Mutual Life Ins. Co. v. Menin, 93

• Citation: 115 F.2d 975
• Decision Date: 16 December 1940
• Docket Number: 130.,No. 93,93
• Parties: MUTUAL LIFE INS. CO. v. MENIN et al.
• Court: U.S. Court of Appeals — Second Circuit

115 F.2d 975 (1940)

MUTUAL LIFE INS. CO. v. MENIN et al.

Nos. 93, 130.

Circuit Court of Appeals, Second Circuit.

December 16, 1940.

Samuel P. Gilman and Gerson C. Young, both of New York City, for appellant Abraham I. Menin, trustee.

David S. Hecht, of New York City, for appellant Parke-Bernet Galleries, Inc.

Vincent Keane, of New York City, for appellee.

Before L. HAND, CHASE, and CLARK, Circuit Judges.

L. HAND, Circuit Judge.

This case comes up on two appeals. The first is from an order in bankruptcy, reversing the order of a referee so far as it confirmed the sale of that one out of four parcels of the bankrupt's property, which included its name and "good-will"; the second appeal is from an order denying a motion for a rehearing of that decision. The bankrupt filed a petition as debtor under Chapter XI of the Bankruptcy Act, 11 U.S.C.A. § 701 et seq., for an "arrangement," and while this was pending, the referee ordered all its property to be sold, including its name and "good-will." The Mutual Life Insurance Company, a pledgee of the bankrupt's shares, objected to this so far as it involved the sale of the debtor's corporate name; but the referee overruled the objection and struck down the property in four lots. (Two weeks later the debtor was adjudicated a bankrupt and the proceeding was dismissed as an "arrangement" and proceeded as a liquidation). The Mutual Life Insurance Company then appealed from that part of the referee's order which confirmed the sale of the corporate name, and succeeded before the district judge who sent the matter back for a resale without the name. After the trustee and the buyer had appealed from the judge's order and while the appeal was pending, the trustee moved for a rehearing, or in the alternative that the judge should refer the case back to the referee for further evidence. This motion the judge denied, and the trustee has also appealed from the denial.

The bankrupt had been engaged in the City of New York as an "auction gallery," its business being to auction off works of art and its income coming from commissions upon the resulting sales; it had been in this business for many years and had acquired a very high reputation among dealers in works of art. The proceeding under Chapter XI was not apparently expected really to result in any "arrangement," but to enable the "good-will" to be sold at better advantage than it could be in liquidation. The four lots sold were made up as follows: (1) The "Painting Sales Records"; that is, the records of what had been sold in the past; (2) the furniture, fixtures, equipment and miscellaneous property; (3) the "Art Reference Library"; (4) the "right, title and interest in and to the name American Art Association-Anderson Galleries, Inc.," with the right to use it; the "good-will"; all interest in the shares which the bankrupt held in subsidiary companies together with the use of their names; "Customers' Lists, books, records and correspondence other than books of account needed * * * to wind up its affairs * * * all contracts containing restrictive covenants, all sales catalogues"; and three small accounts which the referee thought it necessary to include in order to allow the "good-will" to be sold at all. The first and third lots were struck down to one purchaser; the second and fourth to another, the appellant, the Parke-Bernet Galleries, Inc. The appeal concerns only the fourth.

There can be no question of the power of the court to sell the "good-will" of the bankrupt along with its other assets. Sawilowsky v. Brown, 5 Cir., 288 F. 533; Woodward v. White Satin Mills Corp., 8 Cir., 42 F.2d 987, 990, 991; United States Ozone Co. v. United States Ozone Co. of America, 7 Cir., 62 F.2d 881, 885, 886. What rights the buyer gets and what the bankrupt loses, are another matter. The Bankruptcy Act, § 70 sub. a (5), 11 U.S.C.A. § 110, sub. a (5), vests in the trustee all "property" which the bankrupt may transfer, or which his creditors may reach, and both are to be determined by the law of the state. The law of New York, like that of most other jurisdictions, has expanded the meaning of the term "good-will" since Lord Eldon defined it in Crutwell v. Lye, 17 Ves.Jr. 335, 346; it includes not only the likelihood that customers will return to the old place of business, but also that they will continue to do business with the old name. Whether this is because they assume that the quality of the service or the honesty of the management will continue; or whether because of the mere inertia of past habit — like the "good-will" which results from advertising — we need not inquire. However acquired, our law recognizes the competitive advantage that this disposition gives to the successor of an established business, and treats it as "property." Obviously, so understood, "good-will" is dependent in its much more important part upon the privilege of using the old name and of preventing its use by others; in modern times, especially in a city like New York, the mere privilege of doing business at the old site is ordinarily not of prime consequence.

The Parke-Bernet Company, by buying the second and fourth lots, became the owner of all the bankrupt's property except the "Painting Sales Records" and the "Art Reference Library." The record does not disclose how vital either of these last was to the conduct of the business, and we may assume that their absence will not so cripple it that it cannot go on in real continuity with its past. Thus the "good-will" passed to this bidder, and since the exploitation of it substantially coälesces with the use of the old name, we have first to consider the extent of the acquired privilege to use that name; more concretely whether some phrase must be added to indicate that the business is being conducted by a successor. So far as concerns the public at large, we can see no more reason to require this than when a trade-mark is sold. If an individual or a firm sells a business which has been conducted under his or their names, it can be plausibly argued that those who deal with the buyer may be misled; but everyone knows that the name of a corporation assures no continuity of personnel — at least when, as here, the only name of an individual which it contains has long since ceased to mean that he has any share in its management. Buffalo Oyster Company v. Nenni, 132 Misc. 213, 217, 229 N.Y.S. 210. Only the bankrupt's interest can therefore demand a distinguishing phrase. In New York, whatever may have been the proper scope of Slater v. Slater, 175 N.Y. 143, 67 N. E. 224, 61 L.R.A. 796, 96 Am.St.Rep. 605, we may take it as now settled — at least in the case of the involuntary sale of an individual's business or of a firm's — that the buyer must add the word "successor," or its equivalent to the old title. In re Brown's Will, 242 N.Y. 1, 150 N.E. 581, 44 A.L.R. 510. See also Hegeman & Co. v. Hegeman, 8 Daly, N.Y., 1. But it does not follow that the same is true of a corporation. We cannot find any case in which the question has been directly adjudicated, and those dicta which seem to recognize no distinction between corporations and individuals have been thrown out quite casually and without discussion. Montreal Lithographing Co. v. Sabiston, 1899 App.Cas. 610, 614; Metropolitan T. & T. Co. v. Metropolitan T. & T. Co., 156 App.Div. 577, 582, 141 N.Y.S. 598; Lothrop Publishing Co. v. Lothrop, Lee & Shepard Co., 191 Mass. 353, 355, 77 N.E. 841, 5 L.R.A.,N.S, 1077. It would seem that limitations upon the buyer's privilege are proper only so far as they are complementary to the bankrupt's privilege to use the name in competition with him. If the bankrupt retains no such privilege he can certainly have no interest in what the buyer may call himself; if on the other hand the bankrupt may compete in his old name, obviously both should not use the same name. Thus the discussion comes down to the extent of the bankrupt's privilege to compete with the buyer.

In 1910 the Court of Appeals of New York (Von Bremen v. MacMonnies, 200 N.Y. 41, 93 N.E. 186, 32 L.R. A.,N.S., 293, 21 Ann.Cas. 423) accepted the doctrine of the House of Lords in Trego v. Hunt, L.R.1896, App.Cas. 7, that the voluntary sale of a business deprived the seller of the right to solicit the old customers, though not of competing with him in the same business. An involuntary transfer does not affect his liberty to do either. So far as we have found, it has never been suggested that an individual bankrupt — or other owner involuntarily dispossessed — may not so compete in his own name, but must adopt another. Such a limitation...