It is the one thing which distinguishes an old established business from a new business at its first start. The goodwill of business must emanate from a particular centre or source.
It has power of attraction sufficient to bring customers home to the source from which it emanates. Goodwill is composed of a variety of elements.
It differs in its composition in different trades and in different businesses in the same trade. One attribute common to all cases of goodwill is the attribute of locality.
It has no independent existence; it must always be attached to a business. Goodwill regarded as property has no meaning except in connection with some trade, business or calling.
It includes whatever adds value to a business by reason of situation, name and reputation, connection, introduction to old customers, and agreed absence from competition.
Goodwill is the whole advantage, whatever it may be, of the reputation and connection of the firm, which may have been built up by years of honest work or gained by lavish expenditure of money. Goodwill is inseparable from the business to which it adds value.
In some cases goodwill may be considered as having a distinct locality, the goodwill of a retail shop for instance. The goodwill of a business adds value to the land or house in which it is carried on if sold with the business.
If the business is carried on in different territories or countries, a separate goodwill attaches to it in each. Under modern business conditions a business, particularly of the manufacture and sale of a product, is carried on all over the country. In such a case it will be difficult to localize goodwill.
The owner of a trademark or business name may have goodwill in a country without having any place of business there.
Goodwill is a species of intangible property capable of being sold or charged or bequeathed by will. It is invariably symbolized or identified by a trade mark or trade name, goodwill forms part of the assets of firm.
The name of a firm is a very important part of the goodwill of the business carried on by the firm. The transfer of goodwill of a business confers on the transferee the exclusive right to represent himself as carrying on such business, and as against the transferor the exclusive right to use the name under which the business has been carried on, but such name must not be used so as to expose the transferor to a risk of personal liability owing to his being held out as the owner of or a partner in the business.
The sale of the business and goodwill carries with it the right to use the old firm’s name, the sale of the business is a sale of the goodwill, whether the word ‘goodwill’ is mentioned or not. Any unregistered trade mark vested in a company would pass with an assignment of its goodwill by the company.
In the absence of any express restrictive covenant, the vendor of a business is at liberty to set up a competing business, but he may not solicit the customers of the business of which he has sold the goodwill and so deprive the purchaser of the benefit of that which he has bought.
Thus where the goodwill of a firm is sold after dissolution, a partner may carry on a business competing with that of the buyer and he may advertise-such business, but subject to agreement between him and the buyer, he may not use the firm’s name, represent himself as carrying on the business of the firm or solicit the custom of persons who were dealing with the firm before its dissolution.
As it has been stated that, “goodwill as the subject of proprietary right is incapable of subsisting by itself. It has no independent existence apart from the business to which it is attached.
It is local in character and divisible; if the business is carried on in several countries a separate goodwill attaches to it in each. So when the business is abandoned in one country in which it has acquired goodwill, the goodwill in that country perishes with it, although the business may continue to be carried on in other countries.” Thus the goodwill is territorial in nature.