Case Name: Sprout and another vs. Crowley
Court: Wisconsin Supreme Court
Jurisdiction: Wisconsin
Decision Date: 1872-06
Citations: 30 Wis. 187
Docket Number: 
Parties: Sprout and another vs. Crowley.
Judges: 
Reporter: Wisconsin Reports
Volume: 30
Pages: 187–193

Head Matter:
Sprout and another vs. Crowley.
Cotjntbk. Claim. Pwi'tmersMp — Pleading.
l. In an action on a promissory note, the answer avers by way of counterclaim, that the parties entered into an agreement, by the terms of which defendant was to furnish materials for and manufacture a quantity of derricks on joint account and as a joint adventure, and to sell or attempt to sell the same, and that plaintiffs on the one part and defendant on the other should hear equally the expenses and losses, and share equally the profits of such manufacture and sale. The amount expended by defendant in manufacturing said derricks, the expenses incurred by him in attempting to sell them, and the value of his services in and about such sales are then stated, and he claims that plaintiffs are indebted to him in one-half the aggregate of these sums. It is further alleged that plaintiffs are not residents of this state. Held,
(1) That as it is not alleged that the contract was made in this state, or defendant’s alleged expenses and services incurred or rendered here, this cannot be sustained as a counter-claim under ch. 4, Laws of 1868, relating to actions in which the plaintiffs are non-residents of the state. 'Whether, therefore, that act is valid, is not decided here.
(2) That the counter-claim cannot be sustained under subd. 1, sec. 11, ch. 125, R. S., because it is not alleged to have arisen out of or been connected with the cause of action.
(8) That it cannot be sustained under subd. 2 of said section 11, unless the facts averred show a debt due from plaintiffs to defendant at the commencement of the action.
2. The facts alleged in the answer show a partnership between the parties.
3. In the absence of fraud, or an express agreement or other circumstances rendering the case exceptional, one partner has no claim against his co-partner individually, on account of partnership transactions, until a final settlement of the partnership affairs, although such settlement would show a balance in favor of the former; and until such final settlement, the general rule is that the firm and not the individual partner is the debtor.
4. But where there is an express agreement by one partner to pay to the other his share of advances made by the latter on account of the partnership business, the amount of such share becomes the debt of the partner so promising, and may be recovered in an action brought directly therefor, without any regard to the partnership relation of the parties or the state of their firm accounts.
5. If in such case an action on contract be brought by the debtor partner, against'the other, the debt against the plaintiff, created by express agreement, is, if due, the subject matter of a valid counter-claim, and may be pleaded as such.
6. Under the liberal rule of construction required by the code (R. S. Ch. 125, sec. 21,) the answer must be held to aver such an express agreement by the plaintiffs; and therefore it shows a debt due from them to defendant at the commencement of the action, which is a valid counterclaim.
APPEAL from the Circuit Court for Dane County.
This action was brought to recover the amount due on a promissory note executed by tbe defendant to tbe plaintiffs.
Tbe questions presented by tbe appeal, arise upon tbe second counter-claim in tbe answer, which is in substance that tbe parties entered into an agreement, by tbe terms of which tbe defendant was to furnish material for, and manufacture a quan tity of derricks on joint account and as a joint adventure, and to sell, or attempt to sell tbe same, and tbat tbe plaintiffs on tbe one part and tbe defendant on the other, should equally bear and share all profits and losses on tbe same and all expenses incurred in their manufacture and sales. Tbe amount expended by tbe defendant in tbe manufacture of tbe derricks, tbe expenses incurred by him in bis attempts to sell them, and tbe value of bis services in and about tbe manufacture and sale thereof, are separately stated, and the defendant claims tbat tbe plaintiffs are indebted to him in one-balf of tbe aggregate of those sums. Tbe counter claim also alleges tbat tbe plaintiffs are residents of tbe state of Pennsylvania.
To this counter claim tbe plaintiffs interposed a general demurrer, which was sustained by tbe circuit court, and from tbe order sustaining tbe same tbe defendant has appealed to this court.
Yilas & Bryant, for appellant,
argued tbat plaintiffs having agreed with defendant to bear one-balf tbe expenses incurred by him in tbe manufacture and sale of derricks, tbe counter-claim was sustainable simply as a demand tbat they should comply with their express agreement. In such case, assumpsit would lie at common law, even though it were a general partnership. But here tbe parties engaged for a single joint adventure only. There are no partnership debts, and no accounts to adjust except simply to determine bow much has been paid by tbe defendant on tbe joint account, one-balf of which they agreed to contribute. The parties are rather joint contractors than partners. Gale v. Leckie,, 2 Stark., 107; Yenning v. LecMe, 18 East., 7; Bumpasi v. Wébb, 1 Stew., (Ala.) 19; Brown v. Ta/pscoit, 6 M. & "W., 119; Bushnell v. Minot, 4 J. B. Moore, 340; Townsend v. Goewey, 19 "Wend., 424; Blgie v. Webster, 5 M. & W., 518. To apply to such a state of facts tbe strict rule applicable to general partnerships, where tbe rights of tbe partners are dependent on tbe result of tbe enterprise, would be unjust to tbe defendant, since it would deprive Mm of the benefit of Ms own fidelity to the business.
Stevens, Flower & Morris, contra,
contended that the agreement between the parties being in all essentials a copartnersMp agreement, and there bemg no allegation that the partnership had terminated and no prayer for its dissolution, defendant was not during its continuance entitled to an accounting, an account being consequent upon a dissolution. Collyer on Partnership,' p. 266; 2 Van Santvoord’s Eq. Prac., 187,188. It may, perhaps, be stated as the general rule applicable to counter-claim or set-off, “ that the cross demand must be liquidated, founded on judgment or contract, and one for which an action at law will lie.” A claim recoverable only by action of account or bill in equity, cannot be set off at law. Lawrence v. Vilas, 20 Wis., 890

Opinion:
Lyoh, J.
It is claimed on behalf of the plaintiffs, that the alleged indebtedness of the plaintiffs to'the defendant, arises out of partnership transactions, and until an account is stated, and the balance ascertained, the same is not proper subject matter of a counter-claim, and that, therefore, the demurrer to the counter-claim was properly sustained.
It is essential to a valid counter-claim that it exist in favor of a defendant, and against a plaintiff, between whom a several judgment might be had in the action, and arising out of the following causes of action:
1. A cause of action arising out of the contract or transaction set forth in the complaint as the foundation of the plaintiff's claim, or connected with the subject of the action.
2. In an action arising on contract, any other cause of action arising also on contract and existing at the commencement of the action. R. S. chap. 125, sec. 11.
8. When the plaintiff is a non-resident of tMs state, such Counter-claim may arise out of any cause of action whatever, existing at the time of the commencement of the action, and arising within this state; provided, that no claim assigned to the defendant shall be pleaded as a counter-claim in any action to which this subdivision is applicable. Laws of 1868. Ch. 4.
The counter-claim under consideration cannot be sustained under the first sub-division of the statute, because it is not alleged that it arose out of, or is connected with, the subject of the action. Neither can it be sustained under the third subdivision, because it does not appear that the cause of action stated in it arose within this state. The pleading contains no averment that the contract, which is the basis of such counterclaim, was made, or that the alleged expenses or services were incurred or rendered within this state. Eor this reason it is unnecessary to consider the .question, which was very fully and ably argued by the respective counsel, of the constitutionality of the law of 1868. If, therefore, this is a valid counter-claim, it is such by virtue of the second sub-division above mentioned. It cannot be sustained under the latter sub-division unless, at the time the action was commenced, there was a debt due from the plaintiffs to the defendant. Whether this essential element of a valid counter-claim is alleged in the pleading demurred to, is the material question to be considered and determined.
That the contract set out in the answer created a partnership between the parties in respect to the joint adventure, must be conceded. It contains all of the essential elements of a partnership agreement, and it is quite clear that in the absence of fraud, or of an express agreement, or of any other circumstances, which would render a particular case exceptional, the law is, that one partner has no claim against his co-partner, individually, on account of partnership transactions, although a final settlement of the affairs of the firm would show a balance in favor of the former. Until such final settlement, the general rule is that the firm and not the individual partner is the debtor; and in such case it cannot be said correctly that there is a debt due from one partner to the other. Ives v. Miller, 19 Barb. S. C., 196, and cases cited.
But where there is an express agreement by one partner to repay to the other his share of advances, made by the latter on account of the partnership business, the amount of such share becomes thereby the debt of the partner who has thus agreed to pay the same, which may be recovered in an action brought directly therefor, without any regard to the partnership relation existing between the parties or the state of their firm accounts This being the case, it follows that if an action on contract be brought by the debtor partner against the other, the debt against the plaintiff, thus created by such express promise, is the subject matter of a valid counter-claim, if due, and may be pleaded as such.
The case of Ives v. Miller, supra, recognizes the correctness of this doctrine, and the cases which assert the same doctrine are quite numerous. The following are some of them: Townsend v. Goewey, 19 Wend., 424; Bumpass v. Webb, 1 Stewart (Ala.,) 19; Elgie v. Webster. 5 M. & W., 518; Coffee v. Bryan, 10 J. B. Moore, 341; Foster v. Allanson, 2 Term R., 475; Venning v. Leckie, 13 East., 7; Collamer v. Foster, 26 Vt., 754; Williams v. Henshaw, 11 Pick., 79.
It is substantially averred in the counter-claim demurred to, that there was an express agreement between the parties that the defendant should furnish the materials for, and manufacture the derricks, and sell or attempt to sell the same; and that the plaintiffs should repay to him one-half of all the expenses which he might incur in and about the manufacture and sale thereof. It is true that this is not the precise language of the pleading, but applying to it the liberal rule of construction required by the eo,de, (R. S., ch. 125, sec. 21,) such must be held to be its meaning and effect.
We are of the opinion that the pleading in question states a valid cause of action arising on contract, and which existed in favor of the defendant and against the plaintiffs at the commencement of the action, and that the same is, therefore, a valid counter-claim, and properly pleaded as such.
Tbe order of tbe circuit court sustaining tbe demurrer to sucb counter-claim must be reversed and tbe cause remanded with directions to that court to overrule sucb demurrer.
By the Court.— It is so ordered.