Opinion ID: 1473730
Heading Depth: 1
Heading Rank: 5

Heading: The Elements of Good Will.

Text: Before elaborating further on the matter, we advert to the fact that in the written documents which relate to the transaction, both before and after its consummation, no mention whatsoever is made of the good will. We leave aside, for the moment, the indisputable proposition that oral testimony contradicting written instruments can have no binding effect, in cases of this character. Cf. Woodall v. Commissioner, 9 Cir., 1939, 105 F.2d 474, 478; Jurs v. Commissioner, 9 Cir., 1945, 147 F.2d 805, 810; Gaylord v. Commissioner, 9 Cir., 1946, 153 F.2d 408, 415. And see Helvering v. Coleman-Gilbert Associates, 1935, 296 U.S. 369, 374, 56 S.Ct. 285, 80 L.Ed. 278; Titus v. United States, 10 Cir., 1945, 150 F.2d 508, 511, 162 A.L.R. 991. We shall analyze further on in the discussion the oral testimony and the effect of the rule just referred to upon the action of the Court in not giving to this testimony the full value which the petitioner claims for it. We come to certain considerations which, to our mind, lead to the inevitable conclusion that the Tax Court was justified in holding that no good will passed in the transaction. What is good will? It is the sum total of those imponderable qualities which attract the custom of a business,  what brings patronage to the business. Mr. Justice Cardozo, in a famous case, has called it a reasonable expectancy of preference    (which) may come from succession in place or name or otherwise to a business that has won the favor of its customers. Matter of Brown's Will, 1926, 242 N.Y. 1, 6, 150 N.E. 581, 582, 44 A.L.R. 510. The Supreme Court has held it to mean every positive advantage that has been acquired by the old firm in the progress of its business, whether connected with the premises in which the business was previously carried on, or with the name of the late firm, or with any other matter carrying with it the benefit of the business. Menendez v. Holt, 1888, 128 U.S. 514, 522, 9 S.Ct. 143, 144, 32 L.Ed. 526. So, the good will may attach to (1) the business as an entity, (2) the physical plant in which it is conducted, (3) the trade-name under which it is carried on and the right to conduct it at the particular place or within a particular area, under a trade-name or trademark; (4) the special knowledge or the knowhow of its staff; (5) the number and quality of its customers. 5 Paul and Mertens, Law of Federal Income Taxation, 1934, Section 52.34, n. 96; Paul, Federal Estate and Gift Taxation, 1942, Sections 18.04, 18.16. In this case, there was no transfer of anything which would correspond to items (1), (2), and (3). To specify: The plant was not sold, but leased for a period of years on a yearly rental basis, a lease which was abandoned by mutual agreement after fourteen months. Neither in the writings which evidenced the transaction nor in the oral testimony is there evidence of an enforceable undertaking on the part of the petitioner not to engage in the wine business at Santa Rosa or in Sonoma County. For all we know, the petitioner could have begun a rival business at another plant in competition with Garrett and Company, in which event the latter would have been powerless to stop the petitioner through legal means. Nor, for that matter, is there any evidence of transfer of the right to conduct a wine business under the name of the DeTurk Winery. Indeed, while labels were transferred, there is no evidence that Garrett and Company ever used them on bottles for the wine which they purchased. The Know-how of its staff was not transferable. For the petitioner did not possess the right existing, at times, in contracts relating to baseball players or motion picture actors, to transfer employees or lend them to another concern. The only benefit Garrett and Company could derive from the accumulated skill of the petitioner's staff would stem not from the purchase of the wine and accessories, but from the willingness of the staff to work for Garrett and Company and the ability of the two to agree upon the conditions of future employment. Equally illusory, so far as practical consequences are concerned, was the transfer of the list of customers. Such transfer did not guarantee the continuance of custom, and Garrett and Company, even without the authorization of the petitioner, was free to solicit the petitioner's former customers if they sought custom among them,  as to which the record is silent. It follows, that there were many elements absent in this case which warranted the Tax Court in finding that the transaction was merely a purchase of certain stock-in-trade and assets and did not constitute a transfer of the good will or of the business of the petitioner as a unitary whole. In the last analysis, each case depends upon particular facts. And in arriving at a particular conclusion, the trier of facts must take into consideration all the circumstances proved in the case and draw from them such legitimate inferences as the occasion warrants. And even where several apparently separate transactions are the subject of inquiry, a conclusion that the transfer or acquisition of certain assets was or was not a part of a single transaction, may depend upon the particular facts in each case. And, in determining the matter, the Tax Court is as free to tie several transactions together, as it is to sever them, in order to decide whether capital gain or loss has accrued. Cf. Helvering v. Security Savings & Commercial Bank, 4 Cir., 1934, 72 F.2d 874.