P L D 1963 (W (PLP)

11. As a result of the confirmation of the sale the question of the payment of the price arose and the parties went to the Supreme Court, as stated above and a Letters Patent Appeal was also preferred in connection with the manner and time of payments. This is the second Letters Patent Appeal from the proceedings of the suit.

12. As one of important points for decision in this appeal is the dispute as to whether the defendants‑respondents have bought licences and tenancy rights of the firm or not, we may mention that the defendants‑respondents have stated in paragraph 3 of their application dated the 28th of March 1963, which was made by them after the auction as follows " . . The goodwill was purchased by defendant No. 2 for self and benami for defendants Nos. 1, 3 and 4 in view of clarification of the word goodwill made and admitted by the plaintiffs." Appellant Sharif has also stated, in paragraph 10 of his affidavit dated the 6th of April 1963, in reply to paragraph 5 of the application dated the 25th of March 1963, (see paragraph 2 above) of the defendants‑respondents in which they asked for the delivery of "business and business premises including godowns at Karachi and Chittagong along with all relevant papers relating to licences, quotas and categories of the firm" as follows " . . I submit that the defendants are not entitled to the direction therein sought and that no orders thereon should be made until the defendants have deposited in Court the full purchase price. I say that unutilised licences were ordered to be issued to the firm prior to the sale of the goodwill and the defendants in no event would be entitled to the benefit thereof as auction purchasers." The words "until . . . . . deposited . . . . . purchase price" and "prior to the sale" are noteworthy because they restricted the objections of the plaintiffs‑appellants to the full payment of the price and to the period of time in which the licences were issued. Additionally, it is noteworthy that no objection was taken to the demand made by defendants‑respondents to the delivery of business, business premises and closure of the bank accounts of the firm. They claimed on the other hand in their application dated the 27th of May 1963, that the sale of goodwill made in favour of the defendants‑respondents be set aside owing to fraud and that the auction sale be confirmed in their own favour (see paragraph 2 above).

13. The grounds stated by them in support of their above prayer, in the affidavit submitted by appellant Sharif with the application, are as follows :‑

14. On 22‑5‑1963, the defendants filed an affidavit in suit No. 2095 of 1960 in the Court of Mr. Shamsul Arifin Qureshi, Civil Judge, Karachi in which they reluctantly admitted that they ad entered into a partnership with some outsiders in respect of the firm in this suit but vehemently refused to disclose the exact nature of the transaction. A certified copy of the said affidavit is attached herewith and marked A'.

15. That the plaintiffs and I believe that the defendants have actually outright sold out the firm and in any case they have created major and dominant interest in the firm in favour of outsiders. This transaction may be in the apparent form of partnership but actually it is outright sale and/or assignment of dominant and major rights in favour of the outsiders.

16. That the plaintiffs, including myself, believe that the defendants sold out or created major and dominant interest in favour of the strangers before the auction and bid at the auction only as ostensible and apparent purchasers for the real purchasers who were outsiders. However, in any case, the defendants bid at the auction with the intention of selling the goodwill to outsiders and pay the auction price to this Hon'ble Court from money received from the prospective purchaser."

14. Against the above background, counsel for the parties have addressed us by dividing their arguments into 3 parts relevant to the two applications and the report of the Nazir which were disposed of by the order which is under appeal. We take up the consideration of the report first because the objections raised against the adequacy of the securities can be disposed of briefly.

15. Counsel for the plaintiffs‑appellants has objected to the adequacy of the value of two properties and to the title of one property. His objection to the value of two properties is that one of them was purchased in 1948, for Rs. 15,272 and the other in 1951, for Rs. 18,200 but they have been accepted as good securities for Rs. 1,50,000 and Rs. 60,000 respectively. This objection is incomplete because counsel has said nothing as to whether their present value is adequate or not for accepting them as securities for the value for which they have been accepted. The value of some properties has appreciated disproportionately in Karachi. His objection to the title of one property is that its owner had purchased it on the strength of the Final Transfer Order, which was held by its seller. He said that there have been cases in which Final Transfer Orders were found to have been obtained by fraud and that they were set aside. This argument again is insufficient because he has suggested no reason as to why suspicion of fraud should be entertained in this case. We, therefore, over‑rule the objections which have been raised against the order of the learned Single Judge with respect to the report of the Nazir.

16. Turning now to that part of his order by which he rejected the application of the plaintiffs‑appellants dated the 27th of May 1963, we may mention that counsel for the plaintiffs /appellants conceded that if the defendants‑respondents had entered into an agreement for partnership with strangers before partici pating in the auction, the order of Mr. Justice Inamullah Khan dated the 12th of March 1962, (see paragraph 6 above) would not have been violated and that there could be no fraud in it. He urged that they had either wholly or partly sold the goodwill to strangers. In the circumstances of this case it appears to be clear to us that the defendants‑respondents could not have sold the goodwill to strangers as alleged by the plaintiffs‑appellants (see paragraph 13 above) before participating in the auction because, as pointed out by Mr. Noorul Arifin, they could not be certain of successful bidding for it. Even if they had sold the property which did not belong to them, the transaction would have in law become an agreement to sell it conditionally on its acquisition and could not be a sale. We may add that Sharif appellant has disclosed, in his evidence recorded by us, that the plaintiffs‑appellants had also obtained financial help from strangers. Their own resources were so inadequate that, according to him, they‑ " . . would have been in need of borrowing Rs. 3 to 4 Lakhs." He has further stated :‑ "it is true that the amount of Rs. 3 to 4 Lakhs which we had to borrow was meant to pay off the price of half of the goodwill because the other half already belonged to us." It is clear from the above statements of Sharif and the arrange ments which were made by the defendants‑respondents for procur ing financial help that neither party was in a position to make a successful bid for the goodwill without the financial help of outsiders. Both of them tried to obtain it and we would not be surprised if the stand taken on behalf of the plaintiffs‑appellants by Mr. Fakhruddin that goodwill included "categories of licences", `places of business" and "tenancy rights" had for its basis the confidence of his clients that they could successfully out‑bid the defendants‑respondents owing to the arrangement which they had made. It is true that they accidentally came to know from an affidavit submitted in an another suit that the defendants/ respondents had also entered into an arrangement for getting financial help. The information came as a surprise to the plaintiffs appellants who were expecting to buy the goodwill "at a reason able price" and even for a little more than that (see paragraph 5 of the affidavit of Sharif dated the 27th of May 1963) but were unexpectedly and completely out‑bid (see paragaph 10 of the said affidavit of Sharif). When the plaintiffs‑appellants came to know that the defendants‑respondents had also made financial arrangements for out‑bidding them they may have felt piqued at having been out‑witted but we do not think that any fraud was played on them. Equally, do we think that, there was no reason for the defendants‑respondents to announce the arrangements that they had made ; nor does it appear that the plaintiffs‑appellants had themselves announced the financial arrangement which they had made.

17. The plaintiffs‑appellants have not only prayed in their application dated the 27th of May 1963 (see paragraph 2 above) that the sale in favour of the defendants‑respondents be set aside but also that the auction may be confirmed in their own favour. We find no justification for the latter prayer ex cepting for their own conviction that the bid given by them was more than reasonable. Here we should note that at the time of the admission of this appeal their counsel had offered to buy the name of the firm only, without any appurtenances to it like licences and tenancy rights, for Rs. 4,21,

500. The offer created the impression at that time that the defendants‑respondents were claiming a great deal more than the name of the firm for a lesser price without justification. That impression was confirmed by the acceptance of the offer by Mr. Lakhani on behalf of the defendants‑respondents who were present in Court and who within a few minutes of the acceptance rejected it on the ground that extremely valuable licences could be obtained by buying the name of the firm. The whole situation was not then before this Court and the impression created by the offer, its acceptance and repudia tion was one of the reasons for admitting this appeal to regular hearing. The facts which have come to our knowledge by the evidence of Sharif leaves no doubt in our minds now that neither the order of Mr. Justice Inamullah Khan was violated by the defendants‑respondents, nor was there any fraud in the transaction which has been questioned. We, however, reserve our judgment at this juncture with respect to the prayer of the plaintiffs‑appellants that the sale be set aside and proceed to examine the decision under appeal with respect to the application of the defendants‑respondents.

18. We called upon Mr. Fazeel to show us the law in support of his contention which has been raised against the defendants/ respondents that the sale of goodwill did not convey to them the tenancy rights and the licences. He considered this unnecessary and declined to do so, making it, however, clear that he relied on the observation made by Mr. Justice Abdul Rabim Kharl on the 19th of March 1963, while rejecting the application for clarifi cation of the meaning of `goodwill' that‑ " . . . the question of assets, of debts of the firm and also with whom the rights of tenancy is," was irrelevant when goodwill alone was sold. We pointed out to him that the observation was made while dismissing the application ; therefore it could not be accepted to be that clari fication which was sought for but was refused. It could not be binding on the parties as that elucidation. Counsel requested us in reply to let him stop where he desired. We have thus received little help from him with respect to the legal meaning of `goodwill'. We, therefore, proceed without it, to examine his appeal against the acceptance of the application of defendants respondents dated the 25th of March 1963, in which they have demanded the delivery of business, business premises, licences and closure of bank accounts.

19. Mr. Fazeel has questioned that part of the order of the learned Single Judge which is relevant to the above demand on three grounds, which were firstly, the above‑mentioned observa tion of Mr. Justice Abdur Rahim Kharl; secondly, the insistence of the defendants‑respondents to seek clarification from Court in disregard of the elucidation given by Mr. Fakhruddin; and thirdly, the withdrawal of the affidavit (see paragraph 9 above) which according to him was symbolical of the abandonment of the stand of the plaintiffs‑appellants that the sale of goodwill included the other assets of the firm. As in our view the observation of Mr. Justice Abdur Rahim Kharl cannot be said to be a binding exposition of the meaning of goodwill, we conclude that the stand of Mr. Fazeel in this respect was merely negative.

20. Mr. Noorul Arifin discussed the positive side of the problem. He supported the acceptance of the application of the defendants‑respondents dated the 25th of March 1963, by urging firstly, that the plaintiffs‑appellants had never before this appeal questioned the correctness of the claim of the defendants respondents to the licences and business premises. On the contrary Mr. Fakhruddin had resisted the attempts of the defendants respondents to obtain an authentic clarification of the term "goodwill" by giving his own elucidation of it before the Com missioner. The same connotation of the word was confirmed by Sharif in paragraph 13 of his affidavit dated the 19th of March 1963, before the auction (see paragraph 8 above). Their stand continued to be the same after the auction as is clear from paragraph 10 of Sharif's affidavit dated the 6th of April 1963, (see paragraph 12 above). His request in Court for withdrawal of the affidavit dated the 19th of March 1963, was neither symbolical, nor of any significance because in view of the refusal of the Court to give clarification there was nothing before the parties to fall back upon except the assertions made on behalf of the plaintiffs‑appellants before the Commissioner and in Court as to the meaning of the term. The parties, therefore, accord ing to counsel, participated in the auction on that understanding alone. He argued that no other understanding could be attributed to the defendants‑respondents because they had repeatedly made it clear that they had no clear idea of their own in that respect.

21. Secondly, he contended, the term `goodwill' includes whatever adds value to a business such as its situation, reputation, connections with old customers; and relied on Duladas Mullick A v. Ganesh Das Damani (A I R 1957 Cal. 280), New Gujrat Cotton Mills Ltd. v. Labour Appellate Tribunal and others (AIR 1957 Bom. 111) and Lindley on Partner ship, (12th Ed.) at p.

466. Here we should not forget to mention the contribution made by Mr. Fazeel whose rejoinder to the arguments of Mr. Noorul Arifin was confined to the citation of two judgments only. They were Stuchbery and others v. General Accident, Fire and Life Assurance Corporation Ltd. ((1949) 2 K B 256) and Dr. Peshoton v. Peerozshaw and another (P L D 1962 Kar. 293).

22. We would like firstly to examine the second contention of Mr. Noorul Arifin. The exposition of the relevant law in all the above‑mentioned judgments as well as the book is substantially the same, but it has been misunderstood owing to the reference made in it to tangible properties for explaining the meaning of "goodwill" which is an intangible property. When a business wins the continued favour of a number of customers, that favour is described as its `goodwill' because of the probability that the customers would continue to bestow that favour in the future. Lord Eldon's famous definition of the terms given in Crutwell v. Lya ((1810) 14 E R 129) is that it :- " is nothing more than the probability that the old customers will resort to old place." This definition has been criticised as too narrow because the probability is not necessarily or exclusively connected with places of business, although the Place of business is an important element which goes to create that probability. Its importance is recognised largely because businessmen have found that customers form a. habit of going to the same place where satisfaction was formerly given .to them. But there are other elements also which create the probability. One of them is the reputation of a business house or of a businessman. Customers like to deal with those who are honest efficient, considerate and attentive. These or some of these qualities which create the probability may exist in organization, or an individual who owns or controls the business. When the probability is the consequence of the qualities of a business house or a businessman, the customers are likely to follow that organization or indivi dual, within their reasonably convenient reach, in spite of a change in the place of business and irrespective of the kind of business which may be carried on. Customers also care a good deal for the quality and price of the merchandise and the probability is that they would go to that organization or individual that supplies satisfactory goods at attractive prices.

23. Confidence in the qualities of a business organization or businessman and in the continued practice of supplying satisfactory goods, becomes in course of time attached to the name of that organization or businessman. This reputation is the most important element that creates the probability. There fore, when one thinks of "goodwill" one usually thinks of its connection with the name of that business as well as of the place where it is carried on.

24. There are other factors too which create the probability. They vary according to the nature of the business, trade or profession. Goodwill may thus be chiefly connected with a fixed locality as obviously is in the case of a carrier plying from one fixed terminus to another; or with the confidence in a professional man of his clients as in the case of a medical practitioner who virtually undertakes to introduce the buyer of his goodwill to his patients May v. Thomson ((1882) 20 Ch. D at p. 718) or with the knowledge of the trade as in the case of a dealer in stone, whose connections with the knowledge that he has as to where to buy and where to sell the stone and how to deal with it to the best advantage create the goodwill of his business Ginesi v. Cooper & Co. ((1880) 14 ‑Ch. D at p. 599).

25. The meaning of goodwill may therefore be understood to be in the words of Vice Chancellor Wood Churton v. Douglas ((1859) 70 E R 385): "every advantage‑every positive advantage, if I may so express it, as contrasted with the negative advantage of the late partner not carrying on the business himself‑that has been acquired by the old firm in carrying on its business, whether connected with the premises in which the business was previous ly carried on, or with the name of the late firm, or with any other matter carrying with it the benefit of the business", with the reservation that the words "any other matter" should not be taken to convey the idea that the seller of a goodwill undertakes not to do the same business with his old customers, unless he has agreed to do so.

26. The above discussion, we believe, explains that good will is an attribute of a business, trade or profession. As it is an intangible property, it cannot be composed of any thing tangible, though certain tangible properties create goodwill. If goodwill alone is sold, then tangible properties are not usually sold as a part of it. Thus in the case of a buyer who buys nothing else besides "goodwill", he may acquire the name and style of the business only ; but the circumstances of a sale may be such as to indicate that the intention of the parties was to buy and sell more than mere name. The real point for determination in such a case unless there is a supervising control of the transaction from outside, is as to what was the intended subject matter of the sale. We may quote two passages from Vol. 24 of the book American Jurisprudence. The observation at page 809 is ‑ "a sale of goodwill is not necessarily accompanied by the tangible assets of a business. A mere conveyance of goodwill will not of itself effect a transfer of the building owned by the vendor in which the business is being conducted. On the other hand a sale of the business and its assets may by implication transfer the goodwill of such business." At page 816‑17, the relationship of lease rights with the sale of goodwill is incidentally clarified as follows "even though there is no stipulation not to compete, the seller of a business and its goodwill is precluded from interfer ing with the purchaser in the enjoyment of the particular business stand transferred by him to the purchaser; and if a lease of the premises is included in the transfer the vendor has the implied obligation not to interfere with the vendor in his use of the business house and control of lease during the period covered thereby." The word "if" is to be noted in the above quotation.

27. In Duladas Mullick a Division Bench of the Calcutta High Court, held that as the subject‑matter of the sale was furniture, stock‑in‑trade and goodwill of the business "as a going concern", the "sale of goodwill in this case included monthly tenancy right or whatever right of occupation the plaintiff Duladas Mullick had in the said shop room." That view was correct, if we may say so with respect, in the circumstances of that case, but the purchaser would have fared better if the subject‑matter of the Court sale had been stated more clearly at the time of sale in that case. In the case now before us the firm "Abdul Latif Jusab" has been dissolved and is being wound up ; therefore, there is no "going concern" to be sold. The connections of the firm which created its goodwill are now mostly dormant and lie apart from the former going concern. They are waiting to be completely cut off as soon as an order is made that the process of winding up is over. Ira these circum stances there is little reason to come to the conclusion that mere sale of goodwill could, according to the legally recognised meaning of the term, transfer anything more than the exclusive right to carry on similar business under the name and style of "Abdul Latif Jusab".

28. But the first argument of Mr. Noorul Arifin, was that the parties had intended to buy and sell the tenancy rights of the firm also. He has referred to the relevant evidence (see paragraph 20 above) in support of his contention. We add in the same trend that, the withdrawal of one affidavit could not be symbolical of the abandonment of the stand because subsequently to it, in their last affidavit (see paragraph 12 above) submitted in reply to the application which is under consideration, the defendants respondents did not abandon the stand and inconsistently with its abandonment laid the condition of the payment of full price to the delivery of business and business premises and the closure of bank accounts. We, therefore, agree with Mr. Noorul Arifin that the parties had not intended to buy and sell good will without any of its adjuncts.

29. The above conclusion, however, does not support the claim of the defendants‑respondents to the delivery of all that which they have named in the prayer clause of their application, because the auction was controlled by the orders of this Court. The Court did not order (see paragraph 6 above) the sale of anything except goodwill. The business and licences were not ordered to be sold and could not be auctioned by the Com missioner. Our inquiry must in the final analysis be restricted to discover as to what could have been bought by the highest bidder in view of the orders of this Court, as incidental to goodwill, for Rs. 4,21,

000. Mr. Noorul Arifin conceded that his clients could neither claim to have become the owners of the business which is being wound up, nor demand the closure of bank accounts except in respect of the use of the name of the firm. He also conceded that they could claim only those licences which were obtained by virtue of the use of the name of the firm after the date of the sale of goodwill. He, however, repeated that they were entitled to get the tenancy rights in the business premises along with the name of the firm because the parties intended it.

30. The last argument would have been sound as indicated above, but two considerations militate against it in this case. Firstly, the plaintiffs‑appellants might have themselves given a higher bid if they had no misgivings with regard to the subject -matter of the sale as they did offer a higher price in this Court but were unsuccessful because of a rather late reaction of the defendants‑respondents to that offer. Secondly, though the order of Mr. Justice Abdur Rahim Kharl was not an elucidation of the meaning of "goodwill", it did make it quite clear that the sale was restricted to goodwill without and apart from the `assets', `debts' and ` tenancy rights' of the firm. The parties have failed to look at the transaction from this point of view and have participated in the auction under a misapprehension. We would have accepted the contention of Mr. Noorul Arifin if the auction was a private transaction unrestricted by the orders of this Court.

31. In the above circumstances, the best course to adopt appears to be that the application of the defendants‑respondents dated the 25th of March 1963, be rejected but the auction be also set aside as prayed inter alia in the application of the plaintiffs‑appellants. This will enable the parties to buy goodwill which will mean and include only the name and style of the firm, the licences which have been obtained by the use of that name after the 21st of March 1963, on which date the auction was held and all other advantages and benefits which may accrue from its use in the future. We order accordingly. The appeal succeeds partly, but on different grounds from those which were urged by the parties. The parties are, therefore, to bear their own costs. K. B. A. Appeal partly accepted.