[3 NJSuper Page 571] Both of these suits arise out of a trust indenture dated July 18, 1928, made and executed by James H. Walden and Jennie R. Walden in which the Peoples Bank and Trust Company was named trustee. The trust was irrevocable but the donors and the survivor of them reserved the power to substitute another trustee or trustees and to appoint a co-trustee or trustees. Pursuant to such reservation the donors on November 23, 1940, substituted the Passaic National Bank and Trust Company and James P. Walden as trustees in the place and stead of Peoples Bank and Trust Company. On October 6, 1947, Jennie P. Walden as surviving donor appointed the First National Bank and Trust Company of Montclair as trustee in the place of the Passaic National Bank and Trust Company. The latter bank refused to recognize such substitution and refused to surrender its trusteeship. As a result the suit firstly above entitled was commenced in the old Court of Chancery the object of which was to remove Passaic National Bank and Trust Company as trustee. The pretrial order in that suit entered on January
14, 1949, provided that the Passaic National Bank and Trust Company account for its administration and upon approval by the court of its account and the allowance to it of compensation it will resign as trustee. Accordingly it filed said account which is the subject matter of the suit secondly above entitled.
In its account plaintiff placed a market value of $1,031,150 upon 1,127 shares of stock of Druwald, Inc., which it held in the trust. An exception to this item in the account was filed by some of the defendants contending that such market value was excessive.
The importance of the market value of this asset becomes manifest when it is considered that the trust indenture provides that commission upon principal is to be paid at the rate of two per cent. upon the market value of such principal at the termination of the trust. The stock in question represents one-half of the outstanding stock of Druwald, Inc. Druwald, Inc., is a holding company and its principal asset is a majority of the stock of the Passaic Daily News, Inc., which publishes The Herald-News, a daily newspaper circulating in Passaic and its environs. The stock in both companies is closely held. Neither is listed on any Exchange and there has been no sale of either stock from which a fair market value may be determined. Under such circumstances the value of the shares is arrived at by adding to the so-called "book value" of said shares the value of the good will of the corporation.
The method of determining the value of good will has been considered in several cases in our State. In Grell v. Kelly , 134 N.J. Eq. 593, 36 A.2d 874, it was held:
"Good will, of course, is an asset. In re Bottomley , 92 N.J. Eq. 202; 111 A. 605; In re Hall , 99 N.J.L. 1; 125 A. 246; affirmed, 100 N.J.L. 405; 126 A. 924; In re Deutz, supra. Not every corporation has such an asset. It is elusive and does not long endure independently of the enterprise and effort of the successors. Therefore, no fixed and immutable rule can be applied to its valuation in all cases. Its existence for tax purposes does not depend upon whether or not the corporation carries it as an asset on its books. In re Deutz, supra. There is a commonly accepted method of determining
the value of good will which was approved by this court, In re Hall , 94 N.J. Eq. 398; 119 A. 669, and also inferentially, in the same case by the Supreme Court on certiorari (99 N.J.L. 1; 125 A. 246) and by the Court of Errors and Appeals, 100 N.J.L. 405; 126 A. 924. The valuation by that method is determined by computing the yearly average net profit (after deducting six per cent. interest on the capital) for the normal business years previous to decedent's death and multiplying it by a multiplier called 'number of years purchase,' which in the particular circumstances may be from two to six years. A three-year multiplier has perhaps most frequently been accepted as a reasonable and conservative figure. Cf. In re Hall, supra; In re Deutz, supra. The five-year figure is not inordinate. Gleason & Otis, Inheritance Taxation (4 th ed.) 599 et seq. "
See, also, In re Hall , 94 N.J. Eq. 398, 119 A. 669, 99 N.J.L. 1, 125 A. 426; 100 N.J.L. 405, 126 A. 924; In re Moore , 104 N.J. Eq. 400, 145 A. 727; In re Deutz , 105 N.J. Eq. 671, 149 A. 257; Johnson v. Zink , 140 N.J. Eq. 255, 54 A.2d 123.
The plaintiff properly followed the theory enunciated in these cases in calculating the value of the good will and adopted ten years as the "number of years purchase." No rigid or unvarying rule has been laid down by the courts for the determination of the value of good will. 38 C.J.S. 953, § 6; Grell v. Kelly, supra. The multiplier varies in ordinary cases from two years to six years. Professor Bonbright, a professor of finance, Columbia University, in Volume II, page 731, of his work Valuation of Property, in discussing valuation of good will says:
"* * * If the average net earnings are not in excess of 6 per cent. of this net worth, no good will is usually found to exist. But any excess earnings over 6 per cent are deemed to reveal a good-will value, which is determined by multiplying the excess by a 'suitable factor.' Just what the factor is supposed to signify is not clearly discussed in the cases. It is generally spoken of as the 'number of years' purchase,' and presumably is thought of as the number of years' excess earnings that a purchaser would pay in advance in order to acquire the good will. The cases assume that the choice of a factor is restricted to the figures lying between certain maxima and minima established by precedent, but that within these ...