## Facts

- Earthgrains developed a proprietary bagel formula and used third-party “co-packers” to manufacture bagels sold under Earthgrains’ brand.
- Brooklyn Bagel produced bagels for third parties under their brands and negotiated with Earthgrains to become a co-packer.
- The parties executed a written Contract Packaging Agreement dated March 25, 1996.
- Brooklyn Bagel agreed to process and package bagels in Earthgrains-branded packaging and to purchase all raw materials and packaging supplies needed for production at its Illinois facility.
- Earthgrains agreed to supply racks and trays for shipping and to pick up finished bagels for distribution.
- The agreement did not require Earthgrains to purchase a fixed quantity; Brooklyn Bagel would fill Earthgrains’ purchase orders.
- Brooklyn Bagel provided quarterly forecasts of anticipated orders, but the estimates were expressly non-binding.
- The agreement included a termination clause allowing termination on 90 days’ written notice.
- Earthgrains decided to manufacture bagels at its own facility, sent the contractually required 90-day notice, and stopped using Brooklyn Bagel as a co-packer.
- Brooklyn Bagel sued, alleging the agreement functioned as a requirements contract or option-like commitment preventing Earthgrains from shifting production in-house.

## Issues

1. Whether the Contract Packaging Agreement was a requirements contract under U.C.C. § 2-306 obligating Earthgrains to purchase all of its bagel requirements from Brooklyn Bagel.
2. Whether the agreement instead obligated Earthgrains only to purchase quantities it actually ordered, consistent with an option/firm-offer type arrangement.
3. Whether Earthgrains breached the contract by terminating on 90 days’ notice and moving production to its own facility.
4. Whether the district court properly struck the certification of Brooklyn Bagel’s former president submitted in opposition to summary judgment.

## Decision

- The Seventh Circuit affirmed the district court’s summary judgment for Earthgrains.
- The court held the agreement was not a U.C.C. requirements contract because it lacked language committing Earthgrains to buy all (or a defined share of) its requirements from Brooklyn Bagel.
- The non-binding quarterly estimates did not create an enforceable quantity commitment.
- Earthgrains’ obligation to purchase arose only when it placed purchase orders; absent orders, it had no duty to buy.
- Because the contract expressly permitted termination on 90 days’ written notice, Earthgrains did not breach by terminating and shifting production in-house.
- The court also affirmed the district court’s ruling striking the Stahl certification.

## Legal Principles

- A requirements contract under U.C.C. § 2-306 requires a buyer commitment to purchase all of its requirements (or an identifiable portion) from the seller; absent such quantity/exclusivity language, the contract will not be treated as a requirements contract.
- Non-binding forecasts or estimates used for planning do not supply the quantity term needed to convert an order-based supply arrangement into a requirements contract.
- An agreement that fixes terms and prices and binds the seller to supply goods if ordered, while leaving the buyer free to order (or not), is consistent with an option/firm-offer type structure rather than a requirements contract.
- When a contract contains an express termination provision, termination in compliance with that provision is not a breach, even if the terminating party switches to another source or in-house production.

## Conclusion

The court concluded that the co-packing agreement imposed no duty on Earthgrains to purchase all of its bagel needs from Brooklyn Bagel and allowed termination on 90 days’ notice; Earthgrains’ in-house shift after proper notice was within its contractual rights and therefore not a breach.


Brooklyn Bagel Boys, Inc. v. Earthgrains Refrigerated Dough Prods., Inc., 212 F.3d 373 (7th Cir. 2000)