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MyWikiBiz, Author Your Legacy — Sunday May 26, 2013
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.
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).