Good-will, when used as a legal term, has two meanings, which have been conveniently distinguished as personal and local good-will. Personal good-will is that interest which is sold along with a profession, and is transferable from one person to another by the recommendation of the seller, and his agreement not to compete with the buyer, as when a doctor or a dentist sells his practice. Local good-will is the saleable interest which attaches to a particular business at a particular place, or, as Lord Eldon defined it, 'the chance that the old customers will resort to the old place,' without the further advantage of personal stipulations with the seller, as in the sale of such a business as 'The Railway Hotel,' 'The Market Shop.' When an old business is transferred the possession of the premises and the old stock (which is necessary to the acquirement of the good-will) is usually regulated by special agreement, and what goes as good-will is the right to carry on the old business, to represent that it is the old business that is carried on, to use the trade name and the trade-mark, and to benefit by the covenants made by the previous owner for the protection of his business.
In a strict view there is no such thing as a transferable good-will of so personal a business as a medical, legal, or other professional practice. In the sale of these there ought therefore always to be a stipulation that the seller shall not compete with the buyer by practising in the same locality, or that he shall retire from practice; and that the seller shall introduce and recommend the buyer to his connection as his qualified successor. At first such a covenant was sought to be set aside as invalid, on the ground that it tended to restrain the natural liberty of trade; but the courts have now firmly established that, if a definite radius of moderate length is fixed upon, it does not sensibly restrain trade, inasmuch as the person covenanting can go beyond those limits, and trade as much as he pleases. If the party breaks his covenant he is liable to an action for damages. See Charles E. Allan, The Law relating to Good-will (1889).