Assignment of goodwill and distribution contract

The transfer of a business is not worth and does not entail the transfer of a distribution contract.

In a decision of 19 October 2022, the Commercial Chamber of the Court of Cassation laid down, in a fairly conventional solution, the principle that the transfer of a business is not worth and does not entail the transfer of a distribution contract.

Indeed, the commercial chamber of the highest court of the French judicial order, endorsing the assessment of the Court of Appeal, emphasizes, again in a fairly classic way that, as soon as a deed of transfer of goodwill does not expressly mention and does not include Distribution AgreementThe said distribution contract cannot be “carried away” by the transfer of the business.

Short and quick recap of the facts. A cosmetics producer concluded an exclusive distribution contract for its various products in October 2016 for a period of five years. In April 2018, less than two years after the signing of the said contract, the cosmetics producer decided to Business assets If the assignee honors “a few orders” from the distributor and that a new distribution contract is the subject of discussion between the two parties, the assignee promptly informs the distributor that it will not sign Distribution Agreement and that he will “no longer be able to receive any orders”. The distributor decides – despite everything – to “place” a new order giving formal notice to the assignee “to resume without delay the execution of the exclusive distribution contract and to deliver its order”. In the absence of a response, and having not obtained satisfaction, the distributor decides to assign the cosmetics producer and the transferee of the business.

The question of the transmission of the distribution contract with the business deserves to be asked in the light of the facts of the case. Therefore, transfer of goodwill included, in particular, the property rights to the cosmetics producer’s trademarks and patents under which the products covered by the sole distributorship agreement It could legitimately be imagined that the contracts associated with these brands would “follow” the goodwill as they are intimately linked. Indeed, without this association, the distributor would simply not be able to benefit from the prerogatives offered by the distribution contract To this observation and this evidence, the Commercial Chamber of the Court of Cassation in its decision of October 19, 2022, responds that “the transfer of a business including the transfer of ownership of rights in trademarks does not entail EXCLUSIVE DISTRIBUTION AGREEMENT products bearing these trademarks “. Behind this solution is the idea that the transmission of a contract cannot be imposed on one of the parties.

Thus, when a business is transferred, with the exception of the right to lease, insurance contracts, publishing contracts and employment contracts, which are legal exceptions, the contracts are not automatically transferred. The highest court of the French judicial order refuses that the transfer of a business will automatically result in the transfer of the contracts concluded by the transferor. It is therefore considered that the other contracts associated with the goodwill, such as in this case the distribution contract, do not form part of the goodwill and, therefore, cannot be assigned automatically.

The assignment of a distribution contract therefore orders a specific assignment, subject to the provisions of common contract law and more specifically Article 1216 of the Civil Code as well as the agreement to the assignment of the assigned contractor, this agreement may be, and it is important to note, given in advance in the distribution contract