holders quoad the excess (a). And where directors charged with the winding up of a company chose to expend considerable sums in supporting a public bill in Parliament for the better winding up of companies in general, they were found to have no claim against the company for such expenses, as the purpose was plainly beyond the sphere of their agency (b). Again, where the managing committee of a benefit society thought proper to purchase land, and borrow money to pay for it, it was found that they had no claim for reimbursement against the society, as purchasing land formed no part of its purposes (c). When partners act plainly beyond the limits of their agency, Homologation. or even in contravention of an express provision, they will nevertheless be entitled to contribution, if their proceedings have afterwards been approved of or homologated by the company; and ratification may be presumed by the company taking the benefit of such proceedings, or even by their silence (d). Hence, when the company do not intend to adopt the unauthorized act, they should at once object (e). The same rules apply as between directors and their companies (ƒ). Illegal acts done by a partner will entitle him to no indemnity Illegal acts. against the firm; for it cannot be presumed that such acts were either within the intended scope of the undertaking, or that they were approved of by the firm (g). If the purposes for which the company was formed were illegal, the case is all the stronger; for as the concern was ab initio contrary to law, the law will give no aid to work out its transactions or their consequences (h). (a) Gillan v. Morrison, 1 De G. and S. 421; Worcester Corn Exch. Co.'s case, 3 De G. M. and G. 180. (b) Cropper's case, 1 De G. M. and G. 147. (c) Kent Benefit Building Soc., 1 Dr. and Sm. 417. See also Selwyn v. Harrison, 2 J. and H. 334. (d) See Story on Agency, c. vi.; ex parte Chippendale, 4 De G. Mac. and G. 19; ex parte Bignold, 22 Beav. 143 and 165. (e) Cragg v. Ford, 1 Y. and C. C. C. 280. (ƒ) See M'Alister v. Alexander, 1843, 5 D. 580; Gillan v. Morrison, 1 (g) See Finlayson v. Braidbar (h) Gibson v. Stewart, 1835, 14 S. 166, 1 Rob. 260; Gibson v. Stewart, 1828, 6 S. 733, aff. 1 Rob. 260; Fraser v. Hill, 1852, 14 D. 335. See Gordon v. Howden, 1843, 5 D. 698; revd. 1845, 12 Cl. and Fin. 237, 4 Bell's App. 254. Loans. Debts. When the partnership is not illegal, but where one of the partners is subjected in the penalties or consequences of an illegal act committed by one or more of his copartners without his privity, he will be entitled to indemnity against the wrong-doers to the full extent of his loss (a). When, as before, the partnership is not contrary to law, but an unlawful act has been done by all the partners in the knowledge of its illegality, and the loss consequent thereon happens to fall on one of their number, it is the general opinion that he has no claim of contribution against his fellows (). The opposite view, though it has some semblance of authority (c), would seem objectionable on the mere ground of public policy. Loans made by a partner to the firm are, if properly constituted, in the same position as loans made by third parties; for the firm is a quasi person, and may assume the character of debtor to its own members (d). Loans made by directors to the company, or advances made by them on its behalf, are in a somewhat different position. Directors are special officers partaking of the nature of trustees, and it is not for the interest of the concern that they should stand to it in the relation of creditors. If the loan is one which, if it had not been made by the directors, must have been obtained from strangers, it will entitle them to reimbursement (e); yet, as the transaction is open to suspicion, authority should always be obtained from the shareholders before it is entered into (ƒ). When a partner is compelled to pay a debt constituted against the firm, he is always entitled to the benefit of contribution, unless the claim has been fixed against the firm, in consequence of his own improper conduct, as e.g. exceeding his agency, or having been guilty of fraud or culpable negligence (g). But a partner who (a) Campbell v. Campbell, 1834, 12 S. 573, 7 Cl. and Fin. 166, 1 Rob. App. 1; Pearson v. Skelton, 1 M. and W. 504. (b) A. G. v. Wilson, Cr. and Ph. 1, per Lord Cottenham. (c) Baynard v. Woolley, 20 Beav. 583; ex parte Longworth, 1 Johns 465. (d) Keith v. Penn, 1840, 2 D. 633 ; Sturrock v. Thoms, 1851, 13 D. 762. (e) Ex parte Sedgwick, 2 E. Jur. N. S. 949; ex parte Bignold, 22 Beav. 143. (f) Bluck v. Malalue, 5 E. Jur. N. S. 1018; compare Murray's Executors, 5 De G. Mac. and G. 750; and Teversham, 3 De G. and S. 296. (g) Gordon v. Howden, 1849, 12 D. 253; Prole v. Masterman, 21 Beav. 61; M'Owen v. Hunter, 1 Dr. and Wal. 347; Robinson's Executors, 6 De G. Mac. and G. 572; Evans v. Yeatherd, 2 Bing. 133; Richardson, etc., v. Gavin, etc., 1853, 15 D. 434. pays a debt claimed, but not due, has no right to indemnity against the firm (a); and where a partner departed from a debt judicially found due to the firm, he was found liable to indemnify his copartners (b). partner. When losses arise to the firm, in consequence of the conduct of Fault of one one partner rather than of the others, the contribution will still be equal, unless that which caused the loss is attributable to culpable negligence, or something more than mere error in judgment (c). The same rules apply to directors (d). score. It is a principle of the law of partnership, that a partner is not Services. entitled to any remuneration for services rendered to the firm, or for loss of time incurred by him in carrying on the common business (e); and a managing partner is in the same position (ƒ). No claim of indemnity, therefore, lies against the company on this The exceptions are where, after dissolution, the business of the firm is carried on by one of the partners for the benefit of the others or their representatives (g), and where an express agreement has been made to give remuneration (h). Directors of companies are in the same position, and are entitled to no claim for their services without express agreement, under any pretence whatever (i). But partners as well as directors are always entitled to charge the company with expenses bona fide laid out or incurred in the conduct of its business (k). When by agreement the directors are to receive payment, they are entitled to their fees even if the concern proves a failure (1). (a) Re Webb, 2 B. Moore 500; M'Ilreath v. Margetson, 4 Doug. 278. See Cavan v. Mackie, 1832, 10 S. 550. (b) Brand v. Kennedy, 1710, Robert. App. 8. (c) Ex parte Letts and Steer, 26 L. J. Ch. 455; Cragg v. Ford, 1 Y. and C. C. C. 280; Lingard v. Bromley, 1 V. and B. 114. (d) Evans v. Coventry, per V.-C. Kindersley, 2 E. Jur. N. S. 557. (e) MWhirter v. Guthrie, 1822, Hume 760, and 1 S. 295; Beath v. Campbell, as revd. 1826, 2 W. and S. 25; Hunter v. Cochrane's Trs., 1831, 9 S. 477, and 5 W. and S. 639. (f) Hutchison v. Smith, 5 Irish Eq. 117. (g) Brown v. De Tastet, Jac. 284; (h) Berry v. Lamb, 1832, 10 S. 792. (k) Geddes v. Hamilton, 1801, aff. 1805, 4 Pat. App. 657; Duncan v. Union Canal Co., supra. (1) Ex parte Johnson, 27 L. J. Ch. 803. CHAPTER VIII. Nature of. General principles of. Does not operate ipso jure. COMPENSATION. ACCORDING to the law of Scotland, where two parties are mutually debtors and creditors, their claims, if equal, extinguish each other; and if unequal, leave only the balance due. This is called compensation, or set-off. It is founded on, and is indeed nothing else than, a special application of the equitable principle which operates in retention, though here as well as in England it has been to a certain extent regulated by statute (a). Before considering the application of this doctrine between partnerships, their members, and the public debtor or creditor, it is desirable to obtain a distinct conception of the rules by which, in Scotland, its practical operation is regulated. In order to found compensation, it is necessary,-1. That the parties be debtor and creditor each in his own right. Thus an agent cannot set off a debt due to his principal against a debt due by himself as an individual. 2. That the parties be mutually debtors and creditors at the same time; so that it has no place where one has assigned his claim before concourse. 3. That the claims be both liquid and exigible; hence there can be no compensation between a present debt and one that is future, much less contingent. Compensation does not operate ipso jure, but must be pleaded by way of defence; yet, when sustained, it operates retro to the time of concourse (that is, when both claims first co-existed), and stops the currency of interest from that time downwards. Though, properly speaking, there is no room for compensation while one of the debts is not yet constituted, yet when this can be instantly (a) In Scotland by 1592, c. 41; in England by 2 Geo. II. c. 22, and 8 Geo. II. c. 24. done by writ or oath of party, or when the delay necessary for constitution by witnesses or otherwise is short and limited, it has been usual to stay procedure in the original action till the counter obligation can be constituted as a set-off. This is peculiarly the case in bankruptcy, where a solvent debtor will not be compelled to make instant payment of a liquid debt, and rank for his own illiquid claim on the bankruptcy assets. doctrine in Application of partnership. In applying these rules to claims arising between companies and their debtors or creditors, and the debtors and creditors of their individual partners, questions of no ordinary difficulty have presented themselves; and their solution has, it would seem, been considerably embarrassed from a confusion of thought due to a misapprehension of English decisions, in which the ratio decidendi depends on peculiarities of that system from which the law of Scotland is happily free. The English common law courts have deemed themselves English law. entitled to recognise the doctrine of compensation, in so far only as it has been enunciated by statute; and even within these limits, they have, as in too many other instances, been greatly fettered by technical rules of pleading. The courts of equity, again, though they profess to apply the principles of this doctrine in conformity with what appears to be the substantial justice of the case, have nevertheless regarded themselves as bound by the peculiar form which obligations in England sometimes assume. It is also very apparent that, in the equity as well as in the law courts, the consequences of not recognising the separate persona of the firm have made themselves deeply felt in this as in other departments of partnership law, and have produced results which cannot always be reconciled with the ordinary ideas of justice. It would seem, therefore, that in this branch of the subject the English authorities are not in general to be relied on as trustworthy guides, and that the law of Scotland is only to be ascertained by an attentive study of the decisions which have been given by our own tribunals, so as to extract the principles which they contain, and by working out these principles to their logical results. In dealing with such questions as present themselves, when the Scottish law. doctrine of compensation is in Scotland applied to partnerships and unincorporated companies, there is one principle of our legal system which must never be lost sight of. That principle is, that the |