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The United States Court of Appeals for the Seventh Circuit reviews the determination that an agreement was a requirements contract de novo. An agreement is not a requirements contract unless it: (1) obligates the buyer to buy goods, (2) obligates the buyer to buy goods exclusively from the seller, and (3) obligates the buyer to buy all of its requirements for goods of a particular kind from the seller.
Defendant was a seller of carbon black, a material used in rubber products. Plaintiff was a maker of rubber products for the automotive industry. The companies contracted for defendant to supply carbon black to plaintiff. When defendant refused to confirm or ship some of plaintiff’s orders, plaintiff sued, alleging that defendant had breached and repudiated the contract. The district court found as a matter of law that the agreement was a "requirements contract," meaning it obligated defendant to sell as much carbon black as plaintiff needed, and obligated plaintiff to buy all its carbon black exclusively from plaintiff. The district court entered judgment for plaintiff. Defendant appealed.
Was the agreement in question a requirements contract which obligated defendant to sell as much carbon black as plaintiff needed?
The judgment was vacated and the matter remanded. The court determined that plaintiff was not obligated to buy carbon black from defendant, nor was it obligated to buy all its carbon black from defendant, so the agreement was not a requirements contract. Because the judgment against defendant was premised on the agreement being a requirements contract, the judgment could not stand.