Requirements contract
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Requirements contracts are contracts in which one party agrees to supply as much of a good or service as is required by the other party. 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.
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[edit] Problems
[edit] Consideration
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.
[edit] Defined terms
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. Courts often look to the past 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.
[edit] Antitrust concerns
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 gives the seller monopoly power over the buyer, preventing the buyer from seeking a better deal if the market becomes more competitive. Requirements contracts have nevertheless been upheld in the face of challenges on antitrust grounds.
