Contracts and Sales Multistate Bar Practice Exam

What limitation is applied to requirement and output contracts?

1. They cannot exceed twice the stated estimate.

2. They cannot be unreasonably disproportionate to a stated estimate.

3. They must have a fixed quantity specified.

4. They require third-party approval.

The correct answer is: They cannot be unreasonably disproportionate to a stated estimate.

The correct understanding of the limitation applied to requirement and output contracts focuses on the principle that such contracts are intended to provide flexibility in fulfilling the needs of a party without committing to an excessive quantity that might be considered unreasonable. In the case of requirement contracts, the buyer agrees to purchase all or a portion of their needs from the seller, but they are required to act in good faith and not demand an amount that is unreasonably disproportionate to a stated estimate. This ensures that the seller isn't faced with unexpected, large orders that could be burdensome or unmanageable. Similarly, output contracts, where the seller commits to sell all of their output to a buyer, typically include the same limitation to prevent the seller from being obligated to deliver more than what is reasonable given the stated expectations. The limitation serves to balance the interests of both parties in the contract by ensuring that while the buyer can fulfill their needs, the seller is not put at risk of unreasonable demands. This is in line with contract law principles that promote fair dealing and good faith. Thus, the correct option reflects the legal framework governing these types of contracts, ensuring that both parties remain protected while maintaining flexibility in their transactions.