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The favorable reputation and clientele of an established and well-run business.
The value of good will is ordinarily determined as the amount a purchaser will pay for a business beyond the monetary value of its tangible property and money owed to it.
Good will is regarded as a property interest in and of itself, although it exists only in connection with other property, such as the name or location of the operation. Good will exists even in a situation where the business is not operating at a profit. Certain courts refuse to recognize good will that arises out of the personal qualities of the owner. For example, a physician cannot sell good will when selling the office building and other physical assets of his or her practice, since the physician's reputation is based solely upon personal professional abilities.
A transfer of good will from one individual to another can take place as a bequest in a will or through a sale. Ordinarily, when an individual sells the property to which good will is connected, it is automatically transferred to the buyer. However, the buyer and seller can alter this arrangement or specify details in their sale agreement. A former owner of a business has no right to interfere with the subsequent owner's enjoyment of good will following a sale transferring good will, even in the event that the sales contract does not specifically so indicate. In the event that the purchaser wants to prevent the seller from establishing a competing business in the same vicinity, the purchaser must bargain for such a provision in the contract. An agreement not to compete, sometimes called Restrictive Covenant, differs from good will. However, an individual who sells the good will of his or her business is not permitted to solicit former clients or customers or lead them to believe that he or she is still running the same business.
GOOD WILL. By this term is meant the benefit which arises from the
establishment of particular trades or occupations. Mr. Justice Story
describes a good will to be the advantage of benefit which is acquired by an
establishment, beyond the mere value of the capital, stocks, funds, or
property employed therein, in consequence of the general public patronage
and encouragement, which it receives from constant or habitual customers, on
account of its local position, or common celebrity, or reputation for skill
or affluence, or punctuality, or from other accidental circumstances or
necessities, or even from ancient partialities, or prejudices. Story, Partn.
Sec. 99; see 17 Ves. 336; 1 Hoffm. R. 68; 16 Am. Jur. 87.
2. As between partners, it has been held that the good will of a partnership trade survives; 6 Ves. 539; but this appears to be doubtful; 16 Ves. 227; and a distinction, in this respect, has been suggested between commercial and professional partnerships; the advantages of established connexions in the latter being held to survive, unless the benefit is excluded by positive stipulation. 3 Madd. 79. As to the sale, of the good- will of a trade or business, see. 3 Meriv. 452; 1 Jac. & Walk. 689; 2 Swanst. 332; 1 Ves. & Beames, 505; 17 Ves. 346; 2 Madd. 220; Gow on Partn. 428; Collyer on Partn. 172, note; 2 B. & Adolph. 341; 4 Id. 592, 596; 1 Rose, 123; 5 Russ. 29; 2 Watts, 111; 1 Chit. Pr. 868; 1 Sim. & Stu. 74; 2 Russ. R. 170; 1 Jac. & W. 380; 1 Russ. R. 376; 1 P. & W. 184; 2 Mad. R. 198; l T. R. 118. Vide 5 Bos. & Pull. 67; 1 Bro. C. C. 160, as to the effect of a bankrupt's assignment on a good-will; and 16 Amer. Jur. 87.