Brown v. Rosenthal

• Decision Date: 24 May 1954
• Citation: 107 A.2d 569,378 Pa. 77
• Parties: BROWN v. ROSENTHAL et al.
• Court: Pennsylvania Supreme Court

Page 569

107 A.2d 569

378 Pa. 77

BROWN v. ROSENTHAL et al.

Supreme Court of Pennsylvania.

May 24, 1954.

Rehearing Denied Sept. 15, 1954.

Charles J. Margiotti, Pittsburgh, Sherman T. Rock, William B. Paul, Paul, Lawrence & Rock, Pittsburgh, for appellant.

Earl F. Reed, J. Roland Johnston, Thorp, Reed & Armstrong, Pittsburgh, for appellees.

Before STERN, C. J., and STEARNE, JONES, BELL, MUSMANNO, and ARNOLD, JJ.

BELL, Justice.

A bill in equity was filed by Brown praying (a) that Joseph Rosenthal, hereinafter referred to as 'JR', assign and deliver to him 2 shares of stock of Jones & Brown, Inc., which he alleged JR held as trustee for him; (b) that E. N. Rosenthal and/or the other defendants pay Brown all dividends declared on the said 2 shares of stock; (c) the dividends on 97 shares of additional stock of Jones & Brown, Inc.; and (d) that E. N. Rosenthal pay the plaintiff a bonus of 4% of the net earnings of Jones & Brown, Inc., which he received for the year 1947; and (e) that certain written agreements which were executed by him be declared fraudulent, null and void.

Because of the charges and countercharges, the record exceeded 1,200 pages. From this record we shall briefly summarize the most important facts.

Jones & Brown, Inc., was incorporated in 1927. At that time Brown and Rosenthal each owned 25% of the outstanding stock of the company, but shortly thereafter purchased the additional 50% of the stock so that each owned 260 shares of the total issued common capital stock of 520 shares. Of these shares 2 qualifying shares were registered in the name of JR which he held under an oral trust, one share for Brown and one share for Rosenthal.

For approximately 10 years Jones & Browns' business was small and Brown and Rosenthal got along well together. In 1935 Jones & Brown, Inc., became interested in 'Inselbric', which was a composition wall siding for houses manufactured by Mastic Asphalt Corporation. On December 30, 1936, Jones & Brown, Inc., entered into a written contract with Mastic Asphalt Corporation, under which they became the exclusive distributor of 'Inselbric'. Primarily as a result of the efforts of Rosenthal the sale of 'Inselbric' became an extraordinarily profitable business for Jones & Brown, Inc.

Because of the tremendous growth of Jones & Brown, for which Rosenthal was chiefly responsible, Rosenthal, commencing in 1937, repeatedly demanded that Brown transfer to him sufficient shares of stock of Jones & Brown, Inc., to make him a 60% owner. Brown finally agreed to do so and assigned 50 shares of the stock to Rosenthal on or shortly after November 10, 1938.

On November 10, 1938, Brown wrote Rosenthal the following very important letter:

'November 10, 1938

'E. N. Rosenthal

Pittsburgh, Pa.

Dear Mr. Rosenthal:

'I have, during the past two years, recognized the fact that it was you who conceived the thought of causing Jones & Brown, Inc. to engage in the Inselbric business.

'I have realized that the growth of the business to nationwide proportions is due in a large measure to your initiative, efforts and devotion to the business, and that credit for the success thus far attained is due to you.

'It is my desire to effect a more equitable distribution of profit and interest in the business of Jones & Brown, Inc., and for the purpose of accomplishing this, I am assigning and transferring to you fifty (50) shares of the capital stock of Jones & Brown, Inc., out of my present holdings in the corporation.

'Very truly yours,

/s/ Charles G. Brown'

Thereafter, but on the same day, to wit, November 10, 1938, the stock of Jones & Brown, Inc., was increased to 1,000 shares, and after an adjustment of the fractional shares there was issued to Brown 401 shares, to Rosenthal 596 shares, and to JR 3 shares.

Some time in the early part of 1939 Brown became dissatisfied with this arrangement and employed an attorney as well as an accountant to attempt to obtain from Rosenthal the transfer of sufficient shares of stock to make Brown an equal owner of the Company with Rosenthal. Thereafter each party was represented by one or more attorneys. They finally agreed to compromise their differences and entered into a written agreement dated April 6, 1939, which was executed by both of them.

This agreement recited that Rosenthal was now the holder of 599 shares of stock of Jones & Brown, Inc., of which 596 were registered in his name and 3 shares in the name of JR; and that Brown was the holder of 401 shares of stock of Jones & Brown, Inc., of which 201 shares were registered in his name and 200 shares in the name of his sister; and that it is the intention of the parties that Rosenthal should assign and deliver to Brown 97 shares of the 596 shares which were registered in his name, so that Rosenthal should own and control 502 shares and Brown should own and control 498 shares. This written agreement further provided with respect to said 97 shares of stock, that all dividends declared on these shares should belong and be paid by the corporation to Rosenthal until Rosenthal or Brown died, or until Brown sold all of his stock, and that the new certificate to be issued for said 97 shares should have stamped or...