Court Opinion

ID: 6412127
Source: CourtListenerOpinion
Date Created: 2022-06-25 11:53:28.965399+00
Date Added: 2024-06-11T15:51:24.500744
License: Public Domain

Bigelow, J.
1. The decisive objection to a set-off by the defendant, of a debt due to him from one of the firm, against a debt which he owes to the insolvent copartners, is that it contravenes the rule of distribution of the property of insolvent debtors among their joint and several creditors, established by St. 1838, c. 163, § 21. A debt due to a firm constitutes a part of their joint assets, and to allow a private debt due from one of the copartners to be set off against it would be to appropriate a part of the joint estate to pay a private debt. The effect of it would be, not only to give a private creditor of one of the firm, who happened to be a debtor of the copartnership, a preference over other creditors, but, in many cases, to absorb a large amount of the joint assets for the benefit of separate creditors.
2. The other ground on which the defendant seeks to maintain his set-off is not tenable. The principle is well established, that any appropriation of the credit, assets or property of a copartnership in payment of the separate debt of one of the firm, without the knowledge or assent of the copartners, is a fraud on the firm, and cannot be enforced against them. Thus it has been held, that a note given by one copartner, in the name of the firm, for his private debt, without the knowledge or assent of his copartners, is not binding on the firm. It is a fraudulent appropriation of the credit of the firm. So too an agreement, by a member of a firm, to sell partnership property in payment or discharge of his private debt, without the assent, express or implied, of the other members of the copartnership, is deemed fraudulent and void as against the firm, because it is an agreement to appropriate the common property in payment of a separate debt. In like manner, and for the same reason, the set-off of a debt due to the firm against a debt due to one of the copartners, if not known *466or assented to by the other members of the firm, is not binding on the copartnership. Chazournes v. Edwards, 3 Pick. 5. Rogers v. Batchelor, 12 Pet. 221. Dob v. Halsey, 16 Johns. 34 Evernghim v. Ensworth, 7 Wend. 326. Collyer on Part. §§ 494, 498, 500, 501. The only qualification of this doctrine is, that if the agreement to set off a debt due to a firm against a debt due from one of the copartners is executed, an action ex contractu cannot be maintained in the name of the firm to recover the debt which has been thus fraudulently discharged by one of the copartners. Homer v. Wood, 11 Cush. 63.
The case at bar seems to us to come within the general principle above stated. The insolvent debtors were members of a firm established to carry on a business in which the personal services and labor of both copartners constituted the main and essential feature of the copartnership. In all matters coming within the scope of the business of the copartnership, the services of both copartners belonged to the firm. They were, in a certain sense, the capital stock by which the business of the firm was to be created and carried on, and out of which the joint property, profits and credit were to arise. Each copartner had a right to claim that the services of his copartner should be devoted to the business of the firm. Any agreement, therefore, by one of them, to appropriate the services of the copartner, which were to be rendered within the scope of the business of the firm, in payment of his separate debt, without the knowledge or assent of his copartner, was just as much a violation of the contract of copartnership and a fraud on the firm, as if the joint property or securities had been appropriated in like manner.
In this case, it appears by the evidence that the services which were to be rendered to the defendant were directly within the scope of the business of the firm ; that the defendant knew this ; that the work was actually performed by the copartners, so as to create a joint debt to the firm; and that the agreement by one of the firm with the defendant, to set-off his private debt against the debt which would accrue to the firm by the work and labor to be performed by both copartners, was made without the knowledge or assent of the other copartner. Such an agree*467ment was clearly one which operated as a fraud on the copartnership. It was an agreement to make a direct appropriation of that which belonged to the firm to the payment of a private debt of one of the copartners, and it cannot be set up as a valid contract in defence to the claim for services rendered by the firm.
It was strenuously urged by the counsel for the defendant, that it did not appear that the defendant was cognizant of any facts which would make the agreement to set off his private debt a fraud on the copartnership, and that, in the absence of such proof, the time inference was that he acted in good faith, and was therefore entitled to the benefit of his contract for the set-off of his private debt. But this argument is founded on a misapprehension of the rule of evidence applicable to such contracts. Whenever it is made to appear that the credit, property or assets of a firm have been applied by one copartner in payment of his separate debt, it is incumbent, on the creditor to show that he acted in good faith, and without any knowledge of the fraudulent nature of the act of the copartner with whom he dealt. If a private creditor takes partnership notes, securities or property in payment of his separate debt, or agrees with one copartner to set off his private debt against a debt due to the firm, it is prima facie a misappropriation of partnership property or assets, and it is not necessary for the copartnership to prove that the creditor knew at the time that it was a fraud on the firm. The fact of such application of partnership property and assets to the payment of a private debt is sufficient to put the-creditor on his guard, and renders it necessary for him to show that he acted in good faith and without any knowledge of the fraud. Such is the rule stated in the authorities above cited, and in Story on Part. §§ 132,133.
In the present case, the defendant knew of the copartnership, and of the nature of the business carried on by the firm, and that the work which was to be done for him was within the scope of that business. Prima facie, it was work to be done by the copartnership, and the agreement to set off his private debt for the work to be performed by the firm was prima facie *468a contract for the misappropriation of that which he knew belonged to the firm, to pay the separate debt of one of the copartners. As this was done without the knowledge or assent of the other copartner, it was evidence of a fraud on the firm, and as the defendant offered no evidence to rebut this prima facie case which the plaintiffs had established, he failed to maintain his set-off. Judgment on the verdict.