## Facts

- Empire Gas Corporation sold propane and vehicle conversion equipment enabling gasoline vehicles to run on propane.
- American Bakeries Company operated a fleet of more than 3,000 vehicles and considered converting the fleet to propane during a period when propane was cheaper than gasoline.
- After rejecting Empire’s standard form, the parties executed an April 17, 1980 agreement for “approximately three thousand (3,000) units, more or less depending upon requirements of Buyer,” priced at $750 per unit.
- The agreement also required American Bakeries to buy propane motor fuel exclusively from Empire at locations where Empire supplied the conversion and dispensing equipment, so long as Empire remained reasonably price-competitive.
- American Bakeries never ordered any conversion units or propane, deciding within days after signing not to proceed with conversion and offering no business explanation for the decision.
- Empire sued for breach and obtained a jury verdict of $3,254,963 in lost profits (units and fuel), and the district court added $581,916 in prejudgment interest.
- American Bakeries appealed, arguing the agreement functioned as a free option permitting zero requirements, that Empire could not supply conforming units (allegedly limited to a specific manufacturer’s unit), and that the instructions and prejudgment-interest award were erroneous.

## Issues

1. Under U.C.C. § 2-306(1), may a buyer in a requirements contract reduce its requirements to zero, and what role does good faith play in that reduction?
2. Whether Empire failed as a matter of law to prove it could supply conforming conversion units required by the agreement.
3. Whether any error in the jury instructions on good faith warrants reversal, and whether prejudgment interest was proper on the lost-profits award.

## Decision

- The Seventh Circuit affirmed liability, holding the agreement was a requirements contract governed by U.C.C. § 2-306(1), not a costless option.
- The court held a buyer may reduce requirements, even to zero, only in good faith; American Bakeries breached because it produced no legitimate business reason for the zero-order decision.
- The court rejected the nonconformity defense, concluding the record did not show the contract was limited to a particular brand or that Empire could not supply conforming units.
- The court upheld the jury’s lost-profits award as supported by the evidence.
- The court reversed the prejudgment-interest award because the damages were not fixed or readily ascertainable at the time of breach.

## Legal Principles

- A requirements term under U.C.C. § 2-306(1) measures quantity by the buyer’s actual requirements as may occur in good faith.
- The “unreasonably disproportionate” limitation primarily constrains demands that exceed a stated estimate; reductions below an estimate are evaluated chiefly under the good-faith requirement.
- A buyer may reduce requirements to zero only for a good-faith business reason tied to actual needs (e.g., discontinuing the relevant activity), not merely a change of mind or desire to escape the bargain.
- When a buyer claims zero requirements, the absence of any articulated legitimate business justification can support a finding of bad faith and breach.
- Prejudgment interest is generally unavailable when contract damages depend on uncertain projections and are not readily ascertainable at the time of breach.

## Conclusion

The court treated the agreement as a binding requirements contract imposing a good-faith performance obligation, held that American Bakeries’ unexplained decision to order nothing breached that obligation, affirmed the seller’s lost-profits recovery, and vacated prejudgment interest because the loss depended on uncertain estimates rather than a calculable sum at breach.


Empire Gas Corp. v. Am. Bakeries Co., 840 F.2d 1333 (7th Cir. 1988)