
    T. and J. Sarchet v. The Administrators of P. Sarchet, Deceased.
    ■Where, upon an equitable adjustment of partnership transactions in two parties are in equity, creditor of a third partner, equity will set off such credits against a joint 'debt due from the same two parties to the third.
    This case was adjourned from the Supreme Court of Guernsey county. The facts, material to understand the point decided by the court, were as follows:
    
      In May, 1809, Peter Sarohet, whose representatives are the principal defendants in this case, with John and Thomas Sarchet, the complainants, and Thomas Knowles, purchased of Chandler a lease upon the Muskingum salt works. Price, five thousand dollars. One thousand dollars to be paid in hand, and one thousand dollars on the 10th of June, annually, until completed.
    The terms upon which the purchasers agreed to carry on the manufactory of salt, were, that they were to be jointly and equally interested.
    By an indorsement on the article, dated June 12, 1709, Knowles sold out his interest to Peter Sarchet, who agreed to comply with the article in Knowles’ place.
    *The three Sarchets proceeded to engage in manufacturing salt, and in the course of their business, before 1811, Peter Sarchet sold one-third of Knowles’ interest, purchased by him, to Thomas Sarchet, and one-third to John Sarchet. Knowles received what was estimated at thirteen hundred dollars of Peter. Thomas Sarchet paid Peter four hundred and thirty-three dollars and thirty-three cents, one-third of that sum, and John Sarchet agreed to pay the same amount.
    Upon the dissolution of the salt manufacturing firm, controversy arose between John and Peter Sarchet, as to John’s indebtedness to Peter, for one-third of Knowles’ share. John claimed that he was to pay for it out of the profits of making salt; that no profits were made and nothing was due. Peter claimed the whole sum, four hundred and thirty-three dollars and thirty-three cents, as a subsisting debt. Though other private accounts existed, and although the partnership affairs were unsettled, this seems to have been the only item of dispute. They agreed to refer it to men. An arbitration bond, in the penalty of five hundred dollars, submitting all matters in dispute between the parties, was drawn up and executed by John and Thomas to Peter, conditioned that John should abide the award. The arbitrators proceeded to make an award embracing all subjects of controversy between the parties, and specifically and in terms including matters connected with the partnership. It also awarded that John should pay Peter six hundred and thirty-three dollars and thirteen cents in money.
    So soon as this award was delivered, an allegation was made by John Sarchet, that it was founded in a great mistake. Explanations took place among the arbitrators, and an attempt was made to draw them to a re-consideration, but it did not succeed, because Peter was not to be found.
    Subsequently the arbitration bond and award were transferred to Loyd Talbot, and a suit prosecuted at law upon the bond, and judgment rendered for the whole penalty. There is nothing in this case to show the character of the proceedings at law.
    Peter Sarchet left the country in 1813, and is since dead, insolvent. Pending the litigation upon the arbitration bond Chandler prosecuted two suits against the Sarchets and Knowles, for the purchase money, upon which John and Thomas Sarchet have paid the amount recovered, being *four thousand and seventy-six dollars and sixty-five cents, except one hundred dollars paid by Peter, credited on the first judgment, and five hundred dollars paid on the second by Knowles and others, which was carried to the account of Peter Sarchet, leaving three thousand four hundred and seventy-six dollars and sixty-five cents.
    The object of the bill is to be relieved against the award upon the ground of mistake, and if that fail, to off set, against the judgment, the amount paid the Chandler, which was Peter’s part of the original purchase money.
    The case was elaborately argued upon all the grounds, by G-oodenow, for the defendants, and Culbertson and Hammond, for the complainants. But as the court confined their decision altogether to the question of set-off, it is deemed unnecessary to report the argument on the other points.
    Goodenow, for defendants:
    I do not perceive how the question of set-off can properlybe made in the cause as it presents itself to me in the bill. However, I will meet the question and discuss it as briefly as I can to do it justice.
    In the first place, it is to be noted, that all the matters of set-off specified in the bill, have arisen since the submission and award, and most of them since the suit at law was commenced; and they are all in different rights from the judgment, or the award against which they are offered.
    In Murray v. Toland, 3 Johns. 569, one item in the bill is, that one defendant, T., had brought suit against the plaintiffs and recovered ; and that one of the plaintiffs, M., had a claim cn one of the defendants, M., which the plaintiffs claimed to set-off. Upon this point in the cause, Chancellor Kent remarks: “ In this case T. was part owner of the goods, and he held the residue as agent, or factor of M. He dealt with the plaintiffs jointly,, as a commercial house, and there was no privity between him and one of the plaintiffs, individually considered. If there could be any set-off allowed in this case, it ought to be of a joint demand of the plaintiffs, and not of theseparate demand of one of them. The plaintiffs assumed, and are responsible for those proceeds in their joint capacity. This fact itself is decisive against th e alleged right to retain. The debt demanded, and the debt to be set-off must be mutual, i. e., they *must be due to and from the same persons in the same capacity.”
    
    
      “ They must be mutual debts,” says the same distinguished chancellor, in Duncan v. Lyon, 3 Johns. Ch. 351. “ There can not be a set-off, even of a debt against the demand of the plaintiff, unless that demand be of such a nature that it could be set-off by a debt, if it existed in him. This is the settled doctrine in the court of law. Colson v. Welsh, 1 Esp. N. P. R. 378. Lord Mansfield said, in Howlett v. Strickland, Cow. 56, that not only the statute, but the reason of the thing, related to mutual debts only, and that unliquidated or uncertain damages, arising from a breach of covenants, were no debts. The same doctrine was held in Weigall v. Waters, 6 T. R. 488, and in Gordon v. Browne, 2 Johns. 150. The same rule prevails, also, in courts of equity. The courts of law and equity follow the same general doctrines on the subject of set-off.”
    Although in some cases there appears to have been a practice in the courts of equity in England, under peculiar circumstances, to relax these doctrines, as in ex parte Stephens, and ex parte Hanson, 11 Ves. 24; 12 Ves. 346, yet this practice only established exceptions to the general rule ; and as recently in the case of Addis v. Knight, 2 Merivale, 121, the master of the rolls observes, that “ in equity, as well as in law, a joint could not be set-off against a separate demand;” and in Duncan v. Lyon, where Chancellor Kent collates and comments upon divers cases beside those I have referred to, he observes, “one judgment may be set-off against another ; but here is a demand on one side raised to a debt certain, by a legal assessment, and an uncertain claim on the other, depending on a settlement of accounts.”
    In Dale v. Cook, 4 Johns. Cr. 11, the chancellor repeats the doctrine laid down in Duncan v. Lyon. “ The debts, or the credits, for credits are considered as subject of set-off, must be mutual and due to, and from the same persons in the same capacity.” In the same case the chancellor further remarks, “ the cases in which there has been more relaxation in the rule of law, which forbids a set-off between joint and separate debts, are separate cases *in bankruptcy; and it is said that the chancellor’s jurisdiction in bankruptcy, relative to set-off, is derived from the statutes of 13 Eliz. and 5 Geo. 11, and is wholly unconnected with the general set-off act of Geo. 11, 2 Maddock’s Treatise on the Principles and Practice of Chancery, 512, 515. Even in these bankrupt cases, the departure from the general rule, seems to _ be questioned, and, at last, prohibited, notwithstanding the statutes of bankrupts embrace mutual credits as well as mutual debts.”
    In ex parte Twogood, 11 Ves. 517, Lord Eldon said, “that he did not understand the reason or the principle ” of the decision in the case of ex parte Quintín, 3 Ves. 248, in which Lord Rosslyn allowed a party to set off the share of a bankrupt partner in a joint debt, due from the bankrupt individually to him, “ for the partnership debts were all actually paid.” If, he observed, there be debts which could not be set off at law, must all the affairs of the bankruptcy be suspended, until all the accounts are cleared, in order to see what rights of set-off there may be in the result ?
    The case ex parte Hanson, 12 Ves. 346, which was before Lord Erskine, was this : H. and W. were indebted on a joint bond, H. as principal, and W. as surety, to C. and P., who were bankrupts, and who owned H. The assignee sued H. on his bond, and he applied by petition to be allowed to set off. It was admitted upon the argument that there could be no set-off at law, between joint and separate debts, and the petitioner relied upon ex parte Stephens, 11 Ves. 24, which the other side said was decided upon equitable grounds administered in bankruptcy, viz: the fraud. The chancellor allowed the set-off on account of the joint debt being that of principal and surety; and he said that his jurisdiction in bankruptcy was equitable as well as legal. When this cause came again before the court on the Master’s Report, 18 Yes. 232, Lord Eldon observed, that the joint debt in that case was nothing more than a security for a separate debt. Chancellor Kent, from whom I have taken the above notes, observes, in Dale v. Cook, ante, upon all these cases, and some others, which I have not cited, that “ they leave the general rule very much as it had existed before,” and adds, “ my conclusion *is, that joint and separate debts can not be set-off in equity any .more than at law.”
    
    Culbertson and Hammond, for complainants:
    Mr. Goodenow very correctly concedes that Talbot has no other right than Peter Sarchet had. How then stands the case between P. Sarchet and complainants? P. Sarchet bound himself to Knowles, to comply with the article to Chandler. Thus, in equity, he became liable to Chandler for one-half the purchase money. John and Thomas Sarchet purchased from Peter two-thirds of Knowles’ interest, by which, in equity, the three Sarchets became equally bound to Chandler. Had Chandler compelled payment from Knowles, in equity, he could have compelled the Sarchets to reimburse him: but had not Peter made the contract with Knowles, and subsequently with John and Thomas, Knowles, in case of payment by himself, could have recovered from John and Thomas but half, or, perhaps, but one-fourth from each of them. The sale by Knowles to Peter, and Peter’s agreement to pay Chandler, and the subsequent agreement of John and Thomas to become equally interested with Peter in the purchase from Knowles, though it did not change the liabilities of the parties at law, changed them in equity. The three Sarchets were, in equity, debtors to Chandler for the balance of purchase money. That balance was paid by John and Thomas. The five hundred dollars paid by Knowles, though agreed to be credited to Peter, was, in fact, a payment by the three Sarchets, equally, for their interest was equal.
    The whole payment was four thousand and seventy-six dollars and sixty-five cents. Peter’s one-third is one thousand three hundred and fifty-eight dollars and sixty-six cents. Credit this sum with the one hundred dollars on the first judgment, and the five hundred dollars on the second, leaves seven hundred and fifty-eight dollars and sixty-six cents due to John and Thomas, which exceeds the recovery in this case at law two hundred and fifty eight dollars and sixty-six cents.
    It seems to us, there never was a clearer case of equitable set-off. John,and Thomas Sarchet owe Peter five hundred dollars upon their bond. Peter owes John and Thomas seven hundred and fifty-eight dollars and sixty-six cents for money paid to Chandler. This could not be set off at law, because at law Knowles stood joined with John and Thomas, as making payment for Peter. Equity alone *could take notice of the facts which fixed the liabilities of the parties, and exonerated Knowles. The case is strictly one of mutual debts in equity, between Peter, on the one- part, and John and Thomas on the other, and is within the doctrine of Dale v. Cook, 4 Johns. Ch. 11, and the cases there cited, referred to by Mr. Goodenow.
   By the Court :

The purchase of the lease of the salt works, by the three Sarchets and Knowles, to carry on salt works, constituted them partners. When Knowles sold out to Peter his one-fourth, and Peter sold an equal proportion of that fourth to Thomas and John Sarchet, the three Sarchets became, in equity, partners in the salt works property. Sarchet covenanted with Knowles to perform to Chandler, Knowles’ covenant with him, and Thomas and John became parties to this contract, by their subsequent agreement with Peter. In this state of the case, Thomas and John Sarchet, when they paid the whole purchase money to Chandler, could not compel Knowles to contribute his fourth part, because, in equity, Knowles owed nothing. The three Sarchets were the real debtors. Thomas and John owed two-thirds, and Peter one-third. Peter was, therefore, the debtor to Thomas and John, for all the money they paid beyond their own proportion of that contract.

But as between the original parties, no change was made in their respective legal rights. The three Sarchets and Knowles remained bound to Chandler, upon their covenant, for the purchase money; and the new arrangements between Knowles and the Sarchets, was never reduced to such legal forms as to create new legal interests. When suit was prosecuted against Thomas and John Sarchet by Peter, they had not paid the amount due to Chandler, and had they made such payment, a doubt might have arisen whether it could have been set off at law, because it was only by a resort to equity that the true state of their respective interests and 1‘abili-ties could be determined and adjusted.

If there were no debt due from Thomas and John Sarchet to Peter, and they, having paid the whole amount due *to Chandler, sought to subject Peter to the payment of his proportion, it would be necessary for them to resort to equity, as well upon account of the partnership, as that the contract with Chandler, upon which the payment was made, embraced other parties. In a bill to account by Thomas and John against Peter, it would be sufficient to make Peter defendant, and there can be no doubt that he could have set off his judgment against Thomas and John. This view of the situation of the parties, seems to demonstrate the propriety of allowing the set-off now claimed. It is a case of mutual credits, “ due to and from the same persons in the same capacity,” and is within the principle laid down in Dale v. Cook, relied upon by the respondent’s counsel. In Quintin’s case, 3 Ves. 218, and in James v. Kynnier, 5 Ves. 108, set-off's were allowed in equity, which, it was admitted could not be made at law. These; it is true, were cases of a bankruptcy of one of the parties. But in Dale v. Cook, Chancellor Kent correctly remarks, that the set-off cases in bankruptcy leave the general rule very much as it existed before.”

Set-off decreed — each party to pay his own costs.  