In re Brown

• Decision Date: 12 January 1926
• Citation: 150 N.E. 581,242 N.Y. 1
• Parties: In re BROWN et al.
• Court: New York Court of Appeals Court of Appeals

242 N.Y. 1

150 N.E. 581

In re BROWN et al.

Court of Appeals of New York.

Jan. 12, 1926.

In the matter of the judicial settlement of the account of Grace Quarterly Brown and others, as executors of and trustees under the will of Stephen Howland Brown, deceased. Decree of the Surrogate's Court surcharging their accounts (209 N. Y. S. 237, 124 Misc. Rep. 473) was affirmed by the Appellate Division (208 N. Y. S. 359, 211 App. Div. 662), and the executors appeal.

Reversed, and rehearing ordered.

Appeal from Supreme Court, Appellate Division, First department.

Franklin B. Lord and Sherman Baldwin, both of New York City, for appellants.

Charles Brandt, Jr., of New York City, for respondents.

CARDOZO, J.

Vernon C. Brown & Co. were stockbrokers for many years in the city of New York. Stephen H. Brown, one of the partners, died. The survivors, denying that there was any good will to be accounted for, continued the business at the old stand and in the old name. The executors acquiesced. For so acquiescing they have been held to be at fault, and their accounts have been surcharged accordingly. The question is whether the decree may be sustained.

The Browns, Vernon and Stephen, were brothers. They began business in 1895 with one Watson, under the name of Watson & Brown. In 1901, Watson withdrew, and the brothers went on. ‘Vernon C. Brown & Co.’ became the name of the continued partnership. New members were admitted from time to time, but the firm name remained unchanged. Good will was not mentioned in the partnership articles or in any books of account. In-coming members did not pay anything for it. One member, Mr. Schoonmaker, retired while Stephen Brown was alive. If good will was an asset, he was entitled to share in it. The evidence is uncontradicted that nothing was paid him. We may infer that in the thought of the partners nothing was due.

At the outset, Stephen Brown, like his brother, was active in the business. He had a seat on the Exchange, and represented the firm upon the floor. Falling ill in 1912, he sold his seat, and, though leaving his capital intact, gave no services thereafter. His share of the profits, which before his illness had been 33 per cent., was gradually reduced till at his death in July, 1917, it was only 15 per cent. The business was lucrative, though it was run, one would gather, in a more or less old-fashioned and conservative way, without advertising in newspapers or solicitation of accounts. It had four branches or departments: (1) The general commission business; (2) the so-called ‘odd lot’ business, which proved to be the most lucrative of all; (3) the so-called ‘two-dollar’ business; and (4) speculative business transacted for the firm itself. There is a finding that all the branches of the business, except the last, had in them an element of good will for which the survivors were accountable. The net profits of the three branches were averaged for a period of three years; allowance being made for interest on capital and for the personal services rendered by the partners. The value of the good will was fixed at two years' purchase price of the profits so computed. On this basis, the value was $103,891.60, of which 15 per cent., $15,583.74, was the share due to the estate. The surrogate, confirming the report of a referee, held that the accounts of the executors were to be surcharged for failing to collect this amount from the survivors. The Appellate Division unanimously affirmed.

[1] The books abound in definitions of good will. People ex rel. A. J. Johnson Co. v. Roberts, 53 N. E. 685, 159 N. Y. 70, 80,45 L. R. A. 126;Von Bremen v. MacMonnies, 93 N. E. 186, 200 N. Y. 41, 47,32 L. R. A. (N. S.) 293,21 Ann. Cas. 423. There is no occasion to repeat them. Men will pay for any privilege that gives a reasonable expectancy of preference in the race of competition. Cf. Walton Water Co. v. Village of Walton, 143 N. E. 786, 238 N. Y. 46, 50. Such expectancy may come from succession in place or name or otherwise to a business that has won the favor or its customers. It is then known as good will. Many are the degrees of value. At one extreme there are expectancies so strong that the advantage derived from economic opportunity may be said to be a certainty; at the other are expectancies so weak that for any rational mind they may be said to be illusory. We must know the facts in any case.

Good will, when it exists as incidental to the business of a partnership, is presumptively an asset to be accounted for like any other by those who liquidate the business. Slater v. Slater, 67 N. E. 224, 175 N. Y. 143, 61 L. R. A. 796, 96 Am. St. Rep. 605; Matter of David & Matthews, [1899] 1 Ch. 378; Witkowsky v. Affeld, 119 N. E. 630, 283 Ill. 557. The course of dealing, however, can stamp it with a different quality. Partners may contract that good will, though it exist, shall not ‘be considered as property or as an asset of the copartnership.’ Douthart v. Logan, 60 N. E. 507, 510, 190 Ill. 243, 252; Witkowsky v. Affeld, supra. The contract may ‘be expressly made,’ or it may ‘arise by implication from other contracts and the acts and conduct of the parties.’ Douthart v. Logan, supra. The implication will be drawn the more readily when the good will, if any, is tenuous or doubtful. Upon this appeal, the form of the findings precludes us from adjudging that the distribution of what would otherwise be an asset has been varied by agreement. We state, however, for the guidance of the trial court, that evidence exists from which such an agreement may be gathered. The trier of the facts might not unreasonably infer from the course of dealing between the partners when new members came in and old ones went out that by tacit understanding there was to be no accounting for good will. No doubt there must be caution before property interests of value are thus excluded by implication. The life of the business must be scrutinized for every relevant circumstance affecting the intention of the partners. The inference is one of fact, to be drawn, if at all, when intention is thus appraised and probabilities are measured.

[2][3] Assuming for present purposes that the disposition of good will has not been varied by agreement, we reach the question whether there was any good will to be disposed of upon the facts recited in the findings. To answer that question, we must consider at the outset what rights would have passed to a buyer of the good will if the surviving partners had sold it in the course of liquidation. The chief elements of value upon any sale of a good will are, first, continuity of place; and, second, continuity of name. People ex rel. A. J. Johnson Co. v. Roberts, 53 N. E. 685, 159 N. Y. 70, at page 83,45 L. R. A. 126. There may, indeed, at times be others, e. g., continuity of organization. That element is of value in business of a complex order. Where the business is simple, the benefits of organization are slight and not so easily transmitted. Confining ourselves now to the two chief elements of value, we may assume that the buyer of this good will would have been reasonably assured of continuity of place. The firm offices were the same from the beginning of the business till the death of Stephen Brown and later. There is nothing to show that the survivors, genuinely endeavoring to dispose of the good will, would have been unable to deliver possession to a buyer of the lease. A more difficult question is presented when we ask to what extent there would have been continuity of name. ‘Vernon C. Brown & Co.’ was not an arbitrary symbol, like the Snyder Manufacturing Company, e. g., in Snyder Mfg. Co. v. Snyder, 43 N. E. 325, 54 Ohio St. 86,31 L. R. A. 657. It had not gained a secondary meaning supplanting a primary meaning which had been descriptive of a man or men, and instead identifying impersonally an organization or a product. Writ large in this style or title was the name of a living man who had done nothing by word or act to give the name a reality or a significance external to himself. A buyer of the good will would gain no right to the use of any style or title whereby this man would be represented as still a partner in the business. We assume that in conducting the new business he would be privileged to describe himself, subject, however, to the rules of the Exchange, as the ‘successor’ to the old one. Moore v. Rawson, 85 N. E. 586, 199 Mass. 493, 497, 499. He would not be suffered to go farther. One who writes his name at large in the style or title of a partnership does not dedicate to the partnership, by force of that act alone without other tokens of intention, the right to sell the name at auction upon every change of membership.

We do not overlook the provisions of the statute (Partnership Law, § 80, subd. 1, formerly Partnership Law, § 20 [Consol. Laws, c. 39]) whereby partnership names are made capable of transfer to the successors to a business. The sole effect of that provision is to give the approval of the law to a use that would otherwise be criminal though a transfer were attempted. Slater v. Slater, supra, at page 149; Caswell v. Hazard, 24 N. E. 707, 121 N. Y. 484, 496,18 Am. St. Rep. 833. The statute tells us what the partners are at liberty to assign. It does not tell us what they are under a duty to assign. A case in Wisconsin states their duty in that regard with clarity and precision. Rowell v. Rowell, 99 N. W. 473, 122 Wis. 1. A name, which in popular thought is solely or predominantly the name of a living man, may not be sold against his protest as it might if it were the impersonal symbol of an organization or a product. The objection is not merely that the partner, whose name is thus appropriated, may be exposed to the risk of liability for debts of the continued business. Burchell v. Wilde, [1900] 1 Ch. 551; Thynne v. Shove, 45 Ch. Div. 577. If that were all, he might be adequately protected by the certificate which his successors must file under the...