Howe v. Searing

10 Abb. Pr. 264, 19 How. Pr. 14, 19 Bosw. 354

• Court: The Superior Court of New York City
• Decided: March 15, 1860
• Status: Published

Opinions

By the Court.—Hoffman, J.

The first, and the most important question in the cause is, what right passed to Baker, under the sale and transfer to him, in January, 1852, of the leasehold premises, stock, and trade, with “ the good-will of the business of baking, now or heretofore carried on by me in the city of New York.”

. The authorities referred to, do in general describe the goodwill of a trade “ as a probability that the old customers will resort to the old place.” Judge Story describes it as “ the advantage or benefit which is acquired by an establishment, beyond the mere value of the capital, stock, funds, or property employed therein, in consequence of the general public patronage which it receives from constant or habitual customers, on account of its local position or common celebrity or reputation for skill or affluence, or punctuality, or from accidental circumstances, or even from ancient partialities or prejudices.” (Story, § 99.)

It is, I apprehend, a well-settled rule that the good-will of a partnership business does not survive to a continuing partner. It belongs to the firm as much as the ordinary stock in trade, and must be disposed of in some manner for the benefit of the firm. The case of Lewis a. Langdon (7 Sim., 421), which seems to assert a different rule, is not thé law of the court on this point, for which it is frequently cited. (Story on Partnership, § 99.) .

But the decision turned upon the right to use the name of the old firm with a modification, and it is hereafter more particularly noticed.

Hammond a. Douglass (5 Ves., 539), does indeed explicitly decide, that the good-will, speaking of it generally, does survive to the remaining partner; that a sale of it cannot be compelled by the representatives of the deceased partner; that it is not partnership stock of which the executor may compel a division, but belongs of right to the survivor.

In the case of Dougherty a. Van Nostrand (1 Hoffm. Ch., 68), before me, as Assistant Vice-Chancellor, I thought that this case could not be supported.-

I have acted at special term in this court on two cases, after a reconsideration of the point upon the same principle as in Dougherty a. Van Nostrand.

Vice-Chancellor Sandford, in Williams a. Wilson (4 Sandf. Ch. R., 379), decided in the same manner, recognizing Dougherty a. Van Nostrand.

Good-will resolves itself into reputation. That, in the absence of proof to the contrary, or express agreement, must be presumed to have been the result of joint skill, capital, and industry, when built up by the parties.themselves; or by a joint purchase, when it has been reared by a predecessor. As the acquisition was joint, the value must be shared.

Mr. Bell, in his Commentaries, observes (vol. 2, 645), that the good-will of a mercantile or literary establishment seems to form a part of the common stock.

He cites Crawshay a. Collins (15 Ves., 227); Cruttwell a. Lye (17 Ib., 335); McCormick a. McCubben (4 July, 1822, 1 Shaw & B., 540).

Lord Eldon concurred in Sir Samuel Romilly’s doubt as to the decision in Hammond a. Douglass; and that is equivalent to an express overruling it. It was Lord Eldon’s manner of doing so.

In the late case of McDonald a. Richardson (1 Giffard’s R., 81), before Vice-Chancellor Stuart, this point seems to be taken for granted. A surviving partner had carried on the same business "for some time after the death of his associate, and was called upon in the suit to account. The chief clerk was directed to ascertain the value of the testator’s share of the good-will of the partnership business, among other things. The survivor was also executor, but it is plain this could not be the ground of a charge.

Chissum a. Dewes (5 Russ., 29) settled, that the mortgagee of a lease, under which the business was carried on, was entitled to receive the avails of the sale of the lease and good-will. The latter constituted the chief part of the value.

The good-will of a trade, says Tindall, Ch. J., in Hitchcock a. Coker (6 Adolph & E., 438, 446), “is a subject of value and price. It may be sold, bequeathed, or become assets in the hands of the personal representative of a trader. If the restriction as to time is held to be illegal, because extending beyond the period of the party carrying on the trade himself, the value of such good-will, considered in these various points of view, is altogether destroyed.”

In Elves a. Crofts (10 Com. B., 241, 1 J. Scott), a butcher assigned, for the residue of his term, premises in which he had carried on business, together with the fixtures and good-will of the trade. He covenanted that he would not, at any time thereafter, either by himself, or as agent or journeyman for another, set up or be employed in the trade or business of a butcher, within five miles from the premises assigned. It was held not an unreasonable restraint in respect either of time or distance, and that the covenant did not cease on the expiration of the term, or on the covenantee’s ceasing, by himself or his assigns, to carry on the business assigned.

The court referred to Hitchcock a. Coker (ut supra), as decided in the Exchequer Chamber, and as settling that a restriction, reasonably limited as to space, but enduring for the life of the party restrained, was valid, as the only effectual mode of securing to the covenantee the full benefit of the good-will of his trade. “ Cases maybe conceived in which, notwithstanding the facts found by the jury, that the covenantee had ceased, either on the premises or elsewhere, or by any assignee or licensee to carry on the business, the good-will assigned might not be at once extinguished; and if consideration of time or degree be permitted to affect the right to enforce such a covenant, its value would be diminished, and the salable quality of the good-will, which, according to all the recent authorities, is deserving protection, would be affected.”

It seems also to be well settled, that when a partnership is dissolved, and there is no express stipulation upon the subject, the remaining partners are not under any obligation to refrain from setting up the same trade or business, and forming a new establishment for carrying on the same, after the sale of the late business. The Master of the Rolls stated this rule in Davies a. Hodgson (25 Beav., 177), referring to Cook a. Collingridge, as reported by Mr. Collyer, § 322.

The first decree in that case is found in Jacobs’ Report, 623, a#l Mr. Collyer gives the directions of Lord Eldon, drawn by himself upon a petition for further carrying out the decree.

These points may be deduced from the minute provisions of this decree.

A partnership having terminated by lapse of time, there was nothing to prevent some of the members forming a new establishment to carry on the same business. That the good-will, treated as the value of the chance of customers continuing to deal, could not be estimated upon the same principles, as when a retiring partner sold his whole interest to continuing partners, and retired from the trade altogether. A buyer of the premises, the leasehold, shop, &c., would purchase something which could not be treated as of no speculative value, or not to be regarded in the sale. He would get the chance of retaining the old customers—getting them to come to the old place; but this chance, and therefore the value, would be materially affected by the probability of the customers following the former members to their new establishment.

Mothing is found in this case as to the former name by continuing partners, in any form, whether modified or not.

In Lewis a. Langdon (7 Sim., 421), before noticed, Stephen Brookman and Joshua Langdon carried on business under the firm of Brookman & Langdon. Brookman died, and then Lang-don died; the latter appointing William Langdon his executor and residuary legatee. He died, and administration was granted to Fruzan Langdon, his widow. The business was carried on at the same place, and under the same firm-name, by Joshua Lang-don, William Langdon, and Fruzan Langdon in succession; Fruzan Langdon took the plaintiff (Lewis) into partnership. Fruzan Langdon then died, having appointed Augustus Lang-don and two others her executors. James Lewis then took the plaintiff (Warren) into partnership, and they carried on the business at a different place from the original location, under the firm of James Lewis & Co., successors to Brookman & Langdon. The bill was to restrain them from using that name in the business. There was an agreement in the case, which does not seem to me of much importance on the main question.

The Vice-Chancellor said: “I cannot but think, when two partners cany on a business together, under a given name, that, during the partnership, it is the joint right of them both to carry on the business under that name, and that, upon the death of one of them, the right which they before had jointly, becomes the separate right of the survivor.”

It is to be observed, upon this case, that the defendant had not a shadow of right to the use of the firm-name. The plaintiff had the right, so far as any existed in Joshua Langdon, as survivor of Brookman & Langdon. Had a representative of Brook-man been defendant, the question would have distinctly arisen.

In Clinton and others a. Douglass (1 H. R. V. Johns., 176), before Vice-Chancellor Wood, 1859, the business had been carried on for some time under the firm-name of John Douglass & Co. By a written instrument, the defendant sold to the plaintiff “ all his shares, rights, and interests in the trade or business carried on by him and the plaintiffs at Bradford, in co-partnership, and under the firm of .John Douglass & Co., and the good-will thereof.” Other and comprehensive words were used to transfer the whole of the partnership goods and property, and the assignor’s title therein. The defendant also leased to the plaintiff, for seven years, the premises at which the business had been carried on.

Notice of the dissolution of the old firm was given, and the style of" the new firm was Clinton, Bankhart & Huet (late John Douglass & Co.)

The location of the old business was at Hall Jags, Bradford. The defendant subsequently opened a store for the same business, next door to that of the plaintiff leased by him, and placarded it with the name of John Douglass & Co. An injunction was granted, restraining the defendant, until the hearing of the cause, “ from resuming or carrying on the business of stuff-merchant, at or about the immediate neighborhood of Bradford, either alone or in partnership with any other person, under the style or firm of John Douglass & Co., or in any other manner, holding out that he is carrying on the business of stuff-merchant, in continuation of or in succession to the business carried on by the late firm of John Douglass & Co.”

The Yice-Chancellor enters into a very elaborate argument in the case. He holds expressly that the authorities are conclusive to the point, that the sale of the good-will of a business without more, does not imply a contract on the part of the vendor, not to set up a similar business himself. Hpon a sale of the goodwill, the vendor is not precluded from carrying on a precisely similar business, with all the advantages from his own labor and industry, and from the regard people may have for him; and that, in a place, next door, for example, to the very place where his former business was carried on.

But he also held, that the name of a firm—that style under which its business has been carried on, is part of the good-will and passes with a sale. “ The name of a firm is a very important part of the good-will of the business carried on by the firm. A person says, I have always bought good articles at such a place of business; I know it by that name, and I send to the house of business identified by that name for that purpose. That the name is an important part of the good-will of a business is obvious, when we consider that there are at this moment large banking-houses, and brewing-firms, and others in this metropolis, which do not contain a single member of the individual name exposed in the firm.”

The defendant “ parted with the right to the plaintiff of representing themselves to be carrying on the identical business, which had been carried on by the firm of John Douglass & Co. But they did not get the right to call themselves by that name simpliciter. This they had not claimed, but only to use the words, ‘ late John Douglass & Co.; in other words, the right to identify their house of business as the house of business formerly carried on by John Douglass and Company. That name had become well known. The business was identified by that name. It is not as if he were calling himself John Douglass alone, and carrying on a similar business under that name.”

The judgment in Cruttwell a. Lye (17 Ves., 346), distinctly admits, that, although you may set up a similar business, you are not entitled, when you have sold the good-will of the- business to represent that you are continuing the identical business; not to say that you are the owner of that which you have sold. The defendant has not contracted against setting up business in ' opposition to the business sold by him to the plaintiff; but he must set it up fairly and distinctly as a separate business, and not as the old-established business which he has sold.

I have quoted largely from this case, as none other that I am aware of has entered so fully into the subject.

In Cruttwell a. Lye, referred to (17 Ves., 346), Lord Eldon said: “ The question is whether, upon a fair understanding or representation agreeably to the fact, this person is carrying on the plaintiff’s trade, and in this view of the case I refer to Hogg a. Kirby (8 Ves., 215), where the defendant had a clear right to publish a similar work, under the same title, as the plaintiffs, represented as distinct and original, but was prevented from publishing his book as the work of the plaintiff which had been partly published. So there can be no doubt that this court would interpose against that sort of fraud which is attempted by setting up the same trade, in the same place, under the same sign or name, the party giving himself out as the same person.”

The law of France, in relation at least to commercial partnerships, is very explicit upon this subject. The 21st article of the Code of Commerce is, “ The name of the associates can alone constitute the firm-name (la raison sociale). This is intended to forbid persons who succeed to the business of a deceased merchant from continuing it under his name. Credit is altogether personal. It does not transmit itself by cession or inheritance. It is won by actions and capacity. It is not right then that a successor should avail himself of a fallacious credit in appropriating a firm’s name extinguished by the death of one of those who gave it the value. (Troflong: le Droit Civil, tome 12, § 372. Loi sur 1’Article 21 of the Code of Commerce.)

M. Troplong adds, “ One is astonished that such a contrary practice prevailed formerly in France, and exists in England. It is a source of fraud upon a confiding public. The retirement or decease of one of the associates effaces the firm’s name. Another must be created.”

Thus does the case stand upon all the authorities that I have found bearing upon it; and it would leave it without any direct authority, or even dictum, in favor of the defendant, except that late and important case before "Vice-Chancellor Wood.

But it is to be noticed, that by a statute of our State, entitled “ An Act to prevent persons from transacting business under fictitious names,” passed April 29, 1833 (Laws of 1833, ch. 281), it is enacted, that, “No person shall hereafter transact business in the name of a partner (quere, person) not interested in his firmand where the designation “ and Company,” or “ Co.,” is used, it “ shall represent an actual partner or partners.” By section 2, the violation of this provision is made a misdemeanor.

By a statute passed April the 17th, 1854 (Laws of 1854, ch. 400), a co-partnership name may be continued by "some or any of the co-partners, their assignees, or appointees,, provided a certificate as prescribed by the act, is filed in the county clerk’s office, and published as directed. But by section 4 the provisions are only to apply to firms having business relations with foreign countries. A bill to extend this provision is now before the Legislature.

It seems to me, that the principle and object of this statute extends to such a case as the one before us. It recognizes the principle as one of public policy, that the business must be transacted under the name of the actual parties doing it, and not under other names. It applies to persons in existence, as well as when a partner has retired or is dead. It accords with the French law, and involves or warrants the proposition, that the naked sale of the good-will of a business does not transfer a right to the use of the vendor’s name of trade.

We do not think that there is any thing in Howe’s inaction or the employment of the term of Howe’s Bakery, in the instrument of the 28th day of April, 1858, which can entitle the defendants to use the name.

The judgment below must be affirmed, with costs.

Pierrepont, J.—Concurred.