Output Contract Definition and Legal Meaning

On this page, you'll find the legal definition and meaning of Output Contract, written in plain English, along with examples of how it is used.

What is Output Contract?

It is an agreement where the producer agrees to sell his entire production to one particular buyer, who agrees to buy it,irrespective of the quantity.

History and Meaning of Output Contract

An output contract is a legal agreement between a producer and a buyer where the producer agrees to sell all or a specified amount of its products to the buyer at a predetermined price. Unlike other contracts where the terms are usually set in advance, output contracts rely on future production levels, which are not always known or easily predictable. The output contract is a popular tool used in commodity trading, as it allows producers to guarantee a buyer for their products, and buyers to secure a stable source of supply.

Output contracts have a long history in the business world, dating back to the early twentieth century, when producers of raw materials such as coal and gas used them to sell their entire output to a single buyer. These types of contracts are still used today in various industries such as agriculture, manufacturing, and energy.

Examples of Output Contract

Here are a few examples of how an output contract may be used in different contexts:

  • A farmer agrees to sell all of his apple harvest to a local juice manufacturer, who agrees to buy the apples at a fixed price per pound, regardless of the size of the harvest.
  • A solar panel manufacturer agrees to sell all of its production to a utility company over the next 10 years, at a guaranteed price per kilowatt-hour.
  • An oil producer agrees to supply all of its output to a refinery, which agrees to purchase the oil at a fixed price per barrel, regardless of market fluctuations.

Legal Terms Similar to Output Contract

  • Requirements contract: A legal agreement where a buyer agrees to purchase a specific quantity of goods from a seller over a set period of time.
  • Take-or-pay contract: A contract where the buyer agrees to pay for a minimum quantity of goods, or pay a penalty if they don't take delivery of the goods.
  • Supply agreement: A legal agreement between a buyer and seller that outlines the terms of delivery and payment for goods or services.