All the facts relating to the points decided are fully stated in the opinion of Justice READE, and the dissenting opinion of Justice RODMAN.
Defendant appealed from the judgment of the Court below.
The action is upon a partnership claim against the defendant for merchandise sold and delivered, and for money paid to his use.
The answer denies that the defendant ever had any dealings with the partnership, or authorized any one else to have for him. But admits that he contracted with the plaintiff, A. M. Sloan, for the articles contained in the bill of particulars filed by plaintiffs in his individual capacity, and with the understanding and agreement with said A. M. Sloan, that the amount was to be entered as a credit upon a bond for a much larger amount which he had against said A. M. Sloan, and that the credit was so entered.
The defendant then sets up the said bond as a counter-claim against said A. M. Sloan, and demands judgment against him for the (357) remainder after deducting the plaintiff's bill of particulars.
The plaintiffs demur to the counter-claim, and assign for cause, "that said alleged counter-claim does not state facts sufficient to constitute a cause of action again the plaintiffs in this, that the counterclaim sets up an alleged individual indebtedness on the part of A. M. Sloan to the defendant," etc.
And for second cause of demurrer, that an action is pending in the Circuit Court of the United States for said counter-claim. And then it was referred to H. C. Jones, Esq., to decide upon the demurrer, who sustained the demurrer for the first cause and overruled it for the second, and upon exceptions, so did his Honor, and the defendant appealed.
We think there was error in sustaining the demurrer. The plaintiffs come into Court with a joint claim against the defendant which he denies; and he makes a claim against one of them which they admit. And then we have C. C. P., Sec. 248: "Judgment may be given for or against one or more of several plaintiffs, and for or against one or more of several defendants; and it may determine the ultimate rights of the parties, on each side as between themselves. And it may grant to the defendant any affirmative relief to which he may be entitled."
Reading it as applicable to this case, may grant to the defendant affirmative relief against A. M. Sloan, one of the plaintiffs. It is suggested that this cannot be, in this case, because the plaintiff A. M. Sloan, has not been served with process to bring him into Court. The answer is, that service of process is not necessary where the party appears and pleads; and here he does appear and plead. He both demurs and pleads — demurs because the counter-claim is against one, and not against both of the plaintiffs; and pleads (for so the second cause for demurrer must be understood) that a suit for the same is pending in another Court.
It will be observed that the demurrer shoots wide of the mark. It objects that the counter-claim is not a cause of action against theplaintiffs. It does not profess to be; but only against one (358) of the plaintiffs. But it no doubt intends to raise the question whether in an action by two plaintiffs against one defendant, the defendant can have affirmative relief against one of the plaintiffs. It is the plain letter of the statute above quoted, that he can. And it is not denied that he can, as to any matter connected with the subject matter of the suit; but not as to any independant matter. If it be thus restricted, what is the use of the provision? None, because in that case he can have relief against both the plaintiffs, which is better than against one, or at least as good. So that if that is to be the construction, the Code gives the defendant no advantage which he did not have before, or would not have had without it. It is said that this section in the Code is a copy of the New York Code, and yet we are not informed of any New York decision in which such a restricted construction has been given. We are of the opinion that the proper construction of the Code is, that when the plaintiffs bring the defendant into Court to answer a claim for debt which he owes them, that he cannot only require them, but either one of them, to answer for a debt due him; whether it is connected specially with their debt against him, or is an independent claim. And this not as a set-off to the claim sued on, but as an affirmative judgment. Indeed, this can scarcely be said to be an open question; because in Neal v. Lea, 64 N.C. 678, it is said by PEARSON, C. J.: "By C. C. P., Sec. 101, the plea of set-off is merged in the defence of counterclaim."
By paragraph 2, the counter-claim in an action on contract embraces not only matter that under the old practice was pleaded as a set-off, but every other cause of action arising out of contract, whether legal or equitable between the plaintiff and defendant. When there are more than one plaintiff or defendant it is further extended, so that not only mutual debts between the plaintiffs and defendants, or any one of them, against the plaintiff, or any one of them between whom a several judgment might be had in the action, is embraced." (359) And that case was subsequently carefully reviewed in Harris v. Burwell, 65 N.C. 584, and overruled in part; yet it has never been disturbed upon this point. And so in Clark v. Williams, 70 N.C. 679, we gave judgment for the plaintiff against several defendants for unequal proportions, and judgment for one of the defendants against the other defendants in unequal proportions, and in a matter in which the plaintiff had no interest, thus adjusting the right of all the parties before the Court. See Walker v. Flemming, 70 N.C. 483.
We are of the opinion that the demurrer ought to have been overruled, and that the defendant has the right to set up his counter-claim and have affirmative relief, as against A. M. Sloan, one of the plaintiffs. And this disposes of the only point upon which the case now
before us, rests. The question of set off will come up on another trial, if the plaintiffs shall establish their claim against the defendant. I suggest however, as what occurs to me from the full argument before us upon the question of set off, and from the authorities which I have consulted; that the general rule, is that a claim of a defendant against one partner is not a set off against a claim of the partnership against him, either in law or equity. But to this general rule there are several well established exceptions; and some other exceptions in regard to which there are contradictory decisions. The established exceptions are (1) where there was an agreement between the partnership and the defendant that it should be so; (2) Where there has been a settlement of the partnership and a surplus in favor of the debtor; (3) Where the partner against whom the defendant has a separate claim is insolvent outside of his interest in the partnership. I put this down among the established exceptions although there are contradictory decisions upon it in England and in some of our sister States; yet in our State it is settled in March v. Thomas, 63 N.C. 87, and the cases there cited, where it is said by Judge BATTLE: "When the plaintiff or one of the plaintiffs is insolvent, a bond or note due from him to the defendant may be set off in equity without a strict regard (360) to mutuality;" (4) Where, as in our case, the partnership did not
agree, but
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All the facts relating to the points decided are fully stated in the opinion of Justice READE, and the dissenting opinion of Justice RODMAN.
Defendant appealed from the judgment of the Court below.
The action is upon a partnership claim against the defendant for merchandise sold and delivered, and for money paid to his use.
The answer denies that the defendant ever had any dealings with the partnership, or authorized any one else to have for him. But admits that he contracted with the plaintiff, A. M. Sloan, for the articles contained in the bill of particulars filed by plaintiffs in his individual capacity, and with the understanding and agreement with said A. M. Sloan, that the amount was to be entered as a credit upon a bond for a much larger amount which he had against said A. M. Sloan, and that the credit was so entered.
The defendant then sets up the said bond as a counter-claim against said A. M. Sloan, and demands judgment against him for the (357) remainder after deducting the plaintiff's bill of particulars.
The plaintiffs demur to the counter-claim, and assign for cause, "that said alleged counter-claim does not state facts sufficient to constitute a cause of action again the plaintiffs in this, that the counterclaim sets up an alleged individual indebtedness on the part of A. M. Sloan to the defendant," etc.
And for second cause of demurrer, that an action is pending in the Circuit Court of the United States for said counter-claim. And then it was referred to H. C. Jones, Esq., to decide upon the demurrer, who sustained the demurrer for the first cause and overruled it for the second, and upon exceptions, so did his Honor, and the defendant appealed.
We think there was error in sustaining the demurrer. The plaintiffs come into Court with a joint claim against the defendant which he denies; and he makes a claim against one of them which they admit. And then we have C. C. P., Sec. 248: "Judgment may be given for or against one or more of several plaintiffs, and for or against one or more of several defendants; and it may determine the ultimate rights of the parties, on each side as between themselves. And it may grant to the defendant any affirmative relief to which he may be entitled."
Reading it as applicable to this case, may grant to the defendant affirmative relief against A. M. Sloan, one of the plaintiffs. It is suggested that this cannot be, in this case, because the plaintiff A. M. Sloan, has not been served with process to bring him into Court. The answer is, that service of process is not necessary where the party appears and pleads; and here he does appear and plead. He both demurs and pleads — demurs because the counter-claim is against one, and not against both of the plaintiffs; and pleads (for so the second cause for demurrer must be understood) that a suit for the same is pending in another Court.
It will be observed that the demurrer shoots wide of the mark. It objects that the counter-claim is not a cause of action against theplaintiffs. It does not profess to be; but only against one (358) of the plaintiffs. But it no doubt intends to raise the question whether in an action by two plaintiffs against one defendant, the defendant can have affirmative relief against one of the plaintiffs. It is the plain letter of the statute above quoted, that he can. And it is not denied that he can, as to any matter connected with the subject matter of the suit; but not as to any independant matter. If it be thus restricted, what is the use of the provision? None, because in that case he can have relief against both the plaintiffs, which is better than against one, or at least as good. So that if that is to be the construction, the Code gives the defendant no advantage which he did not have before, or would not have had without it. It is said that this section in the Code is a copy of the New York Code, and yet we are not informed of any New York decision in which such a restricted construction has been given. We are of the opinion that the proper construction of the Code is, that when the plaintiffs bring the defendant into Court to answer a claim for debt which he owes them, that he cannot only require them, but either one of them, to answer for a debt due him; whether it is connected specially with their debt against him, or is an independent claim. And this not as a set-off to the claim sued on, but as an affirmative judgment. Indeed, this can scarcely be said to be an open question; because in Neal v. Lea, 64 N.C. 678, it is said by PEARSON, C. J.: "By C. C. P., Sec. 101, the plea of set-off is merged in the defence of counterclaim."
By paragraph 2, the counter-claim in an action on contract embraces not only matter that under the old practice was pleaded as a set-off, but every other cause of action arising out of contract, whether legal or equitable between the plaintiff and defendant. When there are more than one plaintiff or defendant it is further extended, so that not only mutual debts between the plaintiffs and defendants, or any one of them, against the plaintiff, or any one of them between whom a several judgment might be had in the action, is embraced." (359) And that case was subsequently carefully reviewed in Harris v. Burwell, 65 N.C. 584, and overruled in part; yet it has never been disturbed upon this point. And so in Clark v. Williams, 70 N.C. 679, we gave judgment for the plaintiff against several defendants for unequal proportions, and judgment for one of the defendants against the other defendants in unequal proportions, and in a matter in which the plaintiff had no interest, thus adjusting the right of all the parties before the Court. See Walker v. Flemming, 70 N.C. 483.
We are of the opinion that the demurrer ought to have been overruled, and that the defendant has the right to set up his counter-claim and have affirmative relief, as against A. M. Sloan, one of the plaintiffs. And this disposes of the only point upon which the case now
before us, rests. The question of set off will come up on another trial, if the plaintiffs shall establish their claim against the defendant. I suggest however, as what occurs to me from the full argument before us upon the question of set off, and from the authorities which I have consulted; that the general rule, is that a claim of a defendant against one partner is not a set off against a claim of the partnership against him, either in law or equity. But to this general rule there are several well established exceptions; and some other exceptions in regard to which there are contradictory decisions. The established exceptions are (1) where there was an agreement between the partnership and the defendant that it should be so; (2) Where there has been a settlement of the partnership and a surplus in favor of the debtor; (3) Where the partner against whom the defendant has a separate claim is insolvent outside of his interest in the partnership. I put this down among the established exceptions although there are contradictory decisions upon it in England and in some of our sister States; yet in our State it is settled in March v. Thomas, 63 N.C. 87, and the cases there cited, where it is said by Judge BATTLE: "When the plaintiff or one of the plaintiffs is insolvent, a bond or note due from him to the defendant may be set off in equity without a strict regard (360) to mutuality;" (4) Where, as in our case, the partnership did not
agree, but one of the partners did, that the individual claim of the defendant against him should be set off against the firm debt; this is a good defence to a suit by the partnership at law. Lindley on Partnership 170, from whom I quote as follows: "For example, if a partner pledges partnership property, and in so doing clearly acts beyond the limits of his authority, still as he can not dispute the validity of his own act, he and his co-partners cannot recover the property so pledged by an action at law. So, although a partner has no right to pay his own separate debt by setting off against it a debt due from his creditor to the firm; yet if he actually agrees that such set off shall be made, and it is made accordingly, he and his co-partners cannot afterwards in an action recover the debt due the firm. As observed by Lord TENTERTON in Jones v. Gates, there is no instance in which a person has been allowed as plaintiff in a Court of law, to recind his own act on the ground that such act was a fraud on some other person, whether the person seeking to do this has sued in his own name or jointly with such other person. This doctrine has been carried so far that even when the partner whose conduct is relied upon as an answer to an action by the firm is dead, the surviving ex-partners have been held not entitled to sue."
While this is so at law, and while under this rule one partner might commit a fraud upon his co-partner, yet in equity the co-partner can have relief by a bill against the debtor partner and his creditor, charging the fraud and showing the injury to himself. As was the well considered case of Peircy v. Finney, 12 Eg. cases 67. But note, that to entitle the co-partner to relief he must show fraud; as that the debtor partner had not so much as that interest in the firm; or that there were partnership debts to pay. If the debtor partner has a greater interest in the firm than he has disposed of, and if there are no debts to pay, then the co-partner has no relief either in law or equity, and needs none; because he has sustained no injury, and need only charge the debtor partner with so much as he has (361) appropriated to his own use. That is precisely our case, except that our case is made stronger by the facts that A. M. Sloan is admitted to be solvent; and that the firm will not be injured by the appropriation which he made of the partnership effects to pay his own debt to the defendant. Adams, Eq., 244.
Suppose the plaintiffs get judgment against the defendant upon their claim; and the defendant gets judgment against one of the plaintiffs upon his counter-claim, in excess of the plaintiff's claim; then, the defendant would be entitled to an account of the partnership, and to have his judgment satisfied out of the partnership effects, if there should be a surplus due the debtor partner. Just as the
defendant would have the right to levy on and sell his interest in the partnership, and then have an account.
If, as is alleged, the plaintiffs are non-residents it furnishes a strong equity that they should not be allowed to recover of the defendant, and put upon him the necessity to go out of the State to pursue his rights against one of the plaintiffs; when, as that plaintiff is solvent, no injury can result to the partnership, or to the creditors thereof, by allowing the defendant to enforce his rights here according to the agreement between him and the plaintiff A. M. Sloan.
So, the plaintiffs cannot recover at law, because of the agreement of one of the plaintiffs; and they cannot recover in equity, because neither the co-partner, nor the creditor can be injured.
There is error. This will be certified, etc.
PER CURIAM. Judgment reversed.