In re Hall's Estate

• Decision Date: 07 January 1923
• Citation: 119 A. 669
• Parties: In re HALL'S ESTATE.
• Court: New Jersey Supreme Court

119 A. 669

In re HALL'S ESTATE.

Prerogative Court of New Jersey.

Jan. 7, 1923.

(Syllabus by the Court.)

In the matter of the inheritance taxes of Francis A. Hall, deceased. From the tax levied by the Comptroller of the State against the estate under the provisions of the Transfer Inheritance Tax Act, the executors appeal. Tax affirmed.

McCarter & English, of Newark, and Otto Wierum, of New York City, for appellants.

Thomas F. McCran, Atty. Gen., and Francis H. McGee, Asst. Atty. Gen., for the State.

BUCHANAN, Vice Ordinary. The executors of the estate of Francis A. Hall, deceased, have appealed from the tax of $4,567.74, levied by the comptroller of the state of New Jersey against the estate of the said decedent under the provisions of the so-called Transfer Inheritance Tax Act (Comp. Stat. N. J. p. 5301).

It appears that the comptroller in his computation of the taxable assets of the estate included therein an item of good will or interest in the partnership business of Frank A. Hall & Sons, upon the ground that a transfer thereof had been made by decedent in his lifetime, in contemplation of death or to take effect at death, and assessed the value thereof at $135,860.76.

The appellants contend (a) That no transfer of good will was in fact made; (b) that if any such transfer was made it was not done in contemplation of death, nor to take effect at death, and hence does not come within the statute; and (c) that, even if made, and subject to taxation, the comptroller's valuation was excessive, and the tax based thereon therefore erroneous.

(Appeal was taken also in regard to another portion of the tax proceedings, but was not argued; it being stated to the court that a compromise there as to had been agreed upon.)

Decedent was a manufacturer of beds and bedding, carrying on business at some four establishments in New York and one in Philadelphia. In 1910 he took two of his sons into partnership with him; in 1918 this was dissolved and a new partnership entered into, which included these three and also decedent's third son; on May 23, 1919, this second partnership was dissolved; decedent retiring from the business and the sons forming a new partnership to take it over and carry it on. On each of these three occasions the interests, rights, and liabilities of the several parties involved were specifically provided for in carefully drawn contracts. On June 14, 1919, he executed his last will and testament; and on July 18, 1919, he died, aged 74; his death being the result of heart trouble, from which he had suffered for some 4 years.

In dealing with the first issue—as to whether or not a transfer of good will was in fact made on May 23, 1919—it is necessary to examine the provisions of the prior partnership agreements and the legal effects thereof.

By the 1910 agreement the copartnership thereby formed specifically "takes over as of this date the business heretofore conducted by the said Erancis A. Hall under the name of Frank A. Hall," and is to conduct that business under the name of Frank A. Hall & Sons. Decedent "contributed" to the capital stock of the partnership "all the stock in trade, book accounts, money in bank, fixtures and other property not herein specially excepted of the business heretofore carried on by him as a going concern." Good will was not amongst the especially excepted property, which consisted of real estate, leasehold interests, patent rights, and the like, all of which the decedent leased to the partnership at certain rentals. Compensation, however (at 6 per cent. per annum on the book value thereof) was also to be paid to decedent for the use of the property "contributed" by him to the capital stock. The other parties contributed nothing to the capital stock, but were to receive interest on certain sums which they already had "on deposit with the business." Each partner was to receive interest on any ascertained profits left by him in the business. The profits and losses were to be shared in certain percentages. The partnership was to continue until terminated by death or withdrawal. On the death of Francis A. Hall, his personal representatives were to have the right, at their option, to become partners in his place. On the death of either of the others, the surviving partners had the right to "purchase the interest of the deceased partner." If Francis A. Hall desired to terminate the partnership, he had the right to "purchase the interest" of the others, or either of them. If either of the other two desired to withdraw, the remaining two had the right to purchase his interest. "Upon and after dissolution" the exclusive right to the business use of the name Frank A. Hall, Frank A. Hall & Son, Frank A. Hall & Sons, or Frank A. Hall & Co. "shall belong to and be vested in said Francis A. Hall or his personal representatives."

Some of the provisions of this agreement are peculiar, and to some extent apparently contradictory. For instance, the "contribution" of the assets mentioned to the partnership as partnership capital, with the provision that decedent is to be paid annually 6 per cent. of their value for the use thereof. I take it, however, that under the true interpretation of the contract (which is certainly to be construed most strongly as against Francis A. Hall, the "grantor"), the assets mentioned were conveyed and became the property of the partnership. The 6 per cent. which he is to have for the use amounts simply to an additional and perhaps a preferred share of the profits. Certainly, however, he would have an exceedingly difficult task in convincing any court, in an administration of the partnership property and affairs in insolvency or bankruptcy proceedings, that as to such 6 per cent. payment he was a creditor and not a partner, or that as to the property so "contributed" by him he would be entitled to the ownership and possession thereof as against a receiver or trustee, or that such receiver or trustee would not have power and right to sell it as partnership property to pay creditors. I think it is not open to question that, included among these assets so conveyed, was the good will of the business. It is not specifically nor even impliedly excepted, and, although not specifically mentioned as being conveyed, certainly passed with the taking over of the business and the conveyance of all of the "other property * * * of the business * * * as a going concern." Cf. Lane v. Smythe, 46 N. J. Eq. 443, 19 Atl. 199. Even if good will in some sense or in some part attaches to the use of the trade-name, there was here no reservation of the use of decedent's name. That passed to the partnership also, and was expressly embodied in the partnership name provided for. There is the clause as to decedent's right to the use of the name, after dissolution, and the provisions which give decedent or his personal representatives the right to acquire or carry on the business on the death or withdrawal of the other partners, but undoubtedly the good will of the business as such became the property of the partnership. There is no evidence to show that any of the good will in any wise inhered in any of the patents or patent rights which were reserved in the ownership of decedent.

By the agreement of 1918 the old partnership was dissolved, and a partnership was formed among the three prior partners and the decedent's third son, which partnership "takes over as of this date the business heretofore conducted by * * * Frank A. Hall & Sons." The same name is retained. "Francis A. Hall contributes to the capital stock of the copartnership all the stock in trade, book accounts, money in bank, fixtures and other property of the business heretofore carried on by him [sic] as a going concern," and is to receive the same 6 per cent. annual compensation on the book value of said property. The other partners contribute to the partnership capital the respective amounts standing to their credit on the books of the old firm. Francis A. Hall also contributes the real estate (which he had reserved in 1910), but reserved and retained the patents, though licensing the use. All patents, etc., developed or acquired by the partnership "shall also become his sole property." By another clause the amount contributed by Francis A. Hall as capital is specified as $300,000 "the balance beyond that to his credit on the books of the old concern being repayable to him as below provided" The provisions as to profits are peculiar; decedent was to receive 6 per cent on said sum of $300,000, "which as between partners shall be treated as an expense; and in consideration of the priority thus given him he waives all claim to further profits." The...