Question

Define output contract and requirements contract. What is the subject matter of these types of contracts? Provide an example of each. Why are these contracts not enforceable under the common law?

Answer 1

An output contract is the contract in which a manufacturer agrees to sell his entire product to the buyer, who in turn agrees to purchase the entire output

Example :

A cashew grower enter into an output contract with an cashew packer : thus the producer has a "home" for output of cashew nuts and the packer of cashew nuts is happy to try the particular product. The conversation of this situation is a requirement contract, under with as much of good or service as the buyer wants in exchange for the buyer's agreement not to buy that good or service elsewhere.

A requirement contract means, is a contract in which one party agrees to supply as much of a good or service as is required by other party, instead the other party clearly and indirectly promises that its goods or services will be received only from the 1st party.

Example :

A grocery store might enter into a contract with farmer who grows apple under which the farmer would supply the grocery store with as many apple as the store could cell. The farmer could sue for breach of contract if the store were thereafter to purchase apple for this purpose from any other party. The covers of this situation in an output contract, in which one buyer agrees to purchase however much of a good or service the seller is able to produce.

There are usually a number of issues with requirement contracts. The 1st is consideration. There is technically no breach of contract if the buyer does not buy anything, because the buyer agrees to buy only what the buyer needs. In the example above the grocery store may cancel the obligation to buy from the farmer by deciding not to carry the apple this can leads to breach of contract and loss to the famer. Therefore requirement agreements are sometimes impractical. This is why it is not enforsed as a general law

If these two agreements become common law, it will seriously affect small farmers and small traders. This is why it does not became common law.