Legal Definitions - guaranteed-sale contract

A guaranteed-sale contract is a specific type of agreement where one party (typically a supplier or manufacturer) promises to buy back any unsold goods from another party (typically a retailer or distributor) by a certain date or under specific conditions. This arrangement significantly reduces the financial risk for the retailer or distributor, encouraging them to stock and promote the products without fear of being stuck with unsellable inventory. It essentially guarantees that the supplier will take back any items that don't sell, often for a full refund or credit.

Here are some examples illustrating a guaranteed-sale contract:

• Example 1: Book Publisher and Bookstore Chain

  A major publishing house wants to ensure its new author's debut novel gets wide distribution and prominent display. It enters into a guaranteed-sale contract with a large national bookstore chain. The contract stipulates that the bookstore will order 10,000 copies of the book, and any copies remaining unsold after six months can be returned to the publisher for a full credit against future orders.

  Explanation: This contract reduces the bookstore's financial risk of ordering a large quantity of an unproven author's book. If the book doesn't sell well, the publisher is obligated to take back the unsold inventory, ensuring the bookstore doesn't incur a loss on those specific items and is more willing to give the new book a chance.

• Example 2: Software Developer and IT Reseller Network

  A new cybersecurity software company wants to rapidly expand its market reach and user base. It partners with a network of independent IT solution resellers under a guaranteed-sale agreement. The agreement states that if a reseller purchases licenses for the software but cannot sell them to their clients within 12 months, the software company will refund the cost of the unsold licenses.

  Explanation: This encourages resellers to invest in and actively promote the new software, as they are protected from the financial burden of holding onto licenses that their customers might not adopt. The software company guarantees the "sale" by offering to buy back the unsold units, making the reseller more comfortable taking on a new product.

• Example 3: Specialty Food Manufacturer and Grocery Store

  A specialty food manufacturer introduces a new seasonal gourmet jam specifically for the holiday season. To secure prominent shelf space and a large initial order, they offer a guaranteed-sale contract to a national grocery store chain. The contract specifies that the grocery chain will stock 500 cases of the jam across its stores, and any cases not sold by January 15th will be bought back by the manufacturer at the original wholesale price.

  Explanation: This arrangement makes it significantly less risky for the grocery chain to commit to a large order of a new, seasonal product. If the jam doesn't perform as expected during the holidays, the manufacturer bears the risk of unsold inventory, not the grocery chain, which incentivizes the grocery chain to stock the item.