## Facts

- Nexxus Products Co. marketed professional hair-care products through independent distributors, not retail stores.
- Nexxus entered an exclusive Texas distributorship agreement in 1979 with Best Barber & Beauty Supply Co., covering most of Texas.
- The agreement required the distributor to use “best efforts” to promote Nexxus products and limited termination to an anniversary date with 120 days’ notice.
- In 1981, Sally Beauty Co. acquired Best and succeeded to Best’s contractual position.
- Sally was a wholly owned subsidiary of Alberto-Culver Co., a hair-care products manufacturer that competed with Nexxus.
- After learning of the acquisition and competitor control, Nexxus cancelled the distributorship.
- Sally sued for breach, asserting the assignment was effective and termination did not comply with the contract’s notice and timing provisions.

## Issues

1. Whether the exclusive distributorship, treated as a sales-of-goods contract, was assignable under UCC § 2-210 without Nexxus’s consent.
2. Whether Nexxus had a “substantial interest” in having the original distributor (an independent distributor) perform, such that delegation/assignment to a competitor’s wholly owned subsidiary was ineffective.
3. Whether Nexxus’s cancellation constituted breach given the alleged assignment and the contract’s termination restrictions.

## Decision

- The Seventh Circuit affirmed summary judgment for Nexxus.
- The court treated the arrangement as governed by UCC Article 2 rather than common-law “personal services” doctrine.
- Applying UCC § 2-210, the court held the contract could not be assigned/delegated to a wholly owned subsidiary of Nexxus’s direct competitor without Nexxus’s consent.
- Because the delegation was ineffective as against Nexxus, Nexxus did not breach by cancelling the distributorship.
- A dissent would have required Nexxus to seek adequate assurances of performance under UCC § 2-609 rather than cancel outright.

## Legal Principles

- Under UCC § 2-210, delegation is barred when the other party has a substantial interest in having the original promisor perform or control performance.
- In an exclusive dealing arrangement, the obligee may have a substantial interest in the distributor’s independence and incentives, particularly where “best efforts” are part of performance.
- Assignment of contract rights coupled with delegation of performance duties can be ineffective when the change in control would make performance “substantially different” from what was bargained for.
- An exclusive distributorship’s performance duties generally may not be delegated to a direct competitor, or its wholly owned subsidiary, without the obligee’s consent.

## Conclusion

The court held that UCC § 2-210 prevented assignment and delegation of an exclusive distributorship to a competitor’s wholly owned subsidiary without the supplier’s consent because the supplier had a substantial interest in performance by an independent distributor; therefore, cancellation was not a breach.


Sally Beauty Co. v. Nexxus Prods. Co., 801 F.2d 1001 (7th Cir. 1986)