## Facts

- Stephen H. Brown, a partner in the New York stockbroking firm Vernon C. Brown & Co., died in 1917.
- The surviving partners continued the business in the same location and under the same firm name, denying any obligation to account to the estate for partnership goodwill.
- The executors and trustees under Stephen’s will acquiesced and did not demand payment for goodwill.
- The firm’s partnership agreements and books did not list goodwill; incoming partners did not pay for goodwill.
- When a partner (Schoonmaker) retired during Stephen’s lifetime, no payment was made for goodwill.
- After Stephen became ill (1912), he ceased rendering services, sold his exchange seat, left capital in the firm, and his profit share was reduced before his death.
- The business was profitable, conducted without advertising or solicitation, and included multiple departments; lower courts attributed goodwill to certain departments based largely on profit history.

## Issues

1. Whether the partnership had transferable, compensable goodwill as a firm asset for which the surviving partners were accountable to the deceased partner’s estate.
2. If such goodwill existed, whether the executors breached fiduciary duties by failing to pursue the estate’s claim, justifying a surcharge in the accounting.

## Decision

- The New York Court of Appeals reversed the surcharge imposed on the executors.
- The court held that, on this record, the estate did not establish the existence of distributable partnership goodwill separate from the personal services and relationships of the partners.
- Because no enforceable goodwill claim was shown, the executors were not at fault for failing to demand a goodwill payment from the surviving partners.

## Legal Principles

- Goodwill may be a valuable property interest, but whether it exists as a distributable partnership asset is a fact-specific inquiry.
- In personal service or relationship-dependent businesses, profits and continuity of operations do not alone prove the existence of transferable goodwill distinct from the continuing partners’ labor and reputation.
- The partners’ own course of dealing is strong evidence on the goodwill question, including omission of goodwill from agreements and books, lack of goodwill payments by incoming partners, and absence of goodwill compensation to a departing partner.
- Fiduciary liability for an executor’s failure to assert a claim requires a demonstrated underlying right; where the alleged asset is not established, a surcharge is improper.

## Conclusion

The court concluded that the evidence did not support treating the stockbroking firm’s business as possessing distributable partnership goodwill payable to the deceased partner’s estate, and therefore the executors could not be surcharged for acquiescing in the survivors’ continuation of the business without a goodwill payment.


In re Brown, 242 N.Y. 1, 150 N.E. 581 (N.Y. 1926)