output contract

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An output contract is a type of contract common to agriculture or energy law where a buyer agrees to buy the seller’s entire output of some agreed-upon product or service; also known as an entire-output contract.  A benefit to this form of contract is the assurance that there will be a guaranteed market, at a specified time and price, for all of the seller’s product produced. A seller’s forbearance of the freedom to sell to other buyers besides the contracting party is valid consideration for an output contract. 

Output contracts may contain a best efforts clause in the language of the instrument to specifically require both parties to expend “best efforts” to fulfill the contract. In its absence, many jurisdictions such as California place an implied obligation of best efforts upon the parties so as to maintain the terms of the contract, including output, that were agreed upon. 

[Last updated in July of 2020 by the Wex Definitions Team]