This clause says you must sell all (or most) of what you produce to the other party, usually at a set price. It matters because it removes your freedom to sell elsewhere and ties your income to one buyer's demand. For example, a farmer might sign an output contract to sell all their apples to one supermarket at $2 per pound, meaning they cannot sell to farmers' markets or other stores. Under US law (the Uniform Commercial Code), output contracts are legal but must include a "good faith" requirement—meaning you can't suddenly produce 10 times more just to make money; the buyer can refuse unreasonable quantities.
Avoid this if possible, but if you must sign one, include a minimum purchase guarantee (the buyer must buy at least X amount) and a price adjustment clause tied to market rates or inflation, so you're protected if costs rise. Also set a time limit—say 2 or 3 years—rather than letting it run forever, so you can renegotiate or find other buyers later. ---
Frequently Asked Questions
What does this clause mean in simple terms?
This clause says you must sell all (or most) of what you produce to the other party, usually at a set price.
Why should I care about this clause?
It matters because it removes your freedom to sell elsewhere and ties your income to one buyer's demand.
What are my options?
For example, a farmer might sign an output contract to sell all their apples to one supermarket at $2 per pound, meaning they cannot sell to farmers' markets or other stores.
How does this affect small businesses?
Under US law (the Uniform Commercial Code), output contracts are legal but must include a "good faith" requirement—meaning you can't suddenly produce 10 times more just to make money; the buyer can refuse unreasonable quantities.