California Business and Professions Code on Goodwill

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According to Stanford’s Encyclopedia of Philosophy, Immanuel Kant believed that “good will” is the only unqualified good thing. The Encyclopedia explains that “In Kant’s terms, a goodwill is a will whose decisions are wholly determined by moral demands or, as he often refers to it, by moral law”.

The California Business & Professions Code provides a much simpler, though fundamentally different, definition of goodwill: “The ‘goodwill’ of a business is the expectation of continued public patronage.” Cal. Bus. & Teacher. Code § 14100. The Code then provides three simple rules regarding goodwill:

  • Goodwill of a business does not include the right to use the name of any person from whom the business was acquired.

  • The goodwill of a business is property and is transferable.

  • The person who transfers the goodwill of a business may transfer with him the right to use the name under which the business is carried on.

Cal. Bus. & Code Prof. §§ 14101-14103. Although simple, these rules can be controversial. In Balesteri versus Holler, 87 Cal. App. 3d 717 (1978), for example, the plaintiff sold a fishing boat and various personal property. Included in the list of goods sold of the contract of sale was “Use of the name Sam’s Fishing Fleet for a period of ten (10) years or until said amount due and payable is paid”. The buyer subsequently sold the business and paid the seller. When the assignee refused to stop using the name, the seller sued. The Court of Appeal, citing Rule 14101, concluded that the “only reasonable conclusion” was that “the parties intended to take over and use the trade name [by the Seller] . . .”.

© 2010-2022 Allen Matkins Leck Gamble Mallory & Natsis LLP National Law Review, Volume XI, Number 27

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