Requirements contract

Type of contract between suppliers and buyers

Contract law

Formation

* Capacity
* Offer and acceptance
* Meeting of the minds2
* Abstraction principle4,5
* Posting rule1
* Mirror image rule
* Invitation to treat
* Firm offer
* Consideration1,4
* Implication-in-fact
* Collateral contract

Defences

* Misrepresentation
* Mistake
* Threats and unequal bargaining power
* Illegality and public policy
* Unconscionability
* Culpa in contrahendo2
* Force majeure
* Frustration of purpose
* Impossibility
* Impracticability
* Hardship
* Set-off
* Illusory promise1
* Statute of frauds1
* Non est factum1
* Unclean hands1
* Accord and satisfaction1
* Exculpatory clause

Interpretation

* Parol evidence3
* Contract of adhesion
* Integration clause
* Contra proferentem
* UNIDROIT Principles

Dispute resolution

* Choice of law clause
* Forum selection clause
* Hague Choice of Court Convention
* Arbitration
* New York Convention
* UNCITRAL Model Law
* Mediation
* Singapore Mediation Convention
* Enforcement of foreign judgments
* Hague Judgments Convention

Rights of third parties

* Privity of contract1
* Assignment
* Delegation
* Novation
* Third-party beneficiary

Breach of contract

* Anticipatory repudiation
* Cover
* Exclusion clause
* Efficient breach
* Deviation
* Fundamental breach

Remedies

* Specific performance3
* Money damages
* Liquidated, stipulated, or penal damages3
* Rescission

Quasi-contractual obligations

* Promissory estoppel1
* Quantum meruit1
* Unjust enrichment
* Restitution
* Negotiorum gestio2

Duties of parties

* Duty of honest contractual performance (or doctrine of abuse of rights)6
* Duty of good faith (also implied covenant of good faith and fair dealing or duty to negotiate in good faith)7
* Contract A and Contract B in Canadian contract law6

Related areas of law

* Conflict of laws
* Commercial law

By jurisdiction

* Australia
* Canada
* China (mainland)
* India
* Saudi Arabia
* United Kingdom
* England and Wales
* Scotland
* United States

Other law areas

* Tort law
* Property law
* Wills, trusts, and estates
* Criminal law
* Evidence

Notes

* 1 Specific to common law jurisdictions
* 2 Specific to civil and mixed law jurisdictions
* 3 Historically restricted in common law jurisdictions but generally accepted elsewhere; availability varies between contemporary common law jurisdictions
* 4 Specific to the German Bürgerliches Gesetzbuch and other civil codes based on the pandectist tradition
* 5 Explicitly rejected by the UNIDROIT Principles of International Commercial Contracts
* 6 Specific to Canadian contract law both in Québec and in the country's common law provinces
* 7 Specific to civil law jurisdictions, the American Uniform Commercial Code, and Canadian jurisprudence in both Québec and the common law provinces pertaining to contractual and pre-contractual negotiation

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A requirements contract is a contract in which one party agrees to supply as much of a good or service as is required by the other party, and in exchange the other party expressly or implicitly promises that it will obtain its goods or services exclusively from the first party.[1] For example, a grocery store might enter into a contract with the farmer who grows oranges under which the farmer would supply the grocery store with as many oranges as the store could sell. The farmer could sue for breach of contract if the store were thereafter to purchase oranges for this purpose from any other party. The converse of this situation is an output contract, in which one buyer agrees to purchase however much of a good or service the seller is able to produce.

## Problems

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### Consideration

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Several problems typically arise with requirements contracts. The first is consideration. There would technically be no breach of the contract if the buyer bought nothing because the buyer is agreeing to buy only as much as the buyer needs. In the above example, the grocery store might void its obligation to buy from the farmer by deciding not to carry oranges. Courts generally sidestep the concern that the buyer is not actually required to buy anything by noting that the contract is nonetheless the surrender of the right to buy from another party. Put simply, "[t]he buyer under a requirements contract does not promise to buy as much as she desires to buy but, rather, to buy as much as she needs".[2] However, such a contract would likely be deemed illusory if the buyer reserved the right to buy from other parties.[3]

### Defined terms

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Another problem is the lack of a defined term. Contracts must have terms that are sufficiently defined for a court to be able to determine where a breach has occurred. It would be difficult to determine whether the buyer in a requirements contract is falsely claiming that his needs are lower than they actually are as a ploy to achieve a renegotiation or rescission of the contract. Conversely, if market conditions make the contract price a windfall for the buyer, that buyer may decide to buy more than it actually needs in order to go into competition against the seller. Courts often look to the history of dealings between the parties and to the standards within the industry to determine if the buyer is acting in bad faith for breach of contract actions on requirements contracts.

Until fairly recently, requirements contracts were deemed void under the law of France for lack of defined terms under Articles 1129 and 1583 of the French Civil Code.[4] In Belgium, by contrast, court decisions have consistently held such contracts to be valid, despite the Belgian Civil Code having language identical to that of France.[5] In the context of transactions in goods, most jurisdictions in the United States apply Section 2-306(1) of the Uniform Commercial Code, which imposes a good faith limitation on purchases under a requirements contract.[6] The Code states:

> § 2-306. Output, Requirements and Exclusive Dealings.

> (1) A term which measures the quantity by the output of the seller or the requirements of the buyer means such actual output or requirements as may occur in good faith, except that no quantity unreasonably disproportionate to any stated estimate or in the absence of a stated estimate to any normal or otherwise comparable prior output or requirements may be tendered or demanded.

Simply put, this means that a requirements contract for goods is valid, but might not be enforced if the buyer makes demands that are unreasonable compared to either prior estimates or industry standards. The Uniform Commercial Code does not apply to sales of services.

### Antitrust concerns

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Finally, antitrust concerns sometimes arise because a requirements contract prohibits the buyer from doing business in a particular commodity with a party other than the seller. This may create an exclusive dealing arrangement which gives the seller monopoly power over the buyer, preventing the buyer from seeking a better deal if the market becomes more competitive. Conversely, a buyer able to generate sufficient demand can absorb all of the seller's output, effectively removing that seller from competing on the open market. Requirements contracts have nevertheless been upheld in the face of challenges on antitrust grounds.[7] Robert Bork, in The Antitrust Paradox, examines requirements contracts and contends that they are not anticompetitive precisely because they are a product of freedom of contract. He argues that no one would sign a requirements contract with a seller in the first place unless that seller offered a better deal than its competitors, and a better deal could only be offered by a more competitive seller.[8] Bork concludes, "[t]he truth appears that there never has been a case in which exclusive dealing or requirements contracts were shown to injure competition".[9]

## References

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1. ^ Roger LeRoy Miller, Gaylord A. Jentz, Business Law Today: The Essentials (2005), p. 336.
2. ^ Richard A. Mann, Barry S. Roberts, Smith and Roberson's Business Law, (2005) p. 210. See also Roger LeRoy Miller, Gaylord A. Jentz, Business Law Today: The Essentials (2005), p. 336.
3. ^ Roger LeRoy Miller, Gaylord A. Jentz, Business Law Today: The Essentials (2005), p. 336.
4. ^ James Gordley, The Enforceability of Promises in European Contract Law (2001), p. 193-197.
5. ^ James Gordley, The Enforceability of Promises in European Contract Law (2001), p. 197-199.
6. ^ Richard A. Mann, Barry S. Roberts, Smith and Roberson's Business Law, (2005) p. 210.
7. ^ Jonathan M. Jacobson, American Bar Association, Section of Antitrust Law, Antitrust Law Developments (2007), p. 248.
8. ^ Robert Bork, The Antitrust Paradox (1978), p. 304-05.
9. ^ Robert Bork, The Antitrust Paradox (1978), p. 309.

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