Output contract
Encyclopedia
An output contract is an agreement
in which a producer agrees to sell its entire production to the buyer, who in turn agrees to purchase the entire output, whatever that is. Example: an almond grower enters into an output contract with an almond packer: thus the producer has a "home" for output of nuts, and the packer of nuts is happy to have a sure-fire supply, even though it may have to store away a glut. The converse of this situation is a requirements contract
, under which a seller agrees to supply the buyer with as much of a good or service as the buyer wants, in exchange for the buyer's agreement not to buy that good or service elsewhere.
Uniform Commercial Code
comment section 2-306: A term which measures the quantity by the output of the seller or the requirements of the buyer, means such actual output or requirements that may occur in good faith. Good faith
cessation of production terminates any further obligations thereunder and excuses further performance by the party discontinuing production. However, the cessation of production must be in light of bankruptcy
or other similar situations. The yield of less profit from a sale than expected does not excuse further performance of an output contract. See Feld vs. Henry S. Levy & Sons, Inc. (New York, 1975) or Technical Assistance International, Inc. vs. United States (U.S. Court of Appeals, 1998).
Contract
A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...
in which a producer agrees to sell its entire production to the buyer, who in turn agrees to purchase the entire output, whatever that is. Example: an almond grower enters into an output contract with an almond packer: thus the producer has a "home" for output of nuts, and the packer of nuts is happy to have a sure-fire supply, even though it may have to store away a glut. The converse of this situation is a requirements contract
Requirements contract
A requirements contract is a contract in which one party agrees to supply as much of a good or service as is required by the other party, and in exchange the other party expressly or implicitly promises that it will obtain its goods or services exclusively from the first party...
, under which a seller agrees to supply the buyer with as much of a good or service as the buyer wants, in exchange for the buyer's agreement not to buy that good or service elsewhere.
Uniform Commercial Code
Uniform Commercial Code
The Uniform Commercial Code , first published in 1952, is one of a number of uniform acts that have been promulgated in conjunction with efforts to harmonize the law of sales and other commercial transactions in all 50 states within the United States of America.The goal of harmonizing state law is...
comment section 2-306: A term which measures the quantity by the output of the seller or the requirements of the buyer, means such actual output or requirements that may occur in good faith. Good faith
Good faith
In philosophy, the concept of Good faith—Latin bona fides “good faith”, bona fide “in good faith”—denotes sincere, honest intention or belief, regardless of the outcome of an action; the opposed concepts are bad faith, mala fides and perfidy...
cessation of production terminates any further obligations thereunder and excuses further performance by the party discontinuing production. However, the cessation of production must be in light of bankruptcy
Bankruptcy
Bankruptcy is a legal status of an insolvent person or an organisation, that is, one that cannot repay the debts owed to creditors. In most jurisdictions bankruptcy is imposed by a court order, often initiated by the debtor....
or other similar situations. The yield of less profit from a sale than expected does not excuse further performance of an output contract. See Feld vs. Henry S. Levy & Sons, Inc. (New York, 1975) or Technical Assistance International, Inc. vs. United States (U.S. Court of Appeals, 1998).