Scottish Court of Session Decisions

Subject_1 COMPENSATION - RETENTION.
Subject_2 SECT. IV.

Who entitled to Propone Compensation and Retention.

William Mackie
v.
John M'Dowal, and Others

Date: 29 November 1774
Case No. No 36.

In an action for payment of copartner-ship-debts, due from one company to another, compensation or retention is not pleadable on account of debts owing by the company suing, to a partner in the company sued.

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Mackie, as factor appointed by the Court upon the sequestrated estate of Ebenezer M'Culloch and Company, brought an action against John M'Dowal merchant in Glasgow, as an individual, for payment of the balance of an account current with M'Culloch and Company; and against William Donald and Company merchants in Greenock, and Donald and M'Dowal merchants in Glasgow, for payment of the price of goods furnished by M'Culloch and Company to these companies respectively; in which he obtained decree for the sums due by each of them; and upon this decree they were charged.

Mr M'Dowal being a partner in the two companies above named, a suspension of the charge was brought in their names and in his own, founding chiefly upon Mr M'Dowal's right to retain, not only the sum due by himself to M'Culloch and Company, but also the sums due by William Donald and Company, and Donald and M'Dowal, of both which companies he was a partner, until he should be fully paid and relieved of an engagement which he, and Alexander Gray writer to the signet, were under for Ebenezer M'Culloch and Company, in a letter of guarantee to Malcolm Hamiltoń and Company merchants in London, for L. 5000 Sterling, as well as paid of the debt due by Ebenezer M'Culloch and Company to himself.

Objected for the factor; It is admitted that neither William Donald and Company, nor Donald and M'Dowal, have any defence against payment, in their own names, or on their own accounts, but a defence is raised up in the name, or on the account of one of their pattners, Mr M'Dowal, as an individual, upon a transaction with which these companies have no manner of concern; which cannot be sustained in law.

Retention, as well as compensation, does certainly require that the same person should be both debtor and creditor. One party can neither plead compensation nor retention for another party's debt. Mr M'Dowal is not the same party with Donald and M'Dowal, nor with William Donald and Company, though he may be an individual in these companies. The charge is not against him, but against the companies, and the sum charged for will be paid not by him, but out of the company funds, which are not in his possession, but in the possession of the company; and, therefore, he cannot plead compensation or retention against payment of their debts; and as little can these companies plead compensation or retention in his name, when they themselves have no ground of compensation. This point received a solemn decision last session, in the case of Galdie against Gray, (June 16.) which renders more argument upon the general point unnecessary in the present case. (voce Society.)

More especially would this plea of retention be dangerous where the company creditor is bankrupt; for there it is evident that the sole effect and intention of it is to give a preference to every individual of the company-debtor who may happen, privato nomine, to be creditor to the bankrupt.

Lastly: Neither is there room for a plea, that Mr M'Dowal ought at least to be entitled to retain what effeirs to his share of interest in the companies, because each partner of a company is liable, in solidum, for all the debts of the company, and that these companies might have happened to be bankrupt. The two companies in question are going on, and they will fall to make payment out of the company's funds, not out of the estate of Mr M'Dowal; and what precise amount of the company's effects may in the end belong to Mr M'Dowal, it is impossible to ascertain till the company itself is dissolved.

The Court, by two consecutive interlocutors, ‘adhered to the Lord Ordinary's, which had found, That the suspenders Donald and Company merchants in Greenock, and Donald and M'Dowal merchants in Glasgow, cannot plead compensation or retention of the sums due by them to Ebenezer M'Culloch and Company, on account of any debt which Ebenezer M'Culloch and Company may be due the suspender John M'Dowal, or which the said Ebenezer M'Culloch may be due to him; and, therefore, repels the reasons of suspension pleaded for the respective companies, and found the letters orderly proceeded against them.’

Act. Ilay Campbell. Alt. Wight. Clerk, Tait. Fol. Dic. v. 3. p. 143. Fac. Col. No 142. p. 372.