the Acts of 1959.

See Md.Code (1957, 1964 Repl.Vol.), Art. 98, § 119. The time at which the bar of the nonclaim statute operated was accelerated by Chapter 3 of the Acts of 1969, effective January 1, 1970, as a result of the reports of the Governor’s Commission to Review and Revise the Testamentary Law of Maryland (the Henderson Commission). The new nonclaim statute was codified as Md.Code (1957, 1969 RepLVol.), Art. 93, § 8-103(a). Under the new legislation, the statute’s running period was reduced to six months beginning on the date of the first published notice to creditors. 5 Article 93, § 8-103, effective January 1,1970, also enlarged the scope of protection of the nonclaim statute by changing the rule of Zollickoffer v. Seth, 44 Md. 359 (1876), under which a creditor who had failed to comply with the nonclaim statute, thus forever barring the claim against the estate, nevertheless could claim against the ³⁸⁴ heirs or legatees to whom distribution had been made.

ET § 8-103 provides that the claim that is not timely filed is “forever barred against the estate, the personal representative, and the heirs and legatees.” See Campbell v. Welsh, 54 Md.App. 614, 625-30 , 460 A.2d 76, 83-85 (reviewing the history of the nonclaim statute), cert. denied, 297 Md. 108 (1983), and Comment of Henderson Commission following Md.Code (1957, 1969 Repl.Vol.), Art. 93, § 8-103. That comment in part observes that “the present six month date is reasonable in that it gives creditors sufficient time to file their claims and at the same time tends to encourage the prompt administration and settlement of estates.” By emergency legislation effective May 19, 1989, the non-claim statute was made self-executing. The decedent’s death became the triggering event, the period before the bar was imposed was made nine months, and the alternative procedure for shortening that period, now found in ET § 8-103(a)(2), was enacted. See Chapter 496 of the Acts of 1989.

The purpose of the amendment was to avoid due process problems under the analysis in Tulsa Professional Collection Services, Inc. v. Pope, 485 U.S. 478 , 108 S.Ct. 1340 , 99 L.Ed.2d 565 (1988). See Ohio Cas. Ins. Co. v. Hallowell, 94 Md.App. 444, 452 , 617 A.2d 1134, 1138 (1993), and A.J. Gibber, Estate Administration § 6.21 (4th ed. 1999 Supp.).

The nonclaim statute as amended in 1989 governs in the case before us. By Chapter 226 of the Acts of 1992, the nonclaim statute was again accelerated to shorten to six months the period measured from death of the decedent. See Md.Code (1974, 1991 Repl.Vol., 1999 Cum. Supp.), ET § 8-103(a)(l).

In 1920 a closely related statute was enacted by Chapter 674 of the Acts of that year (the 1920 Act). Initially codified as Md.Code (1924), Art. 93, § 110, it read: “If a claim shall be asserted against or exhibited to an administrator or executor in any form, whether sworn to or passed by the Orphans’ Court or not, and he shall refuse payment thereof in writing, such claim shall be forever barred unless the creditor shall bring suit upon the same within nine months after such rejection.” ³⁸⁵ By Chapter 554 of the Acts of 1957 the time period in the 1920 Act was reduced to six months from rejection. Last codified as Md.Code (1957,1964 Repl.Vol.), Art. 93, § 120, the 1920 Act was repealed in the revision of the testamentary laws, effective January 1, 1970, and its bar is now included in ET § 8-103. A number of this Court’s cases discussing untimeliness of a claim against an estate have involved both the nonclaim statute and the 1920 Act.

In Nowell v. Larrimore, 205 Md. 613 , 109 A.2d 747 (1954), we said: “It has been repeatedly held by this Court that [the nonclaim statute and the 1920 Act] create a statutory bar as distinguished from a mere period of limitations which may be waived. It extinguishes the right to sue, not merely the remedy. The purpose of these sections is to prevent a creditor with a controverted claim from unduly prolonging the settlement of the decedent’s estate.” Id. at 624 , 109 A.2d at 752 (citations omitted). See also Donnally v. Montgomery County Welfare Bd., 200 Md. 534, 540-41 , 92 A.2d 354, 357 (1952) (same).

In Frank v. Wareheim, 177 Md. 43, 50 , 7 A.2d 186, 189 (1939), we stated that the 1920 Act “is not the usual statute of limitations whose operation as a bar to the remedy may be variously obviated or abandoned, but a statutory bar which prevents the collection of the claim, unless the creditor shall bring suit on the claim