
    Matter of the Transfer Tax Upon the Estate of Mary McMullen, Deceased.
    (Surrogate’s Court, Bronx County,
    December, 1915.)
    Appeal — from order of transfer tax appraiser- — evidence — transfer tax — corporations.
    On an appeal by decedent’s next of Mn from an order entered upon the report of tbe transfer tax appraiser it appeared that the decedent was the owner of 232 shares of capital stock in a corporation, the par value of which was fifty dollars per share. He died on January 18, 1914, and on April 20, 1915, the public administrator as administrator sold at'public auction 140 of said shares at thirty-seven dollars per share and 92 shares at thirty-six dollars per share. The appraiser fixed the value of these shares at seventy-eight dollars each, based upon a valuation of the physical assets and an estimate of the good-will of the corporation. He took a six years’ purchase on the annual net profits, although the corporation had been in existence for only about twenty months and justified this by the contention that it was continuing the business of another corporation. From the date of its incorporation in May, 1912, to February, 1915, there had been twenty-eight transfers of the stock of the corporation; fifty-three shares were sold in July, 1913, at twenty-five dollars and eighty-four shares sold in December, 1913, at thirty dollars per share. The uneontradieted testimony of the treasurer of the corporation was that the shares were at that time worth forty-three or forty-four dollars per share and forty to forty-one dollars in January, 1913, and a few dollars more in January, 1914. The sale of the said 232 shares took place fifteen months after decedent’s death. All the stockholders were notified of the sale.
    The returns to shareholders from the profits of the corporation during its existence of about twenty months would be large. The appraiser did not give any weight to the evidence of the actual sales prices of the shares under consideration, nor to other sales of the same stock in arriving at a valuation of shares of the stock in question.
    The appellant contended that the appraiser’s valuation was unjustified and the questions presented were whether the appraiser was warranted in giving no weight at all to the evidence of actual sales prices of the shares under consideration, and, if so, whether he erred in his method of of arriving at the valuation of good-will. Upon the facts
    Held, (1) that the transfer which is taxed is that whieh takes place at the date of death and it is the fair market value of the property transferred at that time whieh forms the basis of the tax;
    (2) That the amount realized by the sale at public auction after due and proper advertising and conducted in a proper and legal way represented the value of the shares of stock at the time;
    (3) That the sale mentioned should have been considered by the appraiser, not as necessarily conclusive, but as one of the sales whieh together with the others made during the life 'of the corporation might have aided him in fixing the market value which is the subject of the tax;
    (4) That other sales of stock and the uneontradieted testimony of one of its officers should have been considered in arriving at the valuation of the said 232 shares;
    
      (5) That while the taking of a number of years purchase on annual net profits has received the sanction of courts, and while there are decisions to the effect that remote sales are not binding on the appraiser as to the value of the security at the date of death, such decisions do not go so far as to hold that the appraiser, where the shares under consideration were sold in the manner and under conditions which fix the market value fifteen months after decedent’s death and which may throw light on their value at the time of such death, must disregard them entirely in appraising property whose market value must of necessity be at best only an approximation;
    (6) That the fact that the returns to shareholders from profits would be large does not of itself give the appraiser the authority to ignore actual sales of stock;
    (7) That the method of fixing the value of the stock adopted by the appraiser should be resorted to only when there are no sales from which such valuation can be ascertained;
    (8) That the corporation in question was not doing business under the name of a former corporation, and that there was no force in the contention that it was practically the former corporation and enjoyed its good-will; that good-will should be based upon a calculation of profits before decedent’s death, and the life of the corporation should be one of the elements considered;
    (9) That the taking of a six years’ purchase was not proper and that, under all the circumstances, a more just result would be obtained by taking the actual net profits made during the life of the, corporation, about twenty months, as being the value of the good-will instead of a six years’ purchase on the average annual profits.
    (10) Accordingly held that the said shares should have been appraised at forty-four dollars per share.
    .Appeal from an order assessing a transfer tax.
    Gordon & Rogers, for appellants.
    John Boyle, Jr., for respondent.
    Ernest E. L. Hammer, public administrator in person.
   Schulz, S.

The next of kin of the decedent appeal from an order entered upon the report of the transfer tax appraiser.

The decedent at the time of her death was the owner of two hundred and thirty-two shares of the capital stock of the Central Dairy Company, a corporation engaged in dealing in milk and dairy products. She died on January 18, 1914. Letters of administration were issued to the public administrator on September 8, 1914, and the shares of stock were sold on April 20, 1915. The par value of the stock was fifty dollars per share, and at the sale one hundred and forty shares were sold at thirty-seven dollars per share and ninety-two' shares were sold at thirty-six-dollars per share.

The appraiser valued the shares of stock at the sum of seventy-eight dollars per share. He arrived at the said .amount by giving each of the shares a value of thirty-six dollars and • ninety-two cents, based upon the physical assets of the company. To this he added the sum of forty-nine dollars and seventy-six cents per share for good will, thus fixing the gross value of each share at eighty-six dollars and sixty-eight cents. From this amount he allowed ten per cent deduction for depreciation.

The appellant contends that this valuation is unjustified and, as there is no dispute about the value of the physical assets, the questions which remain are whether the appraiser was warranted in giving no weight at all to the testimony offered to show the value at the time of the transfer, and to the evidence of the actual sales’ prices of the shares under consideration, and others sold during the life of the corporation, and, if so, whether he erred in his method of arriving at his valuation of good-will.

The corporation in question was organized in May, 1912, with a capital stock of $600,000'. The outstanding capital stock amounted to $533,450, evidenced by 10,669 shares. From the date of its incorporation to February, 1915, there were some twenty-eight transfers of stock. The sales made nearest to the date of the death of the decedent were one of fifty-three shares purchased by the son and daughter of the treasurer in July, 1913, at twenty-five dollars, and one of eighty-four shares which were sold at thirty dollars per share in December, 1913. The treasurer of the company testifies that the shares of stock bought by his son and daughter were a bargain and below the market price and that in his opinion the same were worth forty-three dollars or forty-four dollars per share in July, 1913, and forty dollars to forty-one dollars per share in January, 1913, and a few dollars more in January, 1914.

The sale of the shares now in question was conducted by the public administrator and took place fifteen months after the date of the death of the decedent. He advertised in four newspapers, two of which are published and circulate in the county of Bronx, the third was the New York Law Journal and the other a paper devoted to and being the organ of the milk and creamery business, read by those in that line of business who would be most familiar with stock of this character and presumably interested in its purchase. In addition to this, the public administrator caused to be mailed a notice of the sale to each of the stockholders of the corporation and upon the record it has been stipulated that the notice thus given on April 15, 1915, was due and timely.

In my opinion the public administrator used diligence and good judgment in advertising the sale and in giving notice to people who would in the ordinary course of affairs be most familiar with the value of the stock and heuce be most likely to be interested in its purchase. The results showed this for it appears that there were in attendance at the time of the sale beween twenty-five and thirty-five persons.

The sale was conducted at public auction and, before the stock was sold, the report of an expert accountant who had examined the books of the company at the instance of the appraiser was read to the assembled prospective bidders. The shares were sold in blocks 'of ten with the exception of the last block offered which consisted of twelve shares. The bids upon the first lot offered began at twenty-five dollars per share and went up gradually to thirty-seven dollars per share. Thereafter, thirteen more blocks were sold at that figure. Then eight blocks were sold at thirty-six dollars per share each, the bids having begun at twenty-five dollars for each share and advancing to that figure, and the final block of twelve shares was also sold at thirty-six dollars per share. The testimony is that there were seven or eight or possibly ten bids. Eight people bought stock. There is no evidence of any understanding or agreement among the bidders to limit the amounts of their bids, and no contention that there was such an agreement. I believe that the sale was properly conducted. I am satisfied that if, in the opinion of the stockholders present, at this auction sale, the shares were worth more than they brought at that time, and it seems to me that the stockholders of all others should have known what they were really worth, the probabilities are very strong that they would not have stood by and seen them sold at a sacrifice.

■ If, therefore, the amount realized at a public auction after due and proper advertising and conducted in a proper and legal way is any criterion of market value, and in my opinion it is, then jthe prices which were realized at the time of the sale in question represented the value of the shares of stock at the time of the sale, and I so conclude. The value at the time of sale is not that upon which the tax is fixed, however. The transfer which is taxed is that which takes place at the time of death and it is the fair market value at that time which forms the basis of the tax. Laws of 1909, chap. 61 (Consol. Laws, chap. 60), § 230. See Matter of Penfold, 216 N. Y. 171, recently decided by the Court of Appeals, in which many cases to that effect are cited.

Under my direction the appraiser received testimony as to the public sale, but he frankly states that he gave it no weight because it was so long after the death of the testatrix. Prom the uncontradicted testimony of the treasurer it appears that the condition of the company at the time of sale was better than it was at the time of the death of the decedent, and he intimates that the stock was worth more in his opinion at the time of the public sale than at the time of the death of the testatrix.

While there are decisions to the effect that remote sales are not binding on the appraiser as to the value of the security at the date of death, I do not believe that they go so far as to hold that where the shares under consideration were sold in a manner and under conditions which fix the market value thereof fifteen months after the date of death, and which may throw light upon their .value at the time of death, the appraiser must close his eyes entirely to them in appraising property whose market value must of necessity be at best only an approximation. See Marvin v. Medberry, 13 Wkly. Dig. 544; Matter of Roos, 90 Misc. Rep. 521.

Under those conditions I believe that the sale mentioned should have been considered by him not as necessarily conclusive but as one of the sales which together with the others made during the life of the corporation might have aided him in fixing the market value which is the subject of the tax. Matter of Smith, 71 App. Div. 602.

It is urged that when the shares were sold the European war was in progress and that this had some effect. The stock is not listed and not dealt in on any exchange, and the business was one which I do not believe was directly affected by the war. It may be, however, that the latter exercised a depressing’ effect on the value of these shares of stock and the appraiser, of course, had a right to consider this possibility.

Apparently the other sales made during the life of the corporation were not considered by the appraiser, nor was the testimony of the officer of the company, which in my opinion was entitled to some weight, because unimpeached and uncontradicted, and given by one who it appears from his testimony was fully conversant with the affairs of the corporation. Cabble v. Cabble, 111 App. Div. 426. The appraiser limited himself entirely to a calculation of the assets and an estimate of the good-will in fixing the value of the various shares. In this, I think he erred; he should, in my opinion, have also considered the prices brought at the other sales, and the testimony of the treasurer referred to. The fact that the returns to the shareholders from the profits of the corporation during its twenty months of existence would be large, of itself does not give the appraiser the authority to ignore actual sales of the stock. Matter of Smith, supra. The method of fixing value by ascertaining the value of assets and good-will should only be resorted to when there are no sales from which it can be ascertained.

Considering all of the sales and the testimony of the treasurer as to the value and allowing for a possible depression between the date of death and of the public sale on account of the existence of the European war, I am of the opinion that a fair value of said shares for purposes of taxation on the date of decedent’s death was forty-four dollars.

If the appraiser was right in giving no weight to the sales public and private, nor to the opinion of the treasurer of the company, then we come to a consideration of the method adopted by him in ascertaining the value of the good-will.

During the twenty months of the corporation’s existence, the profits were large, and the appraiser has estimated the value of its good-will by taking a six years’ purchase on the average net annual profit over an allowance of six per cent on capital invested.

The general method followed by him for ascertaining the value of good-will, namely, taking a number of years’ purchase and multiplying the average annual profits thereby, has received the sanction of courts of original and appellate jurisdiction. Matter of Silkman, 121 App. Div. 202; Von Au v. Magenheimer, 115 id. 84; 126 id. 257; aff’d, 196 N. Y. 510.

Hence it only remains to consider whether the number of years’ purchase which the appraiser took, was, under the circumstances, warranted. He justifies his taking a six years’ purchase, although the corporation was only in existence for one year and eight months, by the contention that it was carrying on the business of the Mutual Milk and Cream Company. The latter corporation was organized in 1899 or 1900 and upon the organization of the Central Dairy Company as stated in May, 1912, the stockholders of the Mutual Milk and Cream Company were given the privilege to subscribe for stock in the new Central Dairy Company. The Mutual Milk and Cream Company then transferred to the Central Dairy Company certain personal property, fixtures and the good-will of the wholesale business of the Mutual Milk and Cream Company in the boroughs of Manhattan and The Bronx and of all wholesale routes of said company, excepting certain contracts with some seventy firms named. The said agreement, however, contained a provision that nothing therein contained should be held or construed as limiting or restraining the right of the parties to compete in the wholesale milk business after a date about three months thereafter. It appears that in consideration of the Mutual Milk and Cream Company agreeing not to compete with the Central Dairy Company in the wholesale routes for three months the Central Dairy Company paid the sum of $62,500.

The new company therefore was not doing business under the name of the old company, and after the expiration of three months might be forced to compete with the old company. Under such circumstances, I do not see force in the contention that it was practically the old corporation and enjoyed its good-will.

In the case of Commissioners of Inland Revenue v. Muller & Co.’s Margarine, Ltd., L. R., App. Cas. 1903, p. 217, at 223, Lord Macnaghten defined good-will as follows: “ It is the benefit and advantage of the good name, reputation, and connection of a business. ■ It is the attractive force which brings in custom. It is the one thing which distinguishes an old-established business from a new business at its first start.” And in People ex rel. A. J. Johnson Co. v. Roberts, 159 N. Y. 70, the Court of Appeals cites and quotes from a'number of English cases and then observes: “ Gtood will embraces at least two elements, the advantage of continuing an established business in its old place, and of continuing it under the old style or name. While it is not necessarily altogether local, it is usually to a great extent, and must, of necessity, he an incident to a place, an established business or a name known to the trade.”

In the matter before the court, the name under which the new corporation carried on business was not the same as that of the old firm. There were no trade-marks, brands or other distinguishing business devices of the old firm used by the new one, and, while the term good-will was used in the instrument- of transfer, the fact appears to he that the old company gave the new one the right to do business for three months with certain of its customers without molestation from or competition with the old corporation. When the three months were over, the- old company had the right to compete with the new one, and certainly under such conditions the latter cannot he said, at least after that time, to have enjoyed the good-will of the former.

Good-will should he based upon a calculation of profits before the death of the decedent (Matter of Silkman, supra), and the life of a corporation should he one of the elements considered. Matter of Demarest, N. Y. L. J., May 7, 1914.

Under the circumstances, the taking of a six years’ purchase was not proper in my opinion. A careful examination of the cases fails to disclose one in which the -years of purchase were more than the total life of the corporation. Thus, in Matter of Ball, 161 App. Div. 79, the average annual profits were multiplied by two, the corporation being seven years old; in Matter of Silkman, supra, the same were multiplied by two, the corporation having been in existence nineteen years; in Von Au v. Magenheimer, supra, the same were multiplied by six, the life of the corporation being over ten years; in Matter of Keahon, 60 Misc. Rep. 508, they were multiplied by three, the corporate existence being fifteen years; in Matter of Weatherbee, N. Y. L. J., Nov. 5, 1913, they were multiplied by five, the life of the corporation being thirty years, and in Matter of Gumbinner, N. Y. L. J., Oct. 19, 1915, the purchase was two years and the life of the corporation eighteen years.

It will be seen from these matters that there is no fixed rule for taking any specific number of years’ purchase of the average profits. In Von Au v. Magenheimer, supra, the Appellate Division said that the number of years ’ purchase that were to be taken was a question of fact.

If the appraiser was right in disregarding the sales. and the testimony of the treasurer and in basing his valuation entirely on the so-called book value of the stock plus the value of the good-will, then, I think that under all the circumstances a more just, result would have been reached if he had taken the actual net profits made during the life of the corporation, about twenty-months, as being the value of the good-will instead of a six years’ purchase of the average annual profits. If this be done and the figure thus obtained be substituted for that obtained by the appraiser as the value of the good-will, the total net value of the shares would be only slightly in excess of the amount at which I have arrived.

I accordingly hold that, the said shares should have been appraised at forty-four dollars per share. The appeal is sustained, the order reversed and the report remitted to the appraiser for correction as indicated.

Appeal sustained and order reversed.  