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SCOTT v. BRYN MAWR ARMS (11/26/73)

decided: November 26, 1973.

SCOTT
v.
BRYN MAWR ARMS, APPELLANTS



Appeals from decree of Court of Common Pleas of Delaware County, Nos. 11640 and 11641 of 1971, in cases of John A. Scott v. Bryn Mawr Arms, Inc. and Paul D. Somers and Joseph V. Somers; Same v. John Scott Development Company, Inc. and Paul D. Somers and Joseph V. Somers.

COUNSEL

William P. O'Neill, with him John R. Graham, for appellants.

Walter T. ReDavid, with him ReDavid, Orlowsky & Natale, for appellee.

Jones, C. J., Eagen, O'Brien, Roberts, Pomeroy, Nix and Manderino, JJ. Opinion by Mr. Justice Pomeroy.

Author: Pomeroy

[ 454 Pa. Page 306]

These two actions in equity involve the liquidation of appellee Scott's minority stock interest in John Scott Development Company, Inc. and Bryn Mawr Arms, Inc., the two corporate appellants, by the individual appellants, Joseph V. Somers and Paul D. Somers (hereinafter collectively referred to as Somers). The shares of stock owned by appellee were pledged as collateral security for Scott's obligation on two promissory notes, payable to and delivered to Somers. The liquidation followed alleged defaults in payment of the notes.

By these suits in equity, Scott sought to enjoin the corporations from transferring his stock; to ascertain his rights as a minority shareholder in the two companies; to order an accounting by the corporations and Somers, the majority stockholders; and to appoint a receiver for each corporation. After a consolidated trial of the two cases, the chancellor, in his adjudication, found Somers' liquidation of Scott's minority stockholdings to be void and of no effect, and restored to Scott his status as a shareholder in both corporations. Exceptions to the chancellor's findings of fact and conclusions of law were dismissed by the court en banc, which entered a final decree affirming the decree nisi. Defendants appeal.

The basic question in the hearing below was whether the promissory notes executed by Scott, which on their face are demand notes, are in reality notes callable only upon the occurrence of certain conditions and payable only from a specific fund, namely, the proceeds expected to be derived from the sale of real estate owned by the corporate appellants. If that is the case, Scott was not in default for failure to pay the notes on demand because the corporate assets had not then

[ 454 Pa. Page 307]

    been sold, and liquidation of the collateral was in violation of the agreement.

Over Somers' objection, the chancellor permitted Scott to testify that the notes did not contain the entire agreement between the parties. Scott testified that it was the understanding of the parties that his obligation to Somers was to become payable only when the real estate which comprised the corporate assets was sold, by deduction from his one-quarter interest in the proceeds of sale. He stated that appellants and their attorney represented to him, at or prior to the time he executed the notes, that the purpose of the notes was merely to insure that his obligation would be paid as described prior to Scott's receiving any distribution from either corporation. On the basis of that evidence the chancellor found that the demand for payment of the notes violated the agreement of the parties and that Scott was not in default when the collateral, his stock, was liquidated because the corporately held properties had not then been sold.

Both the chancellor in his opinion below and the parties in argument before this Court concede that the parol evidence rule would normally operate to bar proof of the alleged oral statements here asserted. As this Court reiterated in its well-known opinion in Gianni v. Russell & Co., 281 Pa. 320, 126 A. 791 (1924): "'Where parties, without any fraud or mistake, have deliberately put their engagements in writing, the law declares the writing to be not only the best, but the only, evidence of their agreement.' Martin v. Berens, 67 Pa. 459, 463; Irvin v. Irvin, 142 Pa. 271, 287. 'All preliminary negotiations, conversations and verbal agreements are merged in and superseded by the subsequent written contract . . . and unless ...


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