Sally Beauty v. Nexxus

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Sally Beauty v. Nexxus
Court 7th Circuit
Citation 801 F.2d 1001
Date decided September 26, 1986

Facts

  • Nexxus Products Co. = "Nexxus" = hair-care products producer = a company owned by Unilever in 2024 = a supplier
  • In 1979, Best Barber and Beauty Supply Company ("Best") agreed to be the exclusive distributor of hair products of Nexxus in Texas
  • Sally Beauty Co. = "Sally" = a subsidiary of a direct competitor of Nexxus = a distributor
  • In 1981, Sally acquired Best; Sally was assigned the contracts of Best with Nexxus
  • In short, Sally was distributing the products of its competitor Nexxus
  • Later, Nexxus refused to allow Sally to distribute its hair products in Texas

Procedural History

  • Sally sued Nexxus for breach of the exclusive-distribution contract.
  • Nexxus won a summary judgment.

Issues

Can an exclusive-distribution contract be assigned to a supplier's competitor without the supplier's consent?

Arguments

Nexxus argued that while it could trust Best as a business partner, Nexxus couldn't trust Sally to distribute its products.

Holding

No. An exclusive-distribution contract can't be assigned to a competitor in the marketplace without the supplier's consent.

Judgment

Affirmed

Reasons

Judge Cudahy: Section 2-306 of the UCC compels the buyer (Sally) to use best efforts to promote the sale of goods from the supplier (Nexxus)

The law can't force Nexxus to take a huge risk of an unfavorable outcome

Rule

Article 2 of the UCC applies to distribution contracts: a party agrees to distribute a product for a manufacturer

Comments

Richard Posner dissented.

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