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Contracts • Contract Formation
K#014
Legal Definition
Contracts for the sale of goods can state that the quantity of goods to be delivered is equal to either the buyer's requirement or the seller's output, often using language like "all," "only," "exclusively," and "solely." Buyers may increase requirements if the increase is in line with prior demands. Also, unreasonably disproportionate demands or tenders are not allowed.
Plain English Explanation
Some contracts are super specific in what is being sold or purchased. For example, you may contract to buy 1 taco from someone, and someone can contract to sell 1 million tacos to someone else. It's vital that a contract have some specified quantity when dealing with the sale or purchase of goods. However, you do not necessarily have to specify a number. Remember: the key to contracts law is to make sure that a third party (like a court) can figure out what was agreed to and whether or not any failed to perform. So while numbers are a great, definitive way to identify how many tacos should be bought or sold, it is possible to create a broad contract to purchase all of the tacos. These types of contracts are called requirement contracts and output contracts.
In other words, Bob can contract to purchase all of the tacos Sam can make (this would be an "output contract", as Bob is buying as many tacos as Sam can output). This means that if Sam makes 100 tacos or 200 tacos, they all must go to Bob. Sam can't sell half to Bob and half to someone else. On the flip side, Sam can contract with Bob to sell all the tacos that Bob requires (this would be a "requirement contract"). This means that if Bob needs 100 tacos, he must order them from Sam. He can't order some from Sam and some from another source.
These types of exclusivity agreements are common in various industries and provide a way for parties to better plan their supply chains and revenue sources. Even though they don't specify a specific number, a third party could figure out if the contract was breached by examining whether or not either party upheld their obligations.
Worth noting, however, is that there are reasonable limitations in fluctuations from period to period. Meaning, if Bob contracts with Sam to purchase all of the tacos Sam can make, and every week Sam makes 1000 tacos, but then suddenly Sam makes 10,000 tacos, Bob wouldn't necessarily be forced to pay for the 9,000 additional, unexpected tacos unless Sam gave him a heads up.
In other words, Bob can contract to purchase all of the tacos Sam can make (this would be an "output contract", as Bob is buying as many tacos as Sam can output). This means that if Sam makes 100 tacos or 200 tacos, they all must go to Bob. Sam can't sell half to Bob and half to someone else. On the flip side, Sam can contract with Bob to sell all the tacos that Bob requires (this would be a "requirement contract"). This means that if Bob needs 100 tacos, he must order them from Sam. He can't order some from Sam and some from another source.
These types of exclusivity agreements are common in various industries and provide a way for parties to better plan their supply chains and revenue sources. Even though they don't specify a specific number, a third party could figure out if the contract was breached by examining whether or not either party upheld their obligations.
Worth noting, however, is that there are reasonable limitations in fluctuations from period to period. Meaning, if Bob contracts with Sam to purchase all of the tacos Sam can make, and every week Sam makes 1000 tacos, but then suddenly Sam makes 10,000 tacos, Bob wouldn't necessarily be forced to pay for the 9,000 additional, unexpected tacos unless Sam gave him a heads up.
Hypothetical
See hypos in Simplified section
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