Requirements contract

Abstract: The UCC and common law have used "good faith" to interpret long-term, open quantity contracts in a manner which ignores the parties' allocation of discretion. With no theory to guide them, courts have rewritten contracts to say, in effect, that a seller agrees to keep running his factory at a loss in order to generate waste (the waste removal company being the purchaser under the long-term contract) or that a buyer in a long-term requirements contract has promised to never run its facility at full capacity. Commentators have routinely accepted these interpretations without recognizing the peculiar features of this default rule. The simple theoretical point is that a long-term contract will often grant one party discretion with regard to quantity, in the form of output or requirements contracts, to adapt to changed circumstances. That discretion will typically be constrained by the requirements (or output) of a particular facility. To protect the opposite party's reliance, the contract will often impose additional constraints on that discretion so that the first party must take this reliance seriously when making quantity decisions. The paper analyzes a number of cases from this perspective and concludes that, with the possible exception of cases in which the buyer eliminates its requirements by selling the plant, the courts should not use good faith to override the contractual allocation of discretion.

Abstract: The UCC and common law have used "good faith" to interpret long-term, open quantity contracts in a manner which ignores the parties' allocation of discretion. With no theory to guide them, courts have rewritten contracts to say, in effect, that a seller agrees to keep running his factory at a loss in order to generate waste (the waste removal company being the purchaser under the long-term contract) or that a buyer in a long-term requirements contract has promised to never run its facility at full capacity. Commentators have routinely accepted these interpretations without recognizing the peculiar features of this default rule. The simple theoretical point is that a long-term contract will often grant one party discretion with regard to quantity, in the form of output or requirements contracts, to adapt to changed circumstances. That discretion will typically be constrained by the requirements (or output) of a particular facility. To protect the opposite party's reliance, the contract will often impose additional constraints on that discretion so that the first party must take this reliance seriously when making quantity decisions. The paper analyzes a number of cases from this perspective and concludes that, with the possible exception of cases in which the buyer eliminates its requirements by selling the plant, the courts should not use good faith to override the contractual allocation of discretion.

Abstract: ONE of the functions of the presidential commission which was recently appointed to study the scope and operation of the federal antitrust laws is to examine the economic situations under which legal action would be justified. The problem to which this paper is directed is to determine the circumstances under which the type of exclusive dealing arrangement known as the term requirements contract may be injurious to competition. An attempt will be made to construct an analytical framework within which any given set of requirements contracts may be fitted to determine its probable effect on competition in the market for the goods covered.

Abstract: General editor's preface Contributors Table of legislation Abbreviations 1. Some perennial problems 2. Contemporary solutions Case 1: promises of gifts Case 2: promises of compensation for services rendered without charge Case 3: promises to pay debts not legally due Case 4: a promise to come to dinner Case 5: promises to store goods without charge Case 6: promises to do a favour Case 7: promises to loan goods without a charge Case 8: a requirements contract Case 9: promises to pay more than was agreed I Case 10: promises to pay more than was agreed II Case 11. Promises to do more than was agreed: promises to waive a condition Case 12: promises to take less than was agreed Case 13: options given without a charge Case 14: promises of rewards Case 15: promises of commissions 3. Comparison Index by country Index by subject.