Daniel M. Warner, Ronald N. Savey & William M. Sailors, Theory and Evaluation of Business and Professional Goodwill Upon Dissolution, Contest, or General Sale in Washington State, 23 Gonz. L. Rev (1987)
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Goodwill is an intangible and valuable property right which is more difficult to identify and evaluate than more substantive forms of property such as land or chattels. It has been recognized for hundreds of years (R. M. Lall quotes a 1571 case: “I give to John Stephen. . . my whole interest and goodwill,”) and as Libling observed, the moral claim to property rights in intangibles is greater than that in real estate or chattels. Intangibles such as goodwill are entirely the product of human effort. However, fortuitous events beyond any one person’s control may effect the value of intangibles: an oil shortage might increase the value of a gas-saving patent, or the closure of a road could reduce a shopkeeper’s goodwill in his business.
As an illustration, consider a lawyer recently graduated from law school who invests $8,000 in office equipment and books. He opens his door for business, but business is slow. By contrast, another lawyer down the hall has practiced for twenty years; his investment in office equipment and books is also $8,000, but his in come is substantial. The difference is largely a function of goodwill, a valuable property right. Articles and commentaries on goodwill abound.
There are probably three reasons why goodwill generates the interest that it does. First, the concept of the ready manipulation of a purely intangible creation is an interesting and satisfying intellectual problem. Second, there is a certain moral legitimacy to a property claim in goodwill. Finally, and not least important, there may be a lot of money in the issue. Dealing with this intangible property, however, does raise numerous problems.
The problem addressed here is this: to what extent is goodwill recognized in Washington as a distributable asset, and, once recognized, how is a value assigned to it? This Article examines Washington law on goodwill, the uses to which it has and may be put, and some methods by which goodwill may be evaluated. The discussion of evaluation particularly will be of practical use for the attorney who wishes to become familiar enough with the topic to understand what an accountant has to do in this area.