Alessandro Stanziani
Shopkeepers and the legal price of goodwill: Parisian fonds de commerce in 19 th-20th
century
The history of retail trade is usually included in a more general history of capitalism
according to which retailing is mostly linked to the process of urbanization. In the 19 th and 20
centuries, this long-term trend would have been completed by a deep transformation of
retailing itself, passing from the small family shop to the department store and the
supermarket. In turn, this transformation would have corresponded to that of production (large
units and product standardization) and to the raise of mass consumption.
Although not completely false, this tale is nevertheless founded upon some critical
assumptions: economies of scales are supposed to give everywhere a comparative advantage
while small shops lack of innovation capabilities. In this context, retailers are supposed to be
included in a mostly commercial short-term credit system, in which gross traders will
represent the main creditors of retailers.
From this point of view, the history of small retailing trade and its sources of financing
crosses the history of the family. In particular, even more that the emergency of the
department stores, the history of retailing at the turn of the 19th and 20th centuries is marked
by the evolution of the credit resources available. The evolution of the dowry practises and
marriage contracts clauses come together with the progressive, although extremely difficult,
legal admittance of goodwill as a source of credit.
The first part of our paper will discuss the evolution of marriage contracts and the role of the
dowry. We shall then focus our attention on the definition of fonds de commerce and its
evolution according to legal and economic thought and practises.
The third section will develop the analysis of the hypothecation while the fourth and last part
will discuss of the reputation, its price and its legal acknowledgement.
We shall argue that all these shifts are interconnected between them. The evolution of dowry
practises and marriage contracts is a response and one of the sources of changes in the
practise of hypothecation. In turn, the legal and economic notion of goodwill and reputation
deeply change because of this evolution in both the marriage and the credit market. Finally,
all this will lead us to reconsider the role of small trade in the history of capitalism, the
emergency of the legal notion of the firm and the general passage from estate and land
capitalism to financial capitalism.
A final remark concerns the translation of “fonds”. In current English language goodwill may
express the custom as well as other intangible and immaterial components of capital. In
French, as we shall see, the word “fonds” (de commerce) does not have all the time the same
meaning and the legal and judicial evolution of this meaning is the very core of our history.
While an similar historical analysis over some centuries should be made for the word
“goodwill” in English, we had preferred to keep the French expression “fonds de commerce”
while specifying at each occasion what the quoted source and author tried to put in it.
The definition of fonds de commerce
During the 18th century already, discussions widespread over the fact of knowing whether
“achalandage”, that is the set of customers, as well as the shop-keeper savoir-faire, the shop
site, etc. ,that is the “intangible” features of the going business have a market price, and if
they can make the object of property rights and a reference for credit supply, or enter
inheritance acts, etc. Up through 1770, it is quite difficult to find these items in the post-
mortem, bankruptcy and sale acts; the picture is quite different in the two decades before the
revolution when the more and more notarial acts include customs and goodwill. However, this
practise is badly considered by both creditors and commercial law-courts who consider that
incorporeal property only pump up assets while reducing creditors’ real guarantees. The
leading jurisprudence of that time confirms this last attitude and excludes goodwill from
business estate.
Discussions in the committee charged with the elaboration of the future codes confirm the
existence of these two conflictual attitudes, one being favourable to a legal acknowledgement
of goodwill and the other firmly opposed to it. In fact, contradictory interests are evoked: one
is the buyer’s interest in that the seller does no act in disloyal competition; another is the
seller’s concern in that the buyer will pay the whole price in the expected time, and still
another one is creditors’ interest in that debts will be honoured. In the discussion, those who
maintain that goodwill is a crucial economic asset and as such it should be legally defined and
protected are confronted to those who stress that this notion is incompatible with the notion of
property as defined in both the civil and commercial code. This last orientation prevails and
the notion of fonds de commerce lack in both the civil and the commercial codes.
As it was already the case in the 18th century, this issue does not prevent private actors in
referring to goodwill in their transactions. They have two opportunities: either they explicitly
mention it or not. In the first case, in case of litigation (for example, the buyer does not
honour his debts or do not respect the deadline) the plaintiff risks the judge rejects his
argument.
In the second case, the involved parts can agree on including the value of the fonds in another
item (value of the stock, credits, price of the “walls”); but, here too, in case of litigation, the
plaintiff will incure a greater risk of not having his argument taken into consideration by the
judge.
The choice of the court in front of which the case is discussed increasingly matters along the
century, for commercial courts constantly oppose the legal acknowledgement of goodwill
while civil law courts increasingly admit it. This is so, not only because the notion of property
as it appears in the civil code is much less limited and determined as in the commercial code,
but also because commercial judges are themselves traders, mostly gross traders and, as such,
they have no interest in granting retailers new sources of financing while lowering the weight
of “real” guarantees over personal guarantees in (commercial) credit relationships.
Because of this uncertain legal acknowledgment of goodwill, Shopkeepers are confronted to
major difficulties in getting credits, in particular if conjuncture is negative. In this last case,
they will be increasingly subordinated to gross traders.
This contributes to explain retailers’ associations increasing pressure during the last quarter of
the 19th century for that goodwill will receive a legal status. This is all the more true, that
although goodwill is not legally admitted, and, partially because of that, hypothecation is
mostly practised by gross traders who accept the risk of not having cautions for this. In
exchange, they require for an exclusive supply contract to the shopkeeper. This issue finds its
most rationale in that, commercial and administrative rules tightly distinguish gross and retail
trader and forbid the former to enter the retail trade. As such, hypothecation of fonds becomes
a way for gross traders to bypass this legal interdiction. To this same aim, Sometimes
wholesale traders finance servants, housekeeper, etc. who wish to open a shop without
disposing of resources and/or guarantees; more often, these people act as simple figureheads
for wholesale traders. If the business is successful, the wholesale trader would have achieved
a disguised form of vertical integration; and if it does not, he can always declare the
insolvency of the retailer and further control the ensuing legal procedure. Most of the
litigation in terms of disguised hypothecation, privileged debts, etc. are actually due to this
kind of relationships between the retailer and the trader. This is why, shopkeepers and their
associations constantly seek for other sources of credit, that is cooperative and mutualist
banks and the legal admission of hypothecation for goodwill.
Unfortunately for them, not only commercial courts, but a majority of political elites
constantly refuse this solution, for the same reasons we have evoked before (credit rules,
social and economic role of estate property) until when, during the last quart of the century,
they are obliged to capitulate. Why?
Taxes and goodwill
Since the 18th century already, the tax administration is quite favourable to let the “fonds de
commerce” be included in wills and contracts of sale of shops. This issue is supposed to
increase tax collection while reducing fraud. A tax on goodwill sale is introduced in 1798;
however, between 1808 and 1831, this tax is 1% while that on the sale of new goods is fixed
at 2% of their value. The issue is that sales of goods are often accounted as sales of goodwill.
This situation changes under the Second Empire when the new law on societies (1867)
together with the increasing urbanization and social differentiation processes speed up shops’
turn-over. In order to benefit of this, the tax administration decides to modify taxes: in 1872,
tax on sales of goods are reduced to 0,5% while tax on sale of shops and goodwill are kept at
2%. This encourages economic actors to present transfers of shops and their related goodwill
as donations, legacies, etc. For example, in 1882, 103000 out of 11000 boutiques’ transfers
are presented as donations.
Because of this, litigations between tax authorities and economic agents dramatically increase.
In most of these litigations, tax authorities try to prove that a donation actually hides a sale
and, because of this, the seller has to pay a tax. However, the issue of these litigations is
complicated by the fact that most of the transfers of “fonds” is achieved within the sa me
family, usually a father passing his fonds to his son. As such, this transfer is included in wills
or in donations; the tax authorities try to prove this is false by quoting the payments of the
“patent” made by the son; but judges not always follow.
Because of this, Fiscal policies encourage hypothecation rather than sale of shops, but this
issue is strongly condemned by both commercial courts and gross traders. It is in this context
that, in march 1888 the Court de cassation admits the hypothecation of goodwill on the
ground of an increasingly consolidated jurisprudence of civil courts (cass. Requ. 13 march
1888, Dalloz, 1888,1,351).
This judgement receives the greatest publicity because of a favourable political and economic
situation: most of the political groups are sensitive to the crisis of small holders, small
peasants, craftsmen and shopkeeper, confronted to falling prices and the development of big
units.
Beyond jurisprudence and taxation, the third and decisive support to a legal acknowledgement
of hypothecation of goodwill surprisingly comes from gross wine traders. This is one of the
most influential lobbies and, as other gross traders, they should be in theory opposite to
hypothecation. But in the 1890 they are confronted to an extremely difficult economic trend,
they are increasingly indebted and they would like to practise themselves the hypothecation of
their going business. To their eyes, this solution should also sustain their effort in keeping the
control of the wine filière as against winegrowers and retailers.
With the support of Millerand and other elected deputies, this lobby thus deposits, at first in
1893 and again in 1898, a bill aiming to legalize the hypothecation of goodwill. In 1898 the
bill is adopted thanks to the alliance between wine merchants’, small traders’ and craftsmen’
representatives. The new law marks a crucial shift in commercial rules. By admitting the
hypothecation, the law accepts the pledge without dispossession while admitting the existence
of goodwill as a legal entity.
The success of this new law is quite evident: at the commercial court of the Seine department
(Paris and neighbourhoods) 728 hypothecations are recorder in 1898, 1089 in 1899, 1260 in
1900, 1492 in 1901, 1643 in 1903, 1807 in 1904. This success is all the more remarkable that
economic actors know that law courts would eventually still not admit it. In fact, despite the
law of 1898, commercial law courts do not stop refusing any admittance of hypothecation.
They justify this attitude on the ground of the fact that the law of 1898 had not regulated the
publicity of the act; this makes hypothecation invalid as it constitutes at the same time a
credit, a transfer of business and part of a consolidated estate made of real, personal and
intangible property. A majority of chamber of commerce sustain this view.
In order to better understand this point, in the following pages we are going to detail the
historical regulation of goodwill and its publicity. This demands a further development, on
the one hand, of the link between goodwill and the whole estate, and, on the other hand, of the
definition of goodwill as tangible, intangible or immaterial property.
Goodwill and the indivisibility of patrimony
According to the leading jurisprudence of the 19th century, as a personal property, the
transfer of fonds is subjected to no form of publicity . Its sale can be done by act of
private deed, without passing in front of a notary. The limitation of publicity increases
the risk for opportunistic behaviours for both the buyer, the seller and their creditors;
For example, without publicity, the incoming shopkeeper is likely not to be aware of
debts weighing on the “fonds”, nor it has a guarantee that the seller will not be acting
in disloyal competition. Least but not the last, without publicity creditors are likely to
loose their credits and privileges.
Because of this high risk, the lack of publicity encourages transfers inside the same
family or family group, while lowering sales outside the family except for risk-bearing
and/or gross traders.
In order to face these difficulties, several solutions are advanced all along the 19 th
century. The more and more contracts include the clause according to which the
purchaser does not have the right to resell the funds before he had paid its whole
price. However, this solution apparently easy to define encounters important
difficulties of application when contractors determine price and schedule for
payments in a rather complex way (credit compensation, link with other formal and
informal arrangements etc etc). In case of litigation, this opens the way to long and
complicated negotiations in order to find a solution.
In some cities (Lyon, Marseille, Paris, Rouen), this problem is overcame by evoking
local trade customs imposing publicity as a necessary condition for transferring
goodwill and shops.
However, this solution too is the more and more difficult to enforce, insofar, with the
passing of the years, law-courts have increasing difficulties in identifying what a local
custom is, for both the definition of “local” (important changes in economic spaces)
and of “custom”. Commercial practises as a whole and commercial agreements on
shops transfers in particular strongly evolve and local actors and their associations
give completely different interpretations of them when they are questioned by
magistrates or fiscal administrations.
Because of this legal and economic uncertainty on the definition of goodwill and the
conditions for its transfer, most of the contracts refer to only some aspects and parts
of it – goods, materials, patents, customs etc. This issue aims to reduce uncertainty
for both creditors and buyers of the “fonds”, but it actually simply shifts it from the
definition of goodwill itself to the question of knowing whether single parts of the
“fond” can be sold or not. This question is particularly striking for brands and patents,
insofar as the more and more fonds owners pretend to sell their fonds while
excluding these items.
In case of litigation, judges usually sustain the buyer’s argument and consider that
brands, patents, and the trade-name have to be transferred with the fonds. This
judicial solution is based upon the notion of fonds as a whole entity.
However, this issue requires that the legal link between patent and innovation is
stable and clear and that the economic and legal definition of the “activity” practised
by the firm is clearly defined. In case one of these conditions lacks, the conception of
the fonds as a entity becomes much more complicated to adopt. It is the case, for
example, of a Parisian merchant of wines and alcohols who also has a hat industry
having recourse to alcohols for the manufacture of the hats. The merchant seeks to
obtain the same brand-name for the two activities, but this provokes the hostility of
wine merchant professional associations who consider that this solution will raise
confusion over wine as a consumption good and wine as an input of production.
This conflicts even sharpen when the same trader-manufacturer decides to sell its
“debit” but not its manufacture, while trying to keep the common brand-name for him.
His shop’s buyer goes to law court and he is successful.
******
The need for a legal discipline for publicity on funds transaction is not only linked to
the evolution and increasing complexity of economic activities.
In fact, the composition of the funds and the possible exclusion of some of its
elements form the sale represent two essential information on this market. For the
purchaser, it is a question of reducing as much as possible asymmetries of
information on a market whose object and the relevant information on it are quite
composite. The information the purchaser and the creditor need is not the same one
for, saying, the characteristics of certain goods, the potentialities and the legal
protection of a patent or, still, the customers and their fidelity. All these elements
require a detailed and differenciated expertise.
To this, one has to add information concerning the salesman himself, if it is reliable, if
it enjoys a good reputation and, thus, if it would not be tempted to cheat on one or
another of the evoked elements (for example, by keeping certain patents).
Because of this high transaction cost and uncertainty over transactions concerning
fonds de commerce, several chambers of commerce, traders associations and
judges are favourable to make publicity compulsory.
At the same time, it is also understandable that some other groups oppose this issue.
For example, the chamber of commerce of Nantes maintains that the best guarantee for
commercial transaction is the prudence of the négociant, while a compulsory publicity will
lead to long negotiations without stopping litigations which will even become longer and
more expansive.
On the same line, the chamber of commerce of reims considers that transactions of fonds are
better to be kept confidential otherwise they will no be successful.
All these arguments are supported by courtiers, arbiters, liquidators, etc who exist because of
the high uncertainty on the fonds.
To sum up, gross traders are the most favourable supporters for compulsory publicity over
fonds transactions, while intermediairies and mostly family or personal networks filières and
activities are opposed to it.
The first lobby prevails; On March first, 1905, a bill is submitted to the Senate; it will
be passed three years later. Publicity is made compulsory, but no definition of
goodwill is given. This is so because, given the uncertainty about the definition of
goodwill, promoters of the law decide to let the parties and the judges free to identify
it case by case.
We may try to evaluate the impact of these new rules on the market of “fonds”; for
example, we have to investigate the question of knowing whether the obligation for
publicity, as supported by some actors but refused by others, causes a rise or a fall of
the transactions. We dispose of detailed figures for Paris, where the municipal
service of statistics profited from the information transmitted by the clerk's office at
the commercial court of the Seine as well as by the record service of the shops
transfers. Of course, these values are to be used with many precautions; for
example, the number of transactions is reduced by the fact that many transfers are
dissimulated in the form of succession in the same family (on this subject, the registry
office and the ministry of finance take several proceedings).
The real price of the transfer is also often dissimulated by the parts, in order to
reduce their respective fiscal burdens (Bercot considers this dissimulation being able
to go between 15 and 25% of the real price). It also should be held into account the
fact that the final price is often not comparable insofar as the selling of a “fonds” does
not always include the same elements; for example, goods and patents can be
sometimes included and sometimes excluded from the sale. Of course, this
ventilation will be more important for professions where patents matter (pharmacy,
cutlery, etc.) as regards professions as bakers, grocers, etc.
Least but not the last, we have to take into consideration the fact that the
occupational classification and fields are made on the basis of declaration of the
parts and, possibly, the way in which the clerks, and then the statisticians of the town
hall classify them. Taking into account these precautions, we can pass to examine
these statistics, initially for Paris as a whole, then by distinguishing per professions:
Sales of fonds de commerce, Paris intra muros, 1901-1914
Years N. of sold fonds Sold values Average price
vendus (centaines de
millions de francs)
1901 9274 100 11000
1902 11368 117 10300
1903 11802 114 9700
1904 11522 113 9800
1905 11021 113 10250
1906 12061 122 10100
1907 12677 149 11800
1908 14054 154 11100
1909 16850 208 12300
1910 15133 183 12100
1911 14340 180 12500
1912 13434 198 14700
1913 12273 185 15100
1914 7842 145 18000
Source :
Annuaire statistique de la ville de Paris, plusieurs années.
Years Architectes Architectes Cycles And cars Bazars Bazars
Sold Average N. Fonds Average Sold Fonds Average
Fonds price price price
(thousands
of francs)
1906 17 8.5 18 37 65 16.6
1907 22 58.5 27 36 84 10.2
1908 13 11 54 31.9 76 9.2
1909 20 17.6 32 26.1 48 17.5
1910 20 95.4 36 20.5 92 9.9
1911 19 8.3 55 13.8 99 12.7
1912 41 10.2 65 22 133 15.6
1913 44 10.2 71 50.8 115 19.8
1914 25 13.3 27 49.6 94 20.8
years Bijouterie And Butcheries butcheries boulangerie Boulangerie
clockmakers
Sold fonds Average Sold Fonds Average Sold Fonds Average
price price price
1906 95 26.1 519 9.5 438 19.4
1907 130 30.5 653 8.9 589 16.6
1908 127 31 597 8.2 461 22.8
1909 137 23 675 12.4 527 27.6
1910 148 17.2 518 9.9 387 10.3
1911 103 59.2 512 11.3 451 30.1
1912 122 25 514 12.7 426 25
1913 122 27.2 505 14.3 258 23
1914 77 43.2 320 14.5 131 24.8
Années Shirt And Hats shoes Shoes
underwear makers makers
shops
Sold Average Sold Fonds Average Sold Fonds Average
Fonds price price price
1906 224 5.5 13 19 58 5.4
1907 123 11.9 11 14.7 90 8.7
1908 39 11 25 23.1 102 6.1
1909 59 10 32 13.6 325 9.6
1910 217 6.7 50 35.9 137 12
1911 180 16 38 22.5 192 7.3
1912 126 44 46 15.3 170 6.3
1913 93 9.4 34 8.4 150 4.2
1914 46 9.5 25 17.2 93 10.9
Années Hairdressers And Hardware And groceries And food
perfumeries chemical
Sold Fonds Average Sold Fonds Average Sold Fonds Average
price price price
1906 235 3.8 1494 5.7
1907 283 4.5 82 14.4 1033 7.5
1908 281 9.8 75 10.2 1304 5.1
1909 325 9.5 139 11.9 1681 6.9
1910 336 5.6 37 25.6 1399 8.5
1911 426 6.2 163 10.8 1511 6.7
1912 451 6.5 116 24.2 1290 8.8
1913 433 6.1 90 28.6 1246 7.6
1914 283 8.9 79 11.9 750 12.4
Années Hôtels Hôtels machines And knifs mandataires Aux halles
Sold Fonds Average Sold Fonds Average Fonds Prix
price price vendus moyens
1906 739 14.7 70 25
1907 901 12 101 33.1 44 25.1
1908 1152 12.5 34 30.7 60 17.3
1909 1664 11.3 100 29.7 54 23.5
1910 1200 15.5 104 26.9 52 15.9
1911 982 18.5 104 33 6 10.3
1912 926 32.6 105 68.2 26 40
1913 820 28.4 49 56.5 31 45
1914 500 29 52 27.1 17 55.8
Années drugstores drugstores quincailleries quincailleries slocksmiths and
plumbers
Sold Average Sold fonds Average Sold fonds Average
Fonds price price price
1906 184 20.1 105 22.8 66 10
1907 175 14.7 90 25.8 77 14.2
1908 165 15.2 122 16.9 54 12.5
1909 169 21.9 95 13.8 77 14.2
1910 67 22.4 244 13.8 98 5.9
1911 140 26.7 93 24.3 79 14.4
1912 85 21.9 94 31.3 78 18.1
1913 119 24.5 132 44.2 66 10.3
1914 108 30.7 85 54.6 62 13.4
Source : Ville de Paris, Annuaire statistique, plusieurs années. Voir aussi : buisson,
annexe
These tables deliver some important information, to start with the rise of transactions,
despite and sometimes thanks to that of prices. This seems to confirm that legal
publicity of sale enhances much more than it brakes transactions while sustaining
transfers out of the family network.
The value of the transactions and their average depend on the size of the funds and
the concerned activity. For example, architect cabinets present a relatively limited
rotation while, given its price, the selling of a few big cabinets considerably affect the
whole market.
At the opposite, bazaars, grocers, bakeries and butcheries present a dynamics which
closely follows that of prices.
It will be also noticed that, even by taking into account the total number of existing
funds, grocery’s and hotels have a much stronger instability than other sectors.
This will lead us to the more general conclusion that although small family units meet
increasing difficulties at the turn of the century, this is much less generalized than
historiography or that time observers had maintained. Small trade instability is a fact
for grocers, much less for clockers.
At the same time, the new law encourages the evolution of retail trade and its
relationship with gross trade. The more and more small trade has to make deals with
big intermediairies and,sometimes, with firms born from a process of vertical
integration between production and trade. Because of this, the more and more
litigations on fonds transactions focus on the fact of knowing whether the distribution
contract (and its exclusivity rights) transfer with the fonds or not. The purchaser often
shows its interest in keeping it, while the firm or the gross trader would keep the right
to refuse. But the opposite situation is also possible: the purchaser of a fond is not
interested in keeping the contract with a gross trader or firm while this last tries to
keep it.
Behind this problem, and in order to fully understand how the new rules on fonds
transfers influence retail trade and trade in general, we have to go back to a basic
question we have already mentioned as it was raised since the 18 th century: the
transfer of custom and its evaluation.
Fonds and reputation
Since Chamberlain, the notion of monopolistic competition has been widely used to
study the retail market. Traders can be differentiated according to their location, their
attitude towards customers, their products, etc. However, this scheme lacks two
crucial (to us) characteristics of retailing, that is, the relationship between the shop
and the family and the institutional determinants of reputation. We have already
developed the first point and we are going to analyse the second one.
As we have already mentioned, in the French legal reasoning, fonds has been
sometimes been considered as a synonym for custom and sometimes not, the
difference having been relied at first on goods and later in the century on some other
immaterial capitals (brands, patents, etc.). In the following pages we are going to
develop these concerns, in particular the relationship of custom and custom transfers
with loyal competition on the one hand, with brand and patents on the other hand.
Undoubtedly, the reputation of the economic actors has been widely analyzed in both
economic history and economics. The reputation of merchants since the middle ages,
the role of notaries, that of producers of one or other sector (fabrics, wine,
glassmaking, etc), and even that of workers had been studied.
The underlying assumption is that making a reputation gives great comparative
advantages in both keeping old customs, conquering new customers, reducing
transaction costs, etc. This would seem to find a clear confirmation in the fact that the
leading jurisprudence of 19th century tightly link the selling of the fond with that of
brands, patents and commercial name.
However, this scheme meets some difficulties in explaining the links and differences
between the economic agent’s reputation and that of the product or the service
he/she provides. These two forms of the reputation are not necessarily synonymous
one for another; for example, punctuality in payments, deliveries, etc also contributes
to establish the reputation of the actor without touching the reputation of the product
or the service.
Of course one might observe that in case of divergence between reputation of the
product and that of the actor, soon or later market forces will fill this gap by
sanctioning the actor (or the product). In other words, market is efficient because a
rational actor has no interest to cheat if it benefits of a valuable marketable
reputation.
Of course, this conclusion requires that information circulate and/or its circulation
suffice to come back to the pure competition scheme (cultural beliefs and others do
not intervene in differentiate information from knowledge). Out of these hypotheses,
the two forms of the reputation may differ and reputation cannot necessarily be
identified with a valuable and transmissible economic asset. In order to reach this
issue, its legal protection is required.
From the economic point of view, brands and commercial names are investments
and as such, they bring benefits and costs. That is why, most of the economic
approaches to this consider that the firm has the right to include these costs and the
value of its brands in its budget, but also to transmit them.
However, in legal culture and reasoning of the 19 th century, this is not a simple
question. We have already mentioned the problems raised by the transfers of patents
and brands; in this section, we are rather going to focus on the transfer of custom.
The question is whether custom is a constitutive component of the fond or not; the
answer depends on, and will affect in its turn, the value of the firm and the rules of
competition. For example, on several occasions fonds’seller try to convince their
purchasers that they have the right to keep the trade-name as it is the same of their
personal name and they have the right to get their correspondence. Litigations on
this are quite numerous and in most cases judges support the buyer’s argument
(although it has to add its name or quality, for example “son” to the previous one).
This question is much more complicated for custom. Most of the doctrine and the
jurisprudence consider that custom constitute an essential component of the fond
and that, as such, it has to be transferred with it. This issue is justified on the ground
of the principle of loyal competition; as it was already the case for patents and trade-
mark protection and transfers. But, unlike industrial property, loyalty as applied to
custom transfers, does not imply that customers are obliged to follow. This means
that litigations focus much less on custom in itself that on the causes of its eventual
migration.The fonds’ purchaser who will loose much of the customers systematically
will argue that this was the result of the disloyal competition made by the seller. On
the contrary, this latter will explain the mentioned issue with the small capacity of the
buyer, its bad management, etc.
That is why several judges make a distinction between stable and occasional custom,
this last being included in the category of goodwill but not the former. But, if
customers are not obliged to follow, so the transfer of custom and its inclusion in the
notion and value of fond can be viewed as the price the purchaser is ready to pay not
to have the seller as a rival on the same market. Goodwill is the price of desistance
(better known as the respect of the rule of fair competition) rather than the price of
custom itself.
After all, since the revolution, the sentence "too much of freedom (of trade) hurts to
trade" constitute the most widespread refrain advanced by trade associations,
officials, not to forget economists and lawyers.
Conclusion: fonds vs enterprise?
The concept of goodwill and its practices leads to re-examine the economic history of
the (retail)trade, the relationship between trade and credit as well as the historical
sociology of professions. Economic history has almost systematic ally given a
favourable judgement on retailing as regards its role during the first phase capitalism,
because of its role in linking consumers and producers, towns and the countryside
etc. On the contrary, judgements on retaling and family shops are much more
nuanced, if not critical, as regards the advanced phases of industrialization, for which
the big industry and then developed services and magazines have been considered
as the leading sectors.
This approach does no take into consideration a) the credit constraints over small
shops and its evolution, that is its entering into a real monetary economy; b) the role
of legal and market institutions in the shop activity and c) the crucial question of the
intangible property.
In fact, the contribution of “capital” and “labour” as well as the evaluation of the
intangible property are constantly under negotiations, in both the political arena, the
judicial courts and the economic relationships.
These negotiations about trade and its institutions do not necessarily aim to
maximise efficiency as supposed by the traditional institutionalist paradigm.
Nor these same negotiations and conflicts cannot be interpreted as those between
quite definite socio-economic groups (traders against retailers, small against big
shops, etc.).
On the contrary, transactions, negotiations and litigations about fonds de commerce
are placed at the crossroads between marriage and credit markets. In fact on of the
crucial points under discussion is the guarantees for credit, whether real or personal.
Real guaranteed are strongly supported by the notion of property as emerged by the
revolution and defended by gross traders and a large majority of judges. Personal
credit is on the contrary a credo for small traders who mostly wage on their reputation
for keeping on their business. The tensions and the equilibrium between these two
sides of the matter are those between patrimonial and financial capitalism, personal,
and familiar networks and Impersonal networks.
During most of the 19th century, in france, immaterial and intangible property are
badly protected by law; this does not stop the economic growth but it gives an
extraordinary economic strength to personal ties, material property and the family
contract. In a certain way, the persisting importance of the family units and that of
material guarantee are mutually linked.
This is why, any evolution of these organizational forms cannot be fully understood
without taking into consideration the simultaneous evolution of credit and marriage
institutions. An increasing legal power of the married women in the economic activity
of the family gives a greater importance to her working activity rather than to her
dowry; this process goes along with an important reform of the market credit, with the
legal acknowledgement of the hypothecation of the fonds. A legal discipline of
information and its circulation is required to make these reforms workable.
Intangible and immaterial properties can circulate and for this they find a more
definitive legal protection.
However while it is difficult to definitely conclude that this process lead to increasing
efficiency (institutionalist argument), we can surely admit that it gives rise to a new
notion of competition. By now, fair competition rather than free competition becomes
the credo and the main aim of institutional reforms; the transmission of the fonds, the
definition of customs, the publicity question, the conditions of transmission of patents,
trade-name, etc. all these different entries are included under the umbrella of
(un)faircompetition, that is the price to pay to make competition workable.