What is a Requirements Contract?
Many entrepreneurs engaged in the manufacturing of goods for sale must rely on others to provide the raw materials from which those goods are manufactured. When the manufacturing process relies on small quantities of these raw materials, or where these raw materials are common and in abundant supply from a variety of sources, these entrepreneurs simply procure their raw materials from local vendors at market prices and manufacture their goods.
What happens, however, when the raw materials are unique, are not in abundant supply, or where large quantities of those raw materials are required on an on-going basis? Many manufacturers enter into requirements contracts with the vendors of the raw materials needed by them. Black’s Law Dictionary defines the requirement contract as “
While requirements contracts are generally enforceable “and beneficial because they encourage marketing support for the manufacturer’s brand,” Exclusive Dealing or Requirements Contracts, Federal Trade Commission, if they are used to prevent smaller competitors from succeeding in the market place, or to reduce competition, they may be looked upon with disfavor by the courts as well as the Federal Trade Commission.
To ensure your contract will be enforceable in California, you will need the services of a rising star like Michael Leonard, Esq., named “Best of the Bar” by the San Diego Business Journal in 2016. You can arrange for a consultation with Mr. Leonard to discuss creating any type of business agreement or any other business-related matter by visiting San Diego Corporate Law or by telephone at (858) 483-9200. He has the experience, knowledge and unique qualifications to ensure all of your agreements are enforceable in the California Courts.