able distance, so as not to interfere with the value of the trade, business or thing purchased, is reasonable and valid. In like manner a stipulation by the vendor of an article to be used in a business or trade, in which he is himself engaged, that it shall not be used within a reasonable region or distance, so as not to interfere with his said business or trade, is also valid and binding. The point of difficulty in these cases is to determine what is a reasonable distance within which the prohibitory stipulation may lawfully have effect. And it is obvious, at first glance, that this must depend upon the circumstances of the particular case; although, from the uncertain character of the subject, much latitude must be allowed to the judgment and discretion of the parties. It is clear that a stipulation that another shall not pursue his trade or employment at such a distance from the business of the person to be protected, as that it could not possibly affect or injure him, would be unreasonable and absurd. other hand, a stipulation is unobjectionable and binding which imposes the restraint to only such an extent of territory as may be necessary for the protection of the party making the stipulation, provided it does not violate the two indispensable conditions, that the other party be not prevented from pursuing his calling, and that the country be not deprived of the benefit of his exertions." 5

The covenant not to re-engage in business may be entered into by the stockholders of the corporation, whose capital stock and goodwill is being conveyed to a purchaser. The sale of the stock alone does not carry with it by implication a covenant not to re-engage; indeed, the California court has held in a case where the covenant not to re-engage was supported only by the sale of stock in a corporation, that as the sale of the stock could not carry with it the goodwill of the corporation, the element of goodwill did not enter into the transaction, and the covenant was void as being in restraint of trade.

The following agreement of stockholders made collaterally with the sale of the business and goodwill of their corpora

5-Oregon Steam Nav. Co. V. 6-Merchants' Ad-Sign Co. v. Winsor, 20 Wall. 64-72; 22 L. Ed. Sterling, 124 Cal. 429.

tion contains a typical covenant of the kind under consideration: "This instrument witnesseth, that William Vernon Booth has purchased the plant, business and goodwill of the business of the Davis Fresh & Salt Fish Co., and has paid therefor the sum of $17,473.14; that in making said transfer, and as an inducement to said William Vernon Booth to purchase sid plant, business and goodwill and pay the sum aforesaid for the same, we each have agreed that we would not, and we now do agree, each for himself, jointly and severally with him, the said William Vernon Booth, his heirs and assigns, forever, that we will not during the next ten years, in the territory or the immediate vicinity of the territory dealt in by our company, engage or in any manner be interested in, either directly or indirectly, for ourselves or for others, the same or like kind or character of business as that heretofore conducted and now being carried on by said company, its officers, agents, employes and assigns, and that we will not, during the said period of ten (10) years, either directly or indirectly, be guilty of any act interfering with the business, its goodwill, its trade or its customers, or come in competition with the same; and we will not, jointly or severally either in firms or corporations, or as individuals or in any other way, directly or indirectly interfere with the said trade. or business, or do any act prejudicial to the same or any part thereof, or interfere with the persons employed therein; the meaning hereof being that the said William Vernon Booth is buying and paying for the goodwill of the business in the largest and fullest scope of the term; and that we will not, and each agrees that he will not, do anything to interfere with or injure the said business, but will during said period, lend his aid and best influence to the promotion and advancement of the same."

It was urged in defense of a bill filed by the purchaser to restrain the shareholders from the violation of this agreement, that it was void because in violation of the Anti-Trust Act of July 21, 1890. This defense did not prevail because the contract did not have, upon its face, a direct relation to interstate commerce. It was further urged that the covenant was void at common law because it was an unreason

able restraint of competition in trade. This defense also failed, inasmuch as the covenant was merely ancillary to the conveyance of the goodwill of the corporation. The general rule was announced by the court "that such stipulation is valid if it goes no farther than to support and protect the interests transferred by the contract of sale."7

§ 102. The valuation of goodwill. It is manifestly a matter of great difficulty to secure an accurate valuation of goodwill. Like a trademark it has no value except as an integral portion of the business with which it is connected, and of which it is a part. We have considered some of the things that enter into goodwill, and it is obvious that its value. is a thing entirely independent of the cash value of the physical assets of the business of which it is a part. In fact, goodwill is frequently sold at a valuation far in excess of the total value of all of the physical properties of the business. On the other hand, the value of a goodwill is liable to sudden and violent fluctuation as is the value of a trademark.

A single shipment of inferior goods may render the trademark under which they are packed, a thing of no value, and personal goodwill depends for its value upon the continued activity and integrity of the person or persons to whom it belongs.

Concerning the valuation of the goodwill of a partnership, the Massachusetts court has said: "While no rule can be laid down by which the goodwill of a trading partnership in all cases can be ascertained and its value fixed with mathematical precision and accuracy, yet if it be assumed that a firm has been in existence for a time long enough to establish a business sufficiently permanent in character to include not only its customers, but the incidents of locality, and a distinctive. name, these advantages constitute a going business enterprise; and it may then be said that the name and what is done under it go together, and a goodwill exists which forms an asset of commercial value in a winding up between partners. The fact that such an asset may be difficult of appraisement is

7-Severens, J., in Davis v. A. Booth & Co., 65 C. C. A. 269; 131 Fed. Rep. 31, 38.

no legal reason for denying to the retiring partner an appraisal, if it be proved that he is entitled to it."s

An English text writer says: "The usual basis of valuation is the average net profits made during the few years preceding the sale," "9 and in accordance with this rule, an English court has assessed the value of the goodwill of a banking business at one year's average net profits.10

The value of the goodwill of a professional practice has been based upon two years' net profits.11

It is evident that all the facts relating to the character of the goodwill, the probability of the continuance of its value, and any other matters which render its duration a matter of doubt or uncertainty, must be considered in an attempt to place a value upon it. Thus, where the goodwill was being conveyed in administration, the fact that the brother of the testator had been interested in the business, and could not be prevented from carrying it on in competition with a purchaser, rendered the goodwill valueless as a subject of sale by the executor. 12 In estimating the value of the interest of a deceased partner in the goodwill of the business, the rights of the surviving partner must be taken into account.18

§ 103. Competition between vendor and vendee. The vendor is at liberty to lease or sell other property he may own in the neighborhood, to another person who may carry on the same business, provided there is no collusion, and the lessor has no interest in the business.14

In the absence of a covenant or statute to the contrary, the vendor may employ any fair method of soliciting trade which does not involve a false or fraudulent representation.15

But the English rule and that in Rhode Island is that he can not directly solicit from former customers.16 No form of soliciting trade will be permitted however, which tends directly to deprive the vendee of the benefit of the reputation of the business purchased by him, to take away from him the patronage which appertained to it, or to draw away the business of its habitual customers.17

The goodwill of the business of a decedent does not carry with it the right to use the decedent's name.18 Such goodwill is an asset to be accounted for by the personal representative, and if that representative takes charge of the business and conducts it as his own he is chargeable with the value of the goodwill.19

Equity looks with disfavor upon any method of diverting from the purchaser of a goodwill the benefits which ought to come to him by reason of his purchase. Thus, where partners sold out their interest in the goodwill of a partnership known as the Kalamazoo Wagon Company, and then organized a corporation under the name of Kalamazoo Buggy Company, they were enjoined, at the suit of their vendee, from the use of that name; and the court held that the writ of injunction properly ran against all persons connected with the corporation.20

A statute of California provides that, "One who sells the goodwill of a business thereby warrants that he will not endeavor to draw off any of the customers.'' 21

In a federal case one Thomson was a partner of his brother, in Europe, and a partner of other persons in a separate

v. Boussod, 47 Fed. Rep. 465; Close v. Flesher, 59 N. Y. State Rep. 283; Knoedler v. Glaenzer, 55 Fed. Rep. 895; 5 C. C. A. 305. See ante, § 99.

16-Trego v. Hunt, 65 L. J. Ch. 1; L. R. (1896) A. C. 7; 12 Eng. Ruling Cases, 442; Labouchere v. Dawson, L. R. 13 Eq. 322; Zanturjian v. Boornazian, 25 R. I. 151; 55 Atl. Rep. 199.

17-Munsay v. Butterfield, 133 Mass. 492-495, citing Angier v. Webber, 14 Allen, 211.