Potter v. Brown

• Decision Date: 03 January 1938
• Docket Number: 320,319,318
• Citation: 195 A. 901,328 Pa. 554
• Parties: Potter et al. v. Brown et al., Appellants
• Court: Pennsylvania Supreme Court

195 A. 901

328 Pa. 554

Potter et al. v. Brown et al., Appellants

Nos. 318, 319, 320

Supreme Court of Pennsylvania

January 3, 1938

Argued November 30, 1937

Appeals, Nos. 318, 319 and 320, Jan. T., 1937, from decree of C.P. No. 1, Phila. Co., Dec. T., 1936, No. 2806, in case of Samuel Potter et al. v. Henry I. Brown, Sr., Henry I. Brown Jr., and Henry R. Ruhl. Decree reversed.

Bill in equity. Before McDEVITT, P.J.

The opinion of the Supreme Court states the facts.

Decree entered granting relief prayed for. Defendants appealed.

Errors assigned, among others, were dismissal of exceptions by the defendants.

The assignments of error are sustained; the decree of the court below is reversed, and it is ordered that the bill be dismissed. Appellees to pay the costs.

George Wharton Pepper and Thomas Raeburn White, with them, Alexander R. Staples, for appellants.

Warwick Potter Scott, with him Knox Henderson and Ballard, Spahr Andrews & Ingersoll, for appellees.

Before SCHAFFER, MAXEY, DREW, LINN, STERN and BARNES, JJ.

OPINION

MR. JUSTICE BARNES:

The dissolution of a partnership is sought in this proceeding where it is charged that the wrongful conduct of three of the ten members of the firm affects prejudicially the carrying on of its business and renders impracticable the continuance of the partnership.

The parties to this litigation have been conducting a general insurance business in Philadelphia since January 1, 1934, under the firm name of Henry W. Brown & Co. This long established business has been a prosperous one. It was founded in 1871 by Henry W. Brown, the father of defendant, Henry I. Brown, Sr., and has continued through various successor partnerships until the formation of the present firm in 1934. Most of the parties to this litigation have been associated in business for many years. Defendant Brown, Sr., has been actively in control since his father's retirement in 1899. The plaintiffs have been connected with the present and predecessor partnerships for periods varying from twenty-eight years in the case of Potter to nineteen years in the case of Jones. All of the plaintiffs entered the business in minor capacities, and reached their respective positions by their faithful efforts.

The present partnership was formed in 1934, when the parties entered into a written agreement of partnership for a term of five years from January 1, 1934. While the agreement expressly vests in all partners the right to be acquainted with, vote upon and participate in firm business, it confers unlimited control over the business of the firm upon Henry I. Brown, Sr. The partnership articles provide that "The business and capital of the partnership shall be considered as divided into one hundred (100) parts or shares, as a convenient method of determining the rights of the respective partners to profits and as to management"; that Henry I. Brown, Sr., "shall own a majority of the said shares"; the other partners "shall own such shares and receive such salaries or other compensation as may be arranged by each of them individually with the said Henry I. Brown." A few days later the agreement was supplemented with respect to the interests of some of the partners in the event of death, matters which are not here in issue. On November 22, 1934, Henry I. Brown, Sr., by letter fixed the salary and percentage interest of each of the seven plaintiffs in the firm. ^[*]

The articles of partnership further provided that "The vote of the majority in interest of the shares shall, however, control any question which may come up for decision unless otherwise provided herein." The only right reserved to the majority in number of the firm members, rather than in interest, was to vote for admission of partners into the firm, or to terminate the interest of any partner other than Henry I. Brown, Sr.

From the record it appears that the net profits of the business after payment of partners' salaries (other than Henry I. Brown, Sr.) amounted to $80,484.52 for the year 1936, nor did the prosperity of the business decline after the institution of this proceeding, as profits for January and February, 1937, were $26,947.97, compared with a corresponding profit of $20,716.36 for the same months of 1936. The amounts received by the plaintiffs, as salaries, shares of profits and bonuses from the business were substantial, varying from $10,529.72 and $12,133.92, received by Seal in 1934 and 1935, respectively, to $6,023.10 and $6,812.11 paid to Mackerell in the same years. A portion of the payments to the plaintiffs consisting of personal bonuses was distributed by Henry I. Brown, Sr., out of his individual share of the profits. It was also Mr. Brown's practice to pay similar bonuses to employees of the business in recognition of meritorious services. These bonus payments were customarily made at the end of each year.

There are no allegations here of the failure by the partners to attend properly to the partnership business. The parties concede that the prosperity of the business is due to the skill and efforts of all the partners, each in his particular field. However, the operation of a general insurance business, such as this, requires substantial cash balances for working capital. The major portion of this working capital has been furnished by Mr. Brown, Sr. It has been his custom in the past to permit his share of the profits to accumulate, and to be used by the firm as working capital. At the end of 1936 the partnership was availing itself of approximately $65,000 of undrawn profits payable to Mr. Brown. The other partners withdrew the greater portion of their shares of the profits promptly after they were determined, and since it was the practice of the firm to ascertain profits semiannually, at the time of this litigation there were profits payable to the other partners only for the last six months of 1936.

The partnership differences giving rise to the present litigation concerned the proposed admission into the partnership of Charles H. Moore, who had been the accountant for the firm for several years. At the regular monthly partnership meeting held November 30, 1936, Henry I. Brown, Sr., proposed to his associates that new articles of partnership for a ten-year period be executed, giving to him complete control over partnership affairs without any limitation whatsoever, and that Moore be admitted into the firm as a partner. Both proposals were rejected by the plaintiffs. A new partnership agreement was not suggested again, and requires no further consideration. The admission of Moore into the firm was defeated by a vote of seven to three, all seven plaintiffs voting against the motion, and the three defendants voting in its favor. The plaintiffs deny any animosity toward Moore, but assert that membership in the firm should be limited to insurance men.

Thereafter Mr. Brown called a special meeting of partners which was held on December 8, 1936, to reconsider the vote taken at the prior meeting, but again the result was the rejection by the same vote of the motion to admit Moore into the partnership. Then, in order to compel his partners to submit to his wishes, the senior partner called another special meeting for the following day for the purpose of acting on a motion to reduce salaries. He introduced at this meeting and had passed a resolution to reduce the plaintiffs' salaries to an unspecified amount. On December 15, 1936, the plaintiffs received checks representing a fifty per centum reduction of the amount of the salaries then due them.

Subsequently Mr. Brown abandoned his intention of coercing his partners, and while the resolution of December 9, 1936, reducing salaries has not been formally rescinded, checks in the full amount of their salaries were delivered shortly thereafter to plaintiffs, and on each due date since that time they were given checks for all salary due. However, the plaintiffs refused to attend any meetings of the firm subsequent to December 9, 1936, upon the ground that Mr. Brown's conduct had breached the partnership agreement.

The present bill was filed by plaintiffs thereafter, praying for a decree of dissolution of the partnership, and that they be granted the right to continue the business under the name of Henry W. Brown & Co. until the expiration date of the partnership agreement. The court below after...