Goodwill - Definition - Law Dictionary Home Dictionary Definition goodwill

Definition :

Goodwill, may be the whole advantage belonging to the firm, its reputation as also connection thereof. It, thus, means that every affirmative advantage as contrasted with negative advantage that has been acquired in carrying on the business whether connected with the premises of business or its name or style, everything connected with or carrying the benefit of the business, Ramnik Vallabhdas Madhwani v. Taraben Pravinlal Madhwani, (2004) 1 SCC 407: AIR 2004 SC 1084 (Partnership Act, 1932, s. 55).

A business's reputation, patronage, and other intan-gible assets that are considered when apprising the business, esp. for purchase; The ability to earn income in excess of the an come that would be expected from the business veined as a mere collec-tion of assets, Black's Law Dictionary, 7th Edn., p. 703.

The advantage or benefit which is acquired by a business, beyond the mere value of the capital, stock, funds, or property employed therein, incon-sequence of the general public patronage and encouragement which it receives from constant or habitual customers; see Trego v. Hunt, 1896, AC 7. It is considered a subject of sale and part of and incident to any business which his sold as a business or 'stock in trade and premises.' It cannot be sold apart from the business, Smale v. Graves, (1850) 3 De G. & Sm. 706; it may be local, or attached to premises, or personal such as the practice of a dentist or doctor (other than a Fellow of the Royal College of Physicians). But premises may be retained to the business and goodwill sold separately, Morris v. Moss, (1855) LJ Ch 194. Goodwill cannot be divided so that part follows a special trademark; see Re Dobie & Son, Ltd., 52 RPC 333. Compensation for goodwill on quitting a tenancy is provided for subject to the statutory conditions by the Landlord and Tenant Act, 1927 (17 & 18 Geo. 5, c. 36), s 4; see Whitley v. Stumbles, 1930 AC 540; LANDLORD AND TENANT. The purchase of a goodwill is of little or no value as a rule unless the sale is accompanied by the vendor's covenant in restraint of his competition or trade. See RESTRAINT OF TRADE and TRADEMARK. Consult Lindley on Partnership; Encyclop'dia of the Laws of England; Halsbury's Laws of England.

It is being an asset of business, it is generated as the business is carried on and may be augmented with the passage of time. CIT v. B.C. Srinivasa Setty, AIR 1981 SC 972: (1981) 3 SCC 460: (1981) 2 SCR 938.

The goodwill of a business depends upon a variety of circumstances or a combination of them. The location, the service, the standing of the business, the honesty of those who run it, and the lack of competition and many other factors go individu-ally or together to make up the goodwill, though locality always plays a considerable part. Shift the locality, and the goodwill may be lost. At the same time, locality is not everything. The power to attract customers depends on one or more of the other factors as well. In the case of a theatre or restaurant, what is catered, how the service is run and what the competition is, contribute also to

the goodwill. S.C. Cambatta and Co. Pvt. Ltd. v. Commissioner of Excess Profits Tax, AIR 1961 SC 1010 (1012): (1961) 2 SCR 805.

Goodwill denotes the benefit arising from connection and reputation. The original definition by Lord Eldon in Crutwell v. Lye that goodwill was nothing more than 'the probability that the old customer would resort to the old places' was expanded by Wood V. C. in Churton v. Douglas to encompass every positive advantage 'that has been acquired by the old firm in carrying on its business, whether connected with the premised in which the business was previously carried on or with the name of the old firm, or with any other matter carrying with it the benefit of the business'. In Trego v. hunt Lord Herschell described goodwill as a connection which tended to become permanent because of habit or otherwise. The benefit to the business varies with the nature of the business and also from one business to another. No business commenced for the first time possessed goodwill from that start. It is generated as the business is carried on and may be augmented with the passage of time. Lawson in his INTRODUCTION TO THE LAW OF PROPERTY describes it as property of a highly peculiar kind. In C. I. T., West Bengal (III v. Chunilal Prabhudas & Co., the Calcutta High Court reviewed different approached to the concept: It has been horticulturally and botanically viewed as 'a seed sprouting' or an 'acorn growing into the might oak of goodwill'. It has been geographically described by locality. It has been historically explained as growing and crystallising traditions in the business. It has been described in terms of a magnet as the 'attracting force', In terms 'differential return of profit'. Philosophically it has been held to be intangible. Though immaterial, it is materially valued. Physically and psychologically, it is a 'habit' an sociologically it is a 'custom'. Biologically, it has been described by Lord Macnaghten in trego v. Hunt as the 'sap and life' of the business. Architecturally, it has been described as the 'cement' binding together the business and its assets as a whole and a going and developing concern.

A variety of elements goes into its making, and its composition varies in different trades and in different businesses in the same trade, and while one element may preponderate in one business another may dominate in another business. And yet because of its intangible nature, it remains insubstantial in form and nebulous in character. Those features prompted Lord Macnaghten to remark in C. I. R. v. Muller & Co.'s Margarine Limited that although goodwill was easy to describe, it was nonetheless difficultto divine. In a progressing business goodwill tends to show progressive increase. And in a failing business it may begin to wane., its value may fluctuate from one moment to another depending on changes in the repetition of the business. It is affected by everything relating to the business, the personality and business rectitude of the owners, the nature and character of the business, its name and reputation, its location, its impact on the contemporary market, the prevailing socio-economic ecology, introduction to old customers and agreed absence of competition. There can be no account in value of the factors producing it. It is also impossible to predicate the moment of its birth. It comes silently into the world, unheralded and unproclaimed and its impact may not be visibly felt for an undefined period. Imperceptible at birth it exists enwrapped in a concept, growing or fluctuating with the numerous imponderables poring into, and affecting the business. Undoubtedly, it is an asset of the business, C.I.T. v. B.C. Srinivasa Setty, AIR 1981 SC 972: (1981) 2 SCC 460: (1981) 2 SCR 938.

Goodwill of a business is an intangible asset: it is the whole advantage of the reputation and connections formed with the customers together with the circumstances making the connection durable. It is that component of the total value of the undertaking which is attributable to the ability of the concern to earn profits over a course of years or in excess of normal amounts because of its reputation, location and other features, Trego v. Hunt, 1896 AC 7. Goodwill of an undertaking therefore is the value of the attraction to customers arising from the name and reputation for skill, integrity efficient business management, or efficient service, Rustom Cavasjee Cooper v. Union of India, AIR 1970 SC 564 (611): (1970) 1 SCC 248.

The term 'goodwill' signifies the value of the business in the lands of a successor so far as increased by the continuity of the undertaking being preserved in the shape of the right to use the old name and otherwise. It is something more than a mere chance or probability or old customers maintaining their connection, though this is a material part of the practical fruits. 'Goodwill' may be the whole advantage belonging to the firm, its reputation as also connection thereof. It, thus, means that every affirmative advantage as contrasted with negative advantage that has been acquired in carrying on the business whether connected with the premises of business or its name or style, everything connected with or carry-ing the benefit of the business, Ramnik Vallabhdas Madhvani v. Taraben Pravinlal Madhvani, (2004) 1 SCC 497; See also Halsbury's Laws of England, 4th Edn., Vol. 35, pp. 114-116]