The seventh circuit recognizes the "buyer's option" contract
Few published decisions address the concept of a "buyer's option" contract.
The court held that the district court had correctly characterized the agreement as a "buyer's option" contract.
The court observed that such characterization "is consistent with a buyer's option" because the original agreement was "akin to an offer by Brooklyn Bagel to manufacture bagels for Earthgrains at a specified price, within an agreed period." (6) The court noted that Earthgrains accepted Brooklyn Bagel's offer by placing orders for bagels on the terms set forth in the agreement.
The court remarked, "So far as the contractual documents are concerned, all there is is the dairy's agreement to sell milk to the districts at a specified price that it cannot raise during the school year: in other words, a buyer's option." (9) Thus, in both Brooklyn Bagel and Modern Dairy, the court found that the contract at issue was a buyer's option contract.
Buyer's option contract versus requirements contract
The seventh circuit implicitly recognized the notion of a "buyer's option" contract years earlier when addressing a requirements contract in Empire Gas Corp v American Bakeries Co.
(16) The court then posed the question of whether a requirements contract was essentially a buyer's option contract, and answered the question in the negative.
Further indicative of a distinction between a requirements contract and a buyer's option contract, the court noted that the official comments to section 2-306 provide that "a shut-down by a requirements buyer for lack of orders might be permissible where a shut-down merely to curtail losses would not." (17) Thus, the UCC comments suggest that a buyer under a requirements contract could not decrease its purchases simply to avoid unfavorable contract terms, but could decrease its purchases for business reasons unrelated to the terms of the contract.