be called its going business, or its good will; that intangible addition to the assets of every corporation which arises out of its management, and is a gradual growth from its organization, consisting in this case of a knowledge of the business, a knowledge of the wants and demands of its customers, a knowledge of the growth of the city, and the tendencies of that growth as it has been observed through a period of years; the organization of its office and operating department, and in general, all the experience which belongs to and is the property of every going concern, and which is acquired through a period of years of active operation. In one sense of the word, the operating organization of a going concern, whether it be a common carrier, a gas company, or water company, a light company, or a private manufacturing company, may be said to be of even more value than its physical assets, its brick and mortar. The physical property is practically worthless without the management or organization; the management or organization is powerless without the physical property, and an electric plant for the purpose of furnishing light and power to the city of Columbus, standard built and equipped of the most modern type, with its lines extended and connected, its lamps installed in houses and business places, its wires connected up to furnish power for machines, without an efficient organization and management would fail utterly to fulfill the purpose for which it was constructed, until that organization and management could be assembled, and acquire a knowledge of the city, the wants of its people, and the demands of the business.

Granted that with a plant so established, there could instantly be found skilled, capable and efficient employés to occupy every position necessary to operate its business, and to deliver its product or service, still this want of knowledge on the part of those employés and officials would necessarily hinder and delay the delivery of light and power, cripple the conduct of the business, and cause great loss until that knowledge had been acquired by the only teachers possible-time and experience.

This knowledge possessed by complainant, derived by it from its own experience, and by acquisition and purchase from

its predecessors, has an indeterminate, but necessarily a value, in ascertaining what is the true value of complainant's property devoted to the public use in any controversy as to compensation based upon that value.

The report of the Special Master was concurred in by the Circuit Court without opinion.

§ 553. Consolidated Gas Case-Report of special master.

In the New York City Eighty Cent Gas Case the question of going value was considerably confused by the use of the term "good will" to cover both good will in the ordinary commercial sense and going value or established business. The master in his report says (at pages 206, 207): 2

Outside of proof that Complainant had secured control of a majority of the stock of each of the other existing lighting companies, no evidence was offered in support of the above allegations, but, assuming them to be well founded, it seems to me that they are predicated upon an erroneous view of the meaning of the term "good-will" as involved in Complainant's claim. It is not necessarily the ordinary commercial good-will, such as attaches to an old firm name or place of business and is based in large degree upon the personal standing of the founder of the house. The modern decisions have recognized its proper scope as including that species of intangible value which comes from the gradual building up of a complete organization in the successful operation of a going concern. Such value can exist in the case of large corporations, notwithstanding public disfavor, unless this disfavor reaches such a point as to result in the absolute destruction of the business. An instance where good-will of this description was considered by the Court was in National Water Works Company v. Kansas

2 Consolidated Gas Company . Mayer, Report of Arthur H. Masten, Master in Chancery, United States Circuit Court, Southern District of New York, May 18, 1907. Printed in United States Supreme Court Record in Willcox v. Consolidated Gas Company, vol. 1, pp. 206–210.

City, 62 Fed. Rep. 853, which was a condemnation proceeding.

...

The nature of this intangible asset was well described in the report of Mr. Talfourd P. Linn, Special Master, filed June 8th, 1906, in the case of the Columbus Railway & Light Co. v. The City of Columbus. [See above, § 552.]

The master then somewhat confuses the issue by referring to two cases that treat of good will in the ordinary commercial sense: People ex rel. Cornell Steamship Company v. Dederick, 161 N. Y. 195, 55 N. E. 927, and Washburn v. National Wall Paper Company, 81 Fed. 17, 26 C. C. A. 312. The master then refers to the testimony of Dr. Humphreys and Mr. Addicks in relation to so-called "good will." He then says (at page 210):

Neither of the methods above suggested affords a satisfactory basis for any specific finding as to the value of the goodwill, considered apart from the question of franchises. It is clear that a new company, in addition to a substantial outlay for its franchises under existing laws (Greater New York Charter of 1897, as amended by Laws of 1901, Chap. 466, and Laws of 1905, Chap. 629, Sections 73-74), would be subjected to enormous expense before it could so perfect its organization as to supplant a powerful competitor already in the field. The relative cost of its franchises and good will might in such a case be to some extent apportioned. But in the present instance, their reproductive value is wholly in the realm of conjecture, and the two elements are so interwoven that there is no apparent basis for their separate appraisement. It is clear, however, that each is of substantial value and contributes very materially to complainant's earning capacity.

As I do not find it practicable to differentiate in figures the value of Complainant's franchises and good-will, I have concluded to consider all of the intangible assets together as a single item, the reasonable value of which I think may be fairly fixed at the sum of $20,000,000, or substantially the amount that would be reached by following the method adopted

by the referee in the Queens County and Suburban Railroad Case, before referred to.

§ 554. Consolidated Gas Case-United States District Judge Hough.

District Judge Hough in considering the master's report clearly distinguishes between good will in the ordinary commercial sense and good will in the sense allowed by the master, i. e., established business and business organization. He says:

3

By the definition of this species of property adopted in Washburn v. National Wall Paper Co., 81 Fed., at page 20, 26 C. C. A., at page 315, good will is "all that good disposition which customers entertain towards a house of business identified by the particular name or firm, and which may induce them to continue giving their custom to it." I cannot perceive how this complainant can possess a good will answering that description. There is nothing in the nature of its business enabling it to acquire good will in the property sense, or indeed in any other. It is required by law to furnish gas to all demanding it within a certain distance of the mains, and it owns the mains, service pipes, and meters. What induces a customer to remain with this company, its successor or vendee? Nothing that I can imagine, except a desire to avoid the nuisance of street digging in front of his house; a digging, however, entailing no expense upon him. Yet even this nuisance is in all human probability impossible of occurrence because of the beneficially monopolistic character of defendant's present occupancy of the streets of this city. Nor is there proof in the case of the value of what complainant calls good will, on which point I agree entirely with the master.

From the testimony I think it apparent that what is here meant by good will is the organization of complainant, long established, and doubtless well manned and equipped. Such organization is clearly of value, because without it neither

Consolidated Gas Company v. City of New York, 157 Fed. 849, 871, decided December 20, 1907. Permanent injunction granted.

its tangible nor intangible property can be profitably managed. Yet the organization itself is but a method of utilizing that which is invested. It is really dependent for its existence and continuance upon the franchise, without which there can be no useful organization. Tangible property has a certain value entirely apart from franchise, or right to continue business, or method of transacting business; but good will in the sense of organization for the business of furnishing gas can have no existence whatever apart or detached from the franchise conferring the necessary privilege. Would any one think of capitalizing good will of this kind and distributing its assumed value in the shape of new shares among shareholders, new or old? I think the most ingenious financier could not imagine such a proceeding, and, if this good will be not property capable of such capitalization and distribution, I do not think it property capable of capitalization as against the state.

Finally, this claim of good will seems to forget that for many years the price and distribution of complainant's gas has been regulated by law. A citizen is entitled to have a clean street before his house because he pays taxes, inter alia, for that purpose. He is much more plainly entitled to have complainant's gas in his house because the company must give it to him if he pays for it. I think it apparent that the conceivable good will of a gas company in this city is about equal to that of the street cleaning department of the municipal government. § 555. Consolidated Gas Case-United States Supreme Court. In the opinion upon appeal of this case to the United States Supreme Court, Justice Peckham says: 4

We are also of opinion that it is not a case for a valuation of "good will." The master combined the franchise value with that of good will, and estimated the total value at $20,000,000.

The complainant has a monopoly in fact, and a consumer must take gas from it or go without. He will resort to the "old stand," because he cannot get gas anywhere else. The

4 Willcox v. Consolidated Gas Company, 212 U. S. 19, 52, 29 Sup. Ct. 192, 53 L. ed. 382, January 4, 1909.