Negotiating and Drafting Contracts PDF

Markus Conrads MBA International Management Part Time Summer semester 2022 Elective module Negotiating and drafting contracts 1 Part 1: Preparation of the contract A. Pre-contractual liability If an entrepreneur has established contact with a potential contractual partner, he must bear in mind that this pre-contractual contact already triggers obligations, the breach of which triggers claims for damages: In the BGB, according to § 311 (2) BGB, a contractual obligation with duties according to § 241 (2) BGB already arises in the run- up to the conclusion of the contract. Case groups: The legislator names three cases in the law which can give rise to a pre-contractual obligation, namely the commencement of contractual negotiations (§ 311 para. 2 no. 1 BGB), initiation of a contract (§ 311 para. 2 no. 2 BGB) and similar business contacts (§ 311 para. 2 no. 3 BGB). If the debtor violates duties arising from § 241 (2) BGB, the injured party is entitled to compensation. The commencement of contract negotiations according to § 311 para. 2 no. 1 BGB is an actual process, a real act: 1The parties do not yet have to have made any declarations of intent. Non-binding discussions are sufficient because these can also lead to the conclusion of a contract and the typical possibilities of influencing the legal interests and interests of the other party exist. 2 The demarcation from the initiation of a contract in § 311 para. 2 no. 2 BGB is difficult in the case of mere preliminary discussions: These are sufficient in principle if 3they do not exhaust themselves in sounding out the common (economic) interests in order to enter into concrete contractual discussions only afterwards. Even if a mutual exchange of information already takes place, contract negotiations according to § 311 para. 2 no. 1 BGB do not yet exist, but possibly already a contract initiation according to § 311 para. 2 no. 2 BGB. 4Much earlier than the commencement of contract negotiations in § 311 para. 2 no. 1 BGB the process of contract initiation in § 311 para. 2 no. 2 BGB starts: Admittedly, not every social contact which enables the influence on rights, legal goods and interests of the other is sufficient. Rather, one of the partners in the legal relationship in question must have granted the other party the possibility of influence or entrusted him with his rights, legal goods and interests precisely with a view to this possible relationship.5 § 311 (2) no. 2 BGB does not place high demands on the initiation of a contract: It is not necessary that a concrete conclusion of a contract has already been envisaged, and certainly not that a contract has actually been concluded in the further course. 6 Rather, non-binding discussions, the submission of an offer or even a mere information visit during which personal contact between the possible contracting parties has not yet taken place (such as in the case of a shopping spree) are also sufficient. 7Similar business contacts (§ 311 (2) no. 3 BGB) may exist in particular if potential contracting parties come into contact with regard to a conceivable business transaction in the run-up to the initiation of the contract (e.g. by 1 BeckOK BGB/Sutschet, 50th ed. 1.5.2019, BGB § 311 Rn. 47. 2 BeckOK BGB/Sutschet, 50th ed. 1.5.2019, BGB § 311 Rn. 47. 3 MüKoBGB/Emmerich, 8th ed. 2019, BGB § 311 Rn. 43. 4 BeckOK BGB/Sutschet, 50th ed. 1.5.2019, BGB § 311 Rn. 47. 5 HK-BGB/Reiner Schulze, 10th ed. 2019, BGB § 311 Rn. 16. 6 BeckOK BGB/Sutschet, 50th ed. 1.5.2019, BGB § 311 Rn. 48. 7 BeckOK BGB/Sutschet, 50th ed. 1.5.2019, BGB § 311 Rn. 48. 2 obtaining initial information about a possible subject matter of the contract).8 In contrast, mere social proximity without reference to a possible legal transaction is not sufficient. 9Breach of duty: Both parties have the duties of protection or consideration mentioned in § 241 (2) BGB to protect the other party. This is to counter the dangers arising from the fact that through and during the contractual negotiations one party allows the other party to interfere with his rights, legal goods and interests or that he entrusts them to him (§ 311 para. 2 no. 2 BGB). 10The fact that the legislator limits the breach of duty to duties of protection within the meaning of § 241 (2) BGB results from the nature of the pre-contractual obligation: it does not give rise to primary duties of performance, but always only duties of protection, the content and scope of which depend on the nature of the respective pre-contractual obligation.11 Classic groups of cases falling under §§ 311 para. 2, 241 para. 2 BGB are the injury of a customer or her child, who is in her company, by a linoleum roll falling over, the fall of a customer on a banana peel or a vegetable leaf in the sales rooms as well as the fall from an escalator into an open, unsecured assembly shaft in a department store.12 The application of § 311 (2) BGB does not only protect, for example, the physical integrity of customers: § 241 (2) BGB also speaks of "interests" which are to be taken into account. Here the legislator clarifies that not only rights and legal interests in the sense of § 823 (1) BGB and also not only property interests are meant, but interests of all kinds including the freedom of decision. 13This allows § 311 (2) BGB to be used for the subsequent correction of undesirable contracts by way of liability for the breach of pre-contractual duties of disclosure. 14 However, because a general duty of clarification of the parties in contract negotiations is alien to German law (everyone is the architect of his own fortune), duties of clarification of one party towards the other can only ever be assumed under special additional conditions. 15Another case group of § 311 para. 2 BGB is the termination of the contract negotiations without good cause: If the other party has aroused or considerably strengthened the confidence in the conclusion of the contract and the creditor has therefore incurred expenses, a termination without good cause may trigger claims for damages.16 Expenses incurred by the other party are to be reimbursed, for example, if the party's own willingness to conclude the contract was only feigned. If the other party is not informed immediately after the abandonment of the readiness to conclude the contract and if he still incurs expenses in reliance on the (now missing) readiness to conclude the contract, they are compensable. Damages: The extent of damages is determined by §§ 249 f. BGB: The injured party is to be placed in the position he would have been in without the damaging conduct. As a rule - but not mandatory - the claim is therefore for compensation for the damage caused by the injury and the loss of confidence. 17 The amount of this claim is not limited to the interest in performance. 18Exceptionally, the interest in performance is to be compensated if the contract would have been validly 8 HK-BGB/Reiner Schulze, 10th ed. 2019, BGB § 311 Rn. 17. 9 HK-BGB/Reiner Schulze, 10th ed. 2019, BGB § 311 Rn. 17. 10 MüKoBGB/Emmerich, 8th ed. 2019, BGB § 311 Rn. 5. 11 HK-BGB/Reiner Schulze, 10th ed. 2019, BGB § 311 Rn. 23. 12 MüKoBGB/Emmerich, 8th ed. 2019, BGB § 311 marginal no. 61. 13 HK-BGB/Reiner Schulze, 10th ed. 2019, BGB § 311 Rn. 23. 14 MüKoBGB/Emmerich, 8th ed. 2019, BGB § 311 marginal no. 64. 15 MüKoBGB/Emmerich, 8th ed. 2019, BGB § 311 marginal no. 64. 16 HK-BGB/Reiner Schulze, 10th ed. 2019, BGB § 311 Rn. 32. 17 HK-BGB/Reiner Schulze, 10th ed. 2019, BGB § 311 Rn. 26. 18 HK-BGB/Reiner Schulze, 10th ed. 2019, BGB § 311 Rn. 26. 3 concluded or would have been concluded with more favourable content without the conduct in breach of duty. 19 B. Pre-contractual agreements In individual cases, it is questionable whether the respective applicable statutory provision is sufficient to protect the party who, for example, grants the other negotiating partner extensive insight into trade secrets or has to incur considerable expenses in the run-up to the conclusion of the contract in order to examine the object of purchase or contract or have it examined by external advisors, by these statutory provisions. This question arises in particular in transactions with foreign partners if a law other than the German Civil Code (BGB) applies here: even the UN Sales Convention only partially regulates the rights of parties whose negotiating partners have breached pre-contractual obligations. In some cases, for example in the case of pre-contractual obligations to protect the tangible assets of the future contracting party or the liability of a contracting intermediary, the national law which is invoked via conflict of laws remains applicable. 20 Therefore, it is advisable to initiate pre- contractual measures at an early stage. Pre-contractual agreements: Confidentiality agreements or "letters of intent" are suitable as pre-contractual measures. In industries that rely on the special protection of their know-how (especially in biotechnology), it is customary to sign a non-disclosure agreement before initiating a business relationship. This applies not only in connection with transactions initiated under corporate law (especially in the case of mergers and acquisitions), but also when licensing rights are granted, whether unilaterally or bilaterally through cross licensing, or for the call for services. The 21"letter of intent", on the other hand, is a "declaration of intent" (usually sent in the run-up to the conclusion of complex, economically significant contracts), which indicates the sender's willingness to conclude a contract with the addressee (the potential contracting party). 22 The main purpose of the "letter of intent" is to reinforce pre-contractual obligations and to ensure that a groundless, purely arbitrary refusal to conclude a contract is a breach of duty. 23 The parties can also include a confidentiality agreement in a "letter of intent" or similar document. However, there will usually be a need for a confidentiality agreement before the parties reach a point in the negotiations where they wish to record the initial results of the negotiations in a letter of intent. A confidentiality agreement is therefore usually the first document that the parties sign. 24Confidentiality agreements always make sense for a party who is expected to disclose trade secrets as part of the contract negotiations: The confidentiality agreement can then make the negotiating party aware of the delicate situation and - if the negotiations fail - ensure minimal protection for the party that disclosed confidential information in advance. 25 In contrast to the confidentiality agreement, the need to conclude a "letter of intent" will only arise once 19 HK-BGB/Reiner Schulze, 10th ed. 2019, BGB § 311 Rn. 26. 20 Schlechtriem/Schwenzer/Schroeter/Ferrari, 7th ed. 2019, CISG Art. 4 para. 46. 21 BeckFormB ZivilR, 16.Allgemeine beidseitige Vertraulichkeitsvereinbarung - General Two-way Confidentiality and Non- disclosure Agreement, beck-online. 22 MüKoBGB, BGB before § 145 marginal no. 58. 23 MüKoHGB/Karsten Schmidt, HGB before § 343 Rn. 25. 24 BeckOF Contract, Form. 20.2 Note 1-13 para. 1 - 13 para. 1, beck-online. 25 BeckFormB ZivilR, 16.Allgemeine beidseitige Vertraulichkeitsvereinbarung - General Two-way Confidentiality and Non- disclosure Agreement, beck-online). 4 the parties have achieved initial results in the course of the negotiations, which they now wish to fix. If the parties have progressed so far in their negotiations that one party has to incur considerable expenses - e.g. by employing external consultants - in order to continue the examination of the draft contract or the object of purchase, it is advisable to integrate an exclusivity agreement into the letter of intent: Although such agreements are not a mandatory part of a "letter of intent", they are often included by the parties. Such agreements lend themselves to being included in the "letter of intent" because the negotiations have reached an advanced stage and the seller is therefore only now prepared to restrict himself in his negotiating options. 26 C. Organization of the negotiations To ensure a structured negotiation process, the parties must organise their negotiations: It must be clear to the parties who is to negotiate with whom and how. Problems often arise here not because of the sensitivities of the negotiating party, but because of poor internal organisation of a party. The contact person of the contracting party can be, but does not have to be, the body authorised to represent a corporation (managing director/board of directors). It is advisable to name the employee who is primarily responsible for the project as the contact person vis-à-vis the negotiating party. Often, work overload leads to the executive floor becoming a "Bermuda triangle" of negotiation-relevant information. In this respect, communication with the negotiating partner should be bundled in one place in the company and information should be provided from there to the executive bodies and other employees involved. Projects often get out of control because different people are involved in the project, who independently conduct discussions with individual employees in the other party's company, who then do not sufficiently document these discussions and who then remain hidden from the negotiators. It can be helpful here to give the negotiating partner an e-mail address that is to be used for all communication between the negotiating partners. It should also be made clear to the negotiating partner that messages and documents can only take effect via this e-mail address - i.e. a document can only be accessed if it reaches the company's sphere of influence via this e-mail address. Access: If parties wish to exchange documents, the question often arises as to when the document was received. German courts apply the theory of receipt:27 receipt is deemed to have occurred when the declaration of intent enters the recipient's sphere of influence in such a way that it can be expected that the recipient will be able to take note of it. 28 When declarations reach the sphere of influence of the recipient depends on the individual means of declaration: Letters enter the recipient's sphere of control when they are handed over 29or dropped into the letterbox30. In contrast to the UN Convention on Contracts for the International Sale of Goods, according to § 130, Subsection 1, Sentence 1, BGB, a letter is only delivered when, according to the view of the market, it can be expected to be emptied. If, for example, a document is not placed in the letterbox of an office until the afternoon of 26 BeckOF Contract, Form. 20.1 Note 1-11 para. 1 - 11 para. 9, beck-online. 27 MüKoBGB/Einsele BGB § 130 marginal no. 9. 28 BGH (03.11.1976) NJW 1977; BGH (27.10.1982) NJW 929, 930; BGH (26.11.1997) NJW 1998, 976, 977; BGH (21.01.2004) NJW 2004, 1320. 29 BGB cf. LAG Hamm (04.01.1979) NJW 1979, 2488; CISG cf. Schroeter in Schlechtriem/Schwenzer, Art. 24 marginal no. 19. 30 BGB cf. Jauernig/Mansel BGB § 130 marginal no. 5; CISG cf. Schroeter in Schlechtriem/Schwenzer, Art. 24 marginal no. 19. 5 31 December, where it is customary in the industry that no work is carried out on New Year's Eve in the afternoon - even if this day falls on a working day - it will - according to the Federal Court of Justice - only be delivered on the next working day. 31 The case law on telefax is inconsistent in the German Civil Code: While some rulings focus on the completion of the printing process at the recipient's device, 32according to other rulings - at least for the timely receipt of attorney's pleadings at court - the storage in the recipient's device is decisive. 33 There are also problems with e-mails: In the BGB, e-mails enter the recipient's sphere of power when they are placed in the recipient's mailbox. 34 In the case of business people and public authorities, during normal business or office hours, it is to be expected that the recipient will take note of the message immediately after it has been placed in the mailbox. 35 Particularly in the case of complex and time-consuming projects, it is sometimes the case that representatives of the negotiating parties meet in person - either by telephone or in the course of meetings - before the contract is concluded. If such meetings are to take place, it is advisable for the parties to define a separate objective for each side: Each party should determine the status of the negotiation before the meeting, determine for itself the desired status of the negotiation after the meeting, and ask itself how it can achieve the desired status of the negotiation during the meeting. After the conversation, it is necessary to question whether the desired goals of the conversation have been achieved. Some negotiators feel insecure in an unfamiliar atmosphere and therefore want negotiations to always take place in their own office. Others, on the other hand, are happy to be the guest of the negotiating partner, because they can then leave the negotiating table without violating their duties of courtesy as a host. Whether all this is justified is a moot point. However, if one decides to negotiate with the negotiating partner in person, the contracting parties should make it clear in advance with whom they will appear at the negotiating table. If one wants to involve one's lawyer in the discussion, this is even strongly recommended. It is often the case that the party not represented by a lawyer fears suffering disadvantages if the other party has a lawyer present at the negotiations. It is also possible to observe behaviour on the part of some lawyers in the course of contract negotiations which, while consolidating their role as legal advisors to this client, frustrate the objective of concluding the contract. It is important that the content of the discussions is documented immediately after their conclusion: Telephone calls should be briefly summarized and the summaries sent to the negotiating party immediately thereafter, if necessary; at a minimum, the results of the meetings should be recorded. These minutes should then also be sent to the negotiating partner - after prior review, of course. It is important to document all processes in such a way that the project can be taken over by another employee at any time. It should also be possible to refer to e-mails and minutes during negotiations if interim results have been achieved with the negotiating partner which the latter now denies. 31 BGH (05.12.2007) NJW 2008, 843. 32 BGH (07.12.1994) NJW 1995, 665, 666. 33 BGH (0.05.2007) NJW 2007, 2045 Fn. 12; BGH (25.04.2006) NJW 2006, 2263. 34 MüKoBGB/Einsele BGB § 130 Rn. 18; so also Ultsch, Michael, Zugangsprobleme bei elektronischen Willenserklärungen. Dargestellt am Beispiel der Electronic Mail, NJW 1997, 3007. 35 Bamberger/Roth/Wendtland BGB § 130 marginal no. 15. 6 Test Questions: Pre-contractual agreements: What contract-preparing measures should I take? 1. Does it make sense to sign a non-disclosure agreement with my negotiating partner? 2. Does it make sense to agree with the negotiating partner that negotiations with third parties are to be discontinued? Organization of the negotiations: Who should negotiate with whom and how? 1. Who is the contact person for each of the contracting parties? 2. Which mail addresses are used to exchange documents? 3. Will there be one or more face-to-face meetings between the negotiating parties? 4. Will face-to-face meetings be held at one of the negotiating parties' offices or at a neutral location, and who should participate in these meetings (lawyers)? 5. How are interim results of face-to-face interviews documented? 6. In which language should the negotiations be conducted? Conclusion of the contract negotiations: How should the contract be concluded at the end of the contract negotiations? 7 Part 2: Purchase contract A. General Disputes often arise between the parties as to what exactly they have agreed, i.e. which contractual offer now sets out the terms of the contract which the contractual partner has then accepted. This dispute can actually only be avoided if the parties' declarations are merged into one contract text and then signed by both parties. However, experience shows that even in this case there are always misunderstandings about the scope of performance of one or the other party. Whether the parties go down this route and set out their declarations of intent in writing in a uniform contractual document usually depends on the complexity of the transaction and its significance for at least one of the parties. In commercial practice, the agreement of the parties in a uniform contractual document is not the rule, but the exception. Courts usually judge legal cases on the basis of voluminous correspondence exchanged by the parties prior to the conclusion of the contract. Here, the judge tries to put together the facts as they happened on the basis of emails, faxes and sometimes even SMS or WhatsApp messages. General Terms and Conditions (GTC): If the parties have not agreed in a uniform contractual document, parties often dispute whether and to what extent they have included General Terms and Conditions (GTC) when concluding the contract. According to § 305 para. 1 sentence 1 German Civil Code (BGB), general terms and conditions are all pre-formulated contractual terms and conditions for a variety of contracts which one party to a contract (user) imposes on the other party when concluding a contract. Whether one party has "imposed" the terms on the other depends on whether parties have actually negotiated the contract. Whether there has been genuine negotiation is difficult to assess in practice: There is no negotiation by the parties if one party has imposed the terms of the contract on the other, i.e. the user has ready-made the terms into the contract and imposed them unilaterally on the customer. "Negotiation", on the other hand, occurs when inclusion of pre-formulated terms in the contract is based on the free decision of both parties: In this context, it is not sufficient for the user to grant the contractual partner the right to communicate change requests. It must be possible for the contractual partner to make alternative proposals and to use contractual terms of his choice. General terms and conditions include in particular the general terms and conditions of purchase and sale which are important in commercial practice. The German Civil Code (BGB) places only minor requirements on the inclusion of GTCs in business contracts. Although the legislator requires a legally binding agreement, a tacitly declared agreement between the contracting parties or conclusive behaviour is sufficient.36 To this end, the BGB imposes strict requirements on the effectiveness of general terms and conditions: § 307 (1) sentence 1 BGB contains a general clause specifically created for provisions in general terms and conditions: general terms and conditions are invalid if they unreasonably disadvantage the contractual partner of the user contrary to the requirements of good faith. In case of doubt, an unreasonable disadvantage is to be assumed if a provision is incompatible 36 BeckOK BGB/Becker BGB § 305 Rn. 80; BGH (20.03.1985) NJW 1985, 1838, 1839. 8 with essential basic ideas of the legal regulation from which it deviates (§ 307 (2) No. 1 BGB) or restricts essential rights or obligations resulting from the nature of the contract in such a way that the achievement of the purpose of the contract is jeopardized (§ 307 (2) No. 2 BGB). For B2C contracts, §§ 308, 309 BGB then contain special provisions which considerably restrict the drafting of GTCs. Therefore, anyone wishing to draft GTCs must first decide whether the terms are to apply only to B2B or also to B2C transactions: The classification of the user's contractual partner as an entrepreneur determines the legal regulations against which the GTC clauses must be measured. In this context, the restriction of the scope of application of the respective terms to B2B transactions is more significant in the case of terms of sale than in the case of terms of purchase, because purchases by consumers are practically rare. If general terms and conditions are only to apply to B2B transactions, the prohibitions of clauses in §§ 308,309 BGB do not apply. The clauses used must only meet the requirements of the general clause in § 307 BGB: According to this clause, clauses do not become part of the contract if they unreasonably disadvantage the contractual partner of the user. They may not contradict essential basic ideas of the legal regulation from which the form deviates or restrict essential rights or obligations in such a way that the achievement of the purpose of the contract is endangered. However, for the safest possible drafting of general terms and conditions, the standard of the consumer contract, i.e. the express clause prohibitions of §§ 308 and 309 of the German Civil Code (BGB), should always be used as a guideline. According to the case law of the Federal Court of Justice (BGH), the prohibitions of clauses in § 309 BGB, which do not permit any direct judicial evaluation due to their rigid wording, also have an indicative effect for business legal transactions. 37If the user of general terms and conditions wants to ward off conflicting general terms and conditions of the contractual partner ("defence clause"), the general terms and conditions of the user and the contractual partner apply according to the principle of congruence only insofar as they coincide. 38In all other respects there is a disagreement which, however, does not lead to the invalidity of the contract. Rather, the corresponding statutory rules apply in this respect - the legal concept of § 306 (2) BGB (according to today's prevailing opinion in case law and literature, cf. BGH NJW 1991, 1606; Palandt/Grüneberg § 305 marginal no. 54; Hk-BGB/Schulte-Nölke § 305 marginal no. 20). 39Because individual agreements supersede general terms and conditions, written form clauses - according to which, for example, amendments, supplements or deviations from the contract require the written form - cannot supersede the principle of the priority of the individual agreement. Written form clauses in GTCs are, however, possible as completeness clauses: According to them, all agreements made between the user and the contracting party in connection with the contract are set down in writing in the contract and the GTCs to this contract. Alternatively, clauses may refer to the priority of an existing (but not required) document for evidential purposes. 4041Also, the user may no longer make the written form in the narrower sense (e.g. a signature according to § 126 BGB) a prerequisite for the effectiveness of unilateral notifications and declarations of the contractual partner - as can still be found in older contract forms: 37 BeckOF Vertrag, Form. 10.1 Note 1-60 marginal no. 2, beck-online. 38 MVHdB IV WirtschaftsR III-Graf von Bernstorff Form V.4. note 5. 39 Schulze/Grziwotz/Lauda, BGB: Kommentiertes Vertrags- und Prozessformularbuch, BGB § 305 Rn. 17, beck-online. 40 Schulze/Grziwotz/Lauda, BGB: Kommentiertes Vertrags- und Prozessformularbuch, BGB § 305b Rn. 1, beck-online. 41 BeckOF Vertrag, Form. 10.1 Note 1-60 marginal no. 7, beck-online. 9 According to the new version of § 309 No. 13 lit. b BGB, text form according to § 126b BGB may now be required as a maximum.42 Application and defence clauses as well as provisions on how to deal with individual agreements and unilateral notifications and declarations exist irrespective of whether the user of the GTCB is the buyer or the seller. Suggested wording: §1 General (1) These Terms and Conditions of Purchase/Sale shall apply exclusively to entrepreneurs, legal entities under public law or special funds under public law within the meaning of § 310 (1) of the German Civil Code (BGB). (2) The following terms and conditions are part of the contract concluded with the buyer/seller and apply exclusively. Counter-confirmations, counter-offers or other references of the buyer/seller with reference to his terms and conditions are hereby contradicted. These Terms and Conditions of Purchase/Sale shall also apply if the buyer/seller accepts the delivery without reservation in the knowledge of conflicting or deviating terms and conditions of the seller. (3) Individual agreements made with the Seller in individual cases (including ancillary agreements, supplements and amendments) shall in any case take precedence over these Terms and Conditions of Purchase/Sale. Subject to proof to the contrary, a written contract or the written confirmation of the Buyer shall be authoritative for the content of such agreements. (4) Legally relevant declarations and notifications of the buyer/seller with regard to the contract (such as setting of deadlines, notification of defects, withdrawal or reduction) must be made in writing, i.e. in written or text form (such as letter, e-mail, fax). Legal formal requirements and further proof, in particular in the event of doubts about the legitimacy of the person making the declaration, shall remain unaffected. Test Questions: 1. Should the declarations of intent of both parties be recorded in a single contractual document? 2. To whom do I want to use my GTC (B2C or B2B business)? 3. Do my GTCs repel GTCs used by the contractual partner? 4. Which agreements should I make individually with the contractual partner? 42 BeckOF Vertrag, Form. 10.1 Note 1-60 marginal no. 8, beck-online. 10 B. Object of purchase The main obligations of the seller are to deliver the object of purchase and to provide ownership of it. Both parties should describe the object of purchase precisely in order to avoid future disputes about what exactly the seller has sold here. This is particularly true in the case of a machine and plant purchase contract: If, for example, not a whole plant but only a plant part is sold, disputes often arise as to whether the seller, in addition to the plant part itself, has also sold, for example, connections or machine parts necessary for a connection. In practice, it is often the case that the parties refer to a plant as part of the object of sale, which is located behind the actual text of the contract, but is nevertheless an integral part of the contract. If the parties proceed in this way, this is not without danger: Often individual documents are compiled here by employees of the seller, which contain more detailed information on the object of purchase, but also make statements which a seller would be better advised not to make on the object of the contract. Even the buyer - if he does not pay the necessary attention to such annexes to the contract - can easily overlook the fact that parts are missing from a list which, however, are necessary for commissioning and use at his premises. Due to the importance of the object of purchase and the risk of overlooking important details due to lack of attention, parties are advised to describe the object of purchase in as much detail as possible already in the text of the contract. In particular, the object of purchase may play a role in the classification of the contract as a sales contract: If the object has already been manufactured, purchase law applies; if the object has not yet been manufactured, the contract is a contract for work and materials. In the case of the manufacture of non-negotiable items - such as individual items - individual provisions of the contract for work and services also apply in addition to the law of sale in the BGB. If the entrepreneur does not owe a transfer of ownership of a movable thing (such as construction of a building, creation of an intellectual work) or repair of an already existing thing, there is a contract for work. Test Questions: 1. Has the thing to be handed over already been manufactured? 2. Does the seller manufacture the sold item himself or does he have it manufactured by a third party? 3. Is the item custom made to the buyer's specifications? 4. Will the buyer contribute to the manufacturing process, for example by contributing some of the materials necessary for the production? 5. Does the contract describe the thing so precisely that there should be no dispute about the scope of delivery afterwards? 11 C. Binding Pursuant to § 145 of the German Civil Code, the declarant is bound by the offer unless he has excluded the binding nature of the offer. If the declarant wishes to revoke his offer, he must ensure in accordance with § 130 (1) sentence 2 BGB that the declaration of revocation is received by the recipient of the declaration before or at the same time as the offer. If the revocation is only received after the offer, § 147 BGB regulates how long the offeror is bound to his offer. In the case of an offer made to an absent party, the binding period pursuant to § 147 (2) BGB lasts until the time by which the offeror can normally expect to receive a response. This is the period of time required by the recipient of the offer to make a decision on acceptance. The binding nature of declarations of intent is a special feature of German law and - when viewed from a comparative legal perspective - is not a matter of course. For the German legislator, the need for the declarant to be bound by his offer arises from the protection of the market: if the recipient of the declaration had no certainty as to his intention, it would be considerably more difficult for him to make a comparison with other contractual offers. If the buyer makes an offer in the business process of concluding a contract, he usually does so when he orders the goods from the seller. The seller, on the other hand, makes an "offer" to the buyer, acceptance of which is then left to the buyer's discretion. There is agreement here - regardless of whether the applicant is the buyer or the seller - that one does not want to lose one's own flexibility by making one's own application: the seller wants - if he has made an offer - to still be able to refuse the buyer if another customer makes a better offer. Likewise, the buyer - who orders goods from the seller - wants to be able to change his mind if he receives a better offer from another seller. On the other hand, each party wants the other party's declaration of intent to be binding. Therefore, terms of purchase and terms of sale distinguish whether orders or offers are binding. Furthermore, at least purchasing conditions should 43exclude the fiction of timely acceptance provided for in § 149 sentence 2 BGB: The BGB recognises in § 149 BGB that the accepting party, who has undertaken what is necessary for timely acceptance and has duly sent the declaration on its way, may regularly rely on timely receipt and thus on the conclusion of the contract. However, if this is prevented by extraordinary delays in transportation and if the applicant had to recognise this, the legislator of the BGB considers it fair that the recipient of the declaration at least informs the acceptor of the delay. For this reason, § 149 of the German Civil Code stipulates that the application does not expire despite delayed acceptance: the applicant must notify the delay in the declaration of acceptance in the event of a delay that is recognisable as being due to carriage. If he does not do so, this leads to the fiction of timely acceptance. If offers or orders contain 44obvious miscalculations, the person who has made such an error is not interested in concluding the contract. Intentional is the legal consequence of § 154 Abs. 1 sentence 1 BGB: According to this, in case of doubt, the contract is not concluded as long as the parties have not agreed on all points of a contract on which, according to the declaration of even one party, an agreement is to be made. The GTC should make it clear here that the parties undoubtedly intended precisely this legal consequence. Terms and conditions of sale often provide that the seller may accept orders within a period of days or weeks (acceptance periods). Terms and conditions of purchase, on 43 MüKoBGB/Busche, 8th ed. 2018, BGB § 145 Rn. 2. 44 BeckOK BGB/H.-W. Eckert, 57th ed. 1.2.2021, BGB § 149 Rn. 2. 12 the other hand, restrict the seller's time to accept an order, for example by confirming or dispatching the goods, by setting corresponding deadlines. In consumer transactions, such general terms and conditions are invalid pursuant to § 308 No. 1 of the German Civil Code (BGB) if the user reserves unreasonably long or insufficiently definite periods for the acceptance or rejection of an offer or the performance of a service. In business transactions with entrepreneurs, the provision does not apply directly, but may indicate an unreasonable disadvantage within the meaning of § 307 (1) BGB. In the case of acceptance periods, the courts consider whether the disputed acceptance period is customary in the industry. In general, they do not object to periods of between two and four weeks. 45 Suggested wording: Conditions of purchase Terms of sale § 2 Binding nature of orders placed by the buyer § 2 Binding nature of offers made by the seller (1) Orders of the buyer are only binding if the buyer (1) Offers of the seller are subject to change and non- places or confirms them in writing. binding. (2) Orders of the buyer are binding contract offers. (2) The Seller must confirm the Buyer's orders in (3) If nothing to the contrary results from the order, writing within a period of two calendar weeks or, the Seller may accept contract offers within two in particular, execute them without reservation calendar weeks of their receipt. Acceptance may by dispatching the goods (acceptance). be declared either in writing (e.g. by order confirmation) or by delivery of the goods to the Buyer. (3) A delayed acceptance shall be deemed a new offer and requires acceptance by the Buyer. § 149 BGB shall not apply (4) The Seller must point out obvious errors (such as (4) The Buyer must point out obvious errors (such as spelling and calculation errors) and spelling and calculation errors) and incompleteness of the order including the order incompleteness of the offers including the offer documents to the Buyer for the purpose of documents to the Seller for the purpose of correction or completion before acceptance; correction or completion before acceptance; otherwise the contract shall be deemed not otherwise the contract shall be deemed not to concluded. have been concluded. Test Questions: 1. Am I bound to my offer/order when it reaches the recipient or is revocation still possible even then? 2. To what extent are orders/quotations from my customer/supplier binding on him? D. Price Of central importance for the parties is not only the purchase price, but also which individual items the purchase price covers. They should regulate in which currency the 45 BGH (5.05.2011) NJW 2011, 1954, 1955 13 price is owed, whether the price is a net or gross price and whether it includes transport costs, costs for transport insurance, the packaging costs, costs for customs duties, fees or other public charges and other ancillary costs such as costs for installation and assembly. The currency in which the buyer must pay depends on the agreement between the parties. In the absence of such an agreement and in the absence of any customary practice, the currency in which the purchase price is to be paid is a matter of dispute: while some courts hold that the purchase price is regularly to be paid in the seller's currency, 46others want to decide the question according to the national law applicable by way of conflict of laws. 47 In German private international law, the currency of the debt is determined by the statute of the contract, 48so that the purchase price must be paid in the seller's currency on the basis of Art. 4 (1) (a) Rome I Regulation. Finally, it is argued that a special connection should be made and that the currency regulations of the place of performance should be regarded as decisive. 49 All the views expressed lead to the conclusion that, as a rule50, the purchase price is to be paid in the seller's currency. In the case of a domestic delivery, the purchase contract should list the statutory sales tax separately in addition to the net purchase price: Statutory turnover tax is legally a dependent part of the consideration to be paid. If the circumstances do not indicate otherwise, the buyer has paid it with the agreed consideration and the seller cannot demand it separately.51 There is no general commercial custom according to which prices between entrepreneurs are net prices in case of doubt.52 In the case of intra-Community deliveries pursuant to §§ 4 no. 1 lit. b, 6a UStG and export deliveries pursuant to §§ 4 no. 1 lit. a, 6 UStG, however, the supplier does not pay VAT. The provision, in conjunction with the input tax deduction, serves to completely relieve exports of VAT: each country into which the goods are imported can levy the excise duties on the goods that are customary in that country (destination principle).53 In return, import VAT is levied on imports, bringing the tax burden to the tax level of the country of destination. This shifts the tax revenue to the state where the final consumption of the goods supplied takes place. Although - unlike in domestic trade - the seller does not pay VAT, it is advisable to stipulate in the purchase contract whether all prices are net prices excluding VAT. In the inconsistent German law, § 448 para. 1 BGB (German Civil Code) stipulates that the seller5455 shall bear the costs of handing over the item and the buyer shall bear the costs of acceptance and dispatch of the item to a place other than the place of performance. The statutory rule thus burdens the seller with the costs incurred up to the point of acceptance of the object of sale. The beetle, on the other hand, bears the costs incurred at and from the time of acceptance. In the case of a sale by delivery to a place other than the place of performance, the seller bears the costs of packaging 46 See for example KG Berlin (24.01.1994) CISG-online 130. 47 For example Herber/Czerwenka, Art. 53 marginal no. 5. 48 Thus Hager/Maultsch in Schlechtriem/Schwenzer, 5th ed. 2008, Art. 57 marginal no. 9a 49 For example, Schlechtriem, para. 211. 50 An exception to this is the case where, exceptionally, the goods or documents have to be handed over in a third country. If the place of performance is taken as a basis here, a currency other than that of the seller may be considered (see Schlechtriem, para. 211). 51 BGH (25.11.1993) NJW 659, 660 52 OLG Düsseldorf (27.02.1976) NJW 1976, 1268; OLG Munich (02.12.1992) NJW-RR 1993, 415 53 Bunjes/Heidner UStG § 4 no. 1 marginal no. 1. 54 Sölch/Ringleb/Treiber UStG § 6 marginal no. 1. 55 Sölch/Ringleb/Treiber UStG § 6a marginal no. 1. 14 and storage before the start of the main transport, while the buyer bears the costs of dispatch from the place of performance as well as customs duties and comparable public charges. Because GTC often provide for different rules in this respect, parties are well advised to include cost clauses in their GTC. From an economic point of view, they do not serve to burden the contractual partner with all ancillary costs. However, they can be used to ward off cost clauses of the contractual partner which provide for a more unfavourable distribution of costs compared to the law. In the case of price clauses, a distinction must be made between price reservation clauses and price adjustment clauses: Price reservation clauses leave the price open or non-binding when the contract is concluded and allow it to be fixed later. Price adjustment clauses, on the other hand, allow that an already agreed price can or should be changed subsequently due to changes in the user's costs. Price clauses are intended to preserve the balance of price and performance in long-term contractual obligations.5657 In the inconsistent German law, price adjustment reservations can violate the Price Clause Act (Preisklauselgesetz - PreisklG) and - should they be contained in general terms and conditions - §§ 309 No. 1, 307 BGB and be ineffective. Pursuant to § 1 (1) PreisklG, the amount of monetary debts may not be directly and automatically determined by the price or value of other goods or services which are not comparable to the agreed goods or services. The need to regulate such clauses is based on the fact that value protection clauses can have an inflationary effect. According to § 1 (2) No. 3 PreisklG, however, so-called cost element clauses are not objectionable under the PreisklG. These are clauses according to which the amount owed58 is made dependent on the development of prices or values for goods or services to the extent that these directly influence the creditor's cost price when providing the consideration. Thus, if the seller makes the price adjustment dependent on the costs for material and production of the goods, this is not objectionable at least according to the PreisklG. In the case of form- based price clauses, it is questionable whether they are not - for example because the parties have agreed on a fixed price - superseded in accordance with § 305b BGB: Because individual contractual agreements take precedence over general terms and conditions, there is often no room for the application of price clauses. If this is not the case, price clauses are subject to content control: The regulation in § 309 No. 1 BGB does not apply to general terms and conditions vis-à-vis entrepreneurs due to § 310 Para. 1 BGB. However, according to § 307 BGB its basic idea also applies in dealings with entrepreneurs. If the user wants to enable a price adjustment in GTC, such a clause is only effective if it specifies the prerequisites and scope of the price change in a manner that is comprehensible to the contractual partner, does not give the user any uncontrollable leeway to change the equivalence ratio of performance and consideration to his advantage, sufficiently specifies the reason for and scope of possible price increases and ensures that the price adjustment mechanism does not subsequently increase the user's profit margin. Furthermore, case law emphasises that it is not acceptable under § 307 (1) sentence 1 that the user may only pass on cost increases to his customer without having to pass on cost reductions to the customer at the same time.59 56 Graf von Westphalen, Vertragsrecht und AGB-Klauselwerke, Preisanpassungsklauseln marginal no. 1. 57 MüKoBGB/Wurmnest BGB § 307 marginal no. 98. 58 Kirchhoff, Guido, Das Verbot von Wertsicherungsklauseln im neuen Preisklauselgesetz, DNotZ 2007, 913, 922. 59 MüKoBGB/Wurmnest BGB § 307 marginal no. 98. 15 Test Questions: 1. How high should the price be: Will the price be specified as a unit fixed price in the contract or is it to be determined exactly later? 2. Does the contract itself provide for a pricing method by which the price can be accurately determined later? 3. Which services are included in the purchase price and which are not? 4. What events should justify subsequent price adjustments under the contract? 5. In which currency is the purchase price to be paid? Suggested wording: Conditions of purchase Terms of sale § 3 Price § 3 Price (1) The price stated in the order is binding. The (1) Unless otherwise agreed in individual cases, the respective statutory sales tax and the costs for Seller's prices current at the time of conclusion of packaging are included in the price. the contract shall apply, ex warehouse and in (2) A price adjustment by the seller does not take each case plus statutory value added tax. place. (2) The Seller may - after timely notification of the Buyer and prior to delivery of the goods - increase the price if this is necessary due to price increases beyond the Seller's control. Such a price increase beyond the Seller's control may result from fluctuations in exchange rates, changes in customs duties or increases in material and manufacturing costs. In return, the seller assures the buyer that he will reduce the price if his costs (such as customs duties) fall or cease to apply. (3) Unless otherwise expressly agreed between the (3) If the goods are shipped to another destination at parties, the purchase price includes free the request and expense of the Buyer (sale to delivery. destination), the Buyer shall bear the transport costs ex warehouse and the costs of any transport insurance requested by the Buyer. If the Seller does not invoice the transport costs actually incurred in the individual case, a lump sum for transport costs (excluding transport insurance) in the amount of 5% of the net purchase price shall be deemed agreed. (4) Customs duties, fees, taxes or other public (4) Customs duties, fees, taxes and other public charges shall be borne by the seller. charges shall be borne by the buyer. (5) The purchase price includes ancillary services of (5) The purchase price does not include ancillary the seller such as assembly and installation. services of the seller such as assembly and installation. E. Payment If delivery and payment cannot be made concurrently, this triggers the problem of the obligation to perform in advance for both buyer and seller: The principle of step-by- step performance ensures equal security for both contracting parties.60 Due to the insolvency risk of the contracting party, both parties want to avoid an advance performance obligation: Advance payment is just as much a problem for the buyer as 60 BGH (04.03.2010) NJW 2010, 1449, 1450 (para. 12). 16 the granting of a payment period after delivery by the seller. Payment terms only partially solve this problem: They usually provide for an advance payment obligation on the part of the seller, combined with a payment period for the buyer. Terms of payment should first regulate the due date of the purchase price claim: If non-uniform German law applies and the parties have not agreed on a different provision, § 271 (1) of the German Civil Code (BGB) stipulates that the creditor can demand performance upon conclusion of the contract. In the case of a place purchase - i.e. the taking over of the goods at the seller's premises or at a third location - the purchase price becomes due when the seller has taken the necessary measures to enable the buyer to take over the goods - i.e. as a rule when he has individualised the goods and informed the buyer thereof. In the case of a distance sale (obligation to deliver), the seller must offer the goods to the buyer at the buyer's place of business or at an agreed third location. In the case of a sale by delivery to a place other than the place of performance, the goods must have been offered to the buyer at the place of destination. Only then is the purchase price due. For buyer and seller, the obligation to perform in advance represents a particular risk: In the inconsistent German law, § 309 No. 2 BGB prevents an entrepreneur from formally excluding or limiting the right to refuse performance vis-à-vis a consumer, which the contractual partner of the user is entitled to under § 320 BGB. In business transactions between entrepreneurs, however, § 320 BGB can be waived by way of form.61 However, the Federal Court of Justice (BGH) requires a factual reason for the form-based justification of the obligation to perform in advance in business transactions between entrepreneurs.62 Thus, for example, in the case of a construction contract, a clause which excludes the purchaser's right to refuse performance without restriction does not stand up to a review of its content.63 The problem of the obligation to perform in advance is particularly relevant for the seller: In most cases the buyer's obligation to pay is only triggered upon delivery of the goods. However, the seller will not want to make a delivery if he is entitled to doubt the buyer's creditworthiness: whether the seller can make his delivery dependent on advance payment in such cases in accordance with his terms and conditions of sale is considered permissible at least if there is an ongoing business relationship between the parties. Not to be objected to are clauses which concretise the provision of § 321 BGB, which is important for the seller obliged to pay in advance, by naming the application for opening of insolvency proceedings as an example for the recognisability of a "lack of ability to perform" of the debtor: Unlike the insolvency-related dissolution clauses, which entitled one party to dissolve the contract in the event of an application for insolvency or the opening of insolvency proceedings and which64 are ineffective according to the case law of the BGH65, § 321 BGB does not change the seller's obligation to perform in advance, who can only withdraw from the contract concurrently with his performance and after the expiry of a reasonable period set by him.66 Discount clauses entitle the buyer to a specified, usually percentage deduction from the purchase price in the event of punctual payment.67 They are usually found in 61 BGH (10.10.1991) NJW 1992, 575, 577. 62 BGH (04.03.2010) NJW 2010, 1449, 1450 (para. 12). 63 BGH (31.03.2005) NJW-RR 2005, 919, 920. 64 BeckOF Vertrag, Form. 10.2 Note 1-79 marginal no. 31, beck-online. 65 BGH NJW 2013, 1159 para. 13. 66 BeckOF Vertrag, Form. 10.2 Note 1-79 Rn. 36, beck-online. 67 EBJS/Joost HGB § 346 marginal no. 119. 17 purchase conditions, but sometimes also in sales conditions. The cash discount clause is intended to encourage the debtor to pay promptly: He should realize that it is much more lucrative to take a cash discount than to leave the amount owed in the account. Cash discount clauses in terms and conditions of sale are not objectionable; in terms and conditions of purchase they may be invalid - for example, if they violate the transparency requirement.6869 Whether clauses in terms and conditions of purchase can effectively provide that, in the case of bank transfers, the receipt of the transfer order shall be sufficient to meet the deadline is questionable: According to the case law of the ECJ, the point in time which is decisive for assessing whether a payment by bank transfer in the course of a business transaction is to be regarded as having been made in time, so that no default interest is payable on a claim under this provision, is the point in time at which the amount owed is credited to the creditor's account.70 The judgment concerned the interpretation of Art. 3(1)(c)(i) of the Late Payment Directive RL 2000/35/EC. 71The seller should be particularly careful when drafting the default provision in his General Terms and Conditions of Sale. Statutory regulation of default in law: In the inconsistent German law, default occurs if the facts of § 286 BGB are fulfilled. The regulation presupposes maturity, § 286 Abs. 1 BGB, reminder, § 286 Abs. 1 BGB and invoice or equivalent payment statement, § 286 Abs. 3 BGB. Non- representation of the delay in performance excludes the default, § 286 para 4 BGB. If non-unified German law applies, the seller, if the buyer does not pay on time, must compensate all pecuniary disadvantages incurred as a result of the late payment according to §§ 280, 286 BGB. This includes collection costs, such as the costs of a lawyer with whose help the seller tries to enforce his claim for payment, expenses for loan interest because he cannot repay loans with third parties as long as he does not receive the purchase price, or compensation for disadvantages incurred by the seller because he misses out on favourable transactions due to a lack of the necessary financial means. § 288 BGB grants the seller a lump-sum compensation for lost interest in the event of default. The German legislator differentiates between the interest rates: In principle, the statutory default interest rate for the year pursuant to § 288 (1) sentence 2 BGB is five percentage points above the base interest rate. If no consumer is involved in the legal transaction, the interest rate on the claim for payment is nine percent above the base interest rate in accordance with § 288 (2) BGB. These interest rates do not require proof of damage or causality. A special regulation for merchants is contained in §§ 352, 353 HGB: Merchants among themselves are entitled to72 claim interest on arrears according to § 353 HGB. Even before the occurrence of default, this can trigger an interest obligation of 5% on the due date. Sellers often try to deviate from this legal regulation in their terms of sale. In practice, however, this is only possible to a limited extent: It is disputed, for example, whether sellers can waive the reminder requirement in their general terms and conditions. This is sometimes regarded as ineffective in general terms and conditions because reminders have an important warning function. The seller is therefore advised to agree fixed payment dates instead, because a reminder is then dispensable due to § 286 para. 2 nos. 1 or 2 BGB. A fixed payment date can be achieved in general terms and conditions - for 68 Peters, Frank, Skonti, NZBau 2009, 584. 69 BGH (25.01.1996) NJW 1996, 1346, 1347. 70 ECJ (03.04.2008) NJW 2008, 193, 1936. 71 On this point Schwab, Martin, Geldschulden als Bringschulden?, NJW 2011, 2833. 72 MüKoBGB/Ernst BGB § 288 marginal no. 5. 18 example by referring to invoicing and delivery. Often one finds clauses which are supposed to waive the fault requirement in § 286 para. 4 BGB. Such provisions are not recommended: The fault requirement cannot be waived in general terms and conditions. An exclusion of the consequences of delay only in the case of "force majeure" is also ineffective, because this only covers a small proportion of delays for which the parties are not responsible. Finally, one should carefully consider whether one wants to deviate from the statutory regulation in § 288 BGB - for example with regard to interest on arrears: entrepreneurs are better advised to be satisfied with the statutory nine percentage points above the base interest rate. With this interest rate, the entrepreneur does not have to provide proof of damage. If the entrepreneur were to go beyond this interest rate, it would then probably be a matter of a contractual lump sum for damages. This is subject to the proof requirement in § 309 No. 5 lit. b BGB.73In commercial practice, the parties often make use of payment clauses in order to agree on the time and modalities of payment: "Net cash on receipt of goods" obliges the seller to pay after receipt of the invoice and the goods, i.e. to make payment in advance. In the case of "cash on delivery", the buyer must pay when the carrier delivers the goods and "cash against documents" obliges the buyer to pay the purchase price when the seller alone hands over the documents to him.74 The buyer does not have to have received the goods and cannot refuse payment because he has not yet been able to examine them.75 If the parties have agreed on such a clause, it has priority as an individual agreement over clauses found in conditions of purchase or sale. Test Questions: 1. When should the price for the thing be due and enforceable? 2. Should the purchaser make an advance payment after conclusion of the contract? 3. How does the contract seek to ensure timely payment, in particular can the seller claim payment from a third party if the buyer fails to pay? 4. What are the consequences of late payments? 73 BeckOF Contract, Form. 10.2 Note 1-79 marginal no. 33, beck-online 74 EBJS/Joost HGB § 346 marginal no. 113. 75 MüKoBGB/Huber CISG, Art. 53 marginal no. 15. 19 Suggested wording: Conditions of purchase Terms of sale § 4 Payment § 4 Payment (1) Payments shall be made solely to the Seller's account IBAN: DE12 3456 7890 1234 5678 00 at XY Bank Z-City (BIC:ABCDEFGHXXXX). (1) The agreed price is due for payment within 30 (2) The purchase price is due and payable within 14 calendar days of complete delivery and days from the date of invoice and delivery or performance (including any agreed acceptance) acceptance of the goods. and receipt of a proper invoice. (2) If the buyer pays within 14 days of delivery of the (3) If the buyer pays within 7 days of delivery of the goods and receipt of a proper invoice, the seller goods and receipt of a proper invoice, the seller grants a 3% discount on the net amount of the grants a 2% discount on the net amount of the invoice. invoice. (3) The statutory provisions shall apply in the event (4) Upon expiry of the aforementioned payment of default in payment. deadline, the Buyer shall be in default. During the period of default, interest shall be charged on the purchase price at the statutory default interest rate applicable at the time. We reserve the right to assert further damage caused by default. (4) The seller is not entitled to make a delivery in (5) In the event of an ongoing business relationship, whole or in part only against advance payment. the Seller may only make a delivery in whole or in part against advance payment if there is an objective reason for doing so. An objective reason may in particular be that the seller fears that the buyer does not have sufficient creditworthiness. The Seller shall declare a corresponding reservation at the latest with the order confirmation. (6) If it becomes apparent after conclusion of the contract (e.g. by filing for insolvency proceedings) that the Seller's claim to the purchase price is jeopardised by the Buyer's inability to pay, the Seller shall be entitled to refuse performance in accordance with the statutory provisions and - if necessary after setting a deadline - to withdraw from the contract (§ 321 BGB). In the case of contracts for the manufacture of unjustifiable items (custom-made products), the Buyer may declare rescission immediately; the statutory provisions on the dispensability of setting a deadline remain unaffected. (5) The assertion of commercial maturity interest (§ (7) With respect to merchants, the seller's claim to 353 HGB) is excluded. the commercial due date interest rate (§ 353 HGB) remains unaffected. F. Offsetting If an entrepreneur provides for a prohibition of set-off in general terms and conditions vis-à-vis a consumer, such a provision is invalid pursuant to § 309 No. 3 of the German Civil Code (BGB) if the contractual partner of the user is thereby deprived of the right to set-off with an undisputed or legally established claim. The legal concept of this provision is applicable to commercial transactions between entrepreneurs.76 Even in commercial transactions, the purpose of offsetting prohibitions is to enable the user 76 MüKoBGB/Wurmnest BGB § 309 Rn. 10. 20 to realise his claims quickly. If the set-off claim is certain in terms of reason and scope, the user has no interest worthy of protection to deny the set-off to the contracting party.77 If the seller wants a comprehensive prohibition of set-off, this can be ensured, for example, by an individual agreement or by agreeing on the buyer's obligation to provide a documentary letter of credit: If the parties have agreed on the clauses "cash on delivery" (COD) or "cash against documents", these clauses contain a prohibition of set-off: "cash against documents" means in commercial transactions "delivery against cash on delivery" and establishes an advance performance obligation of the buyer to the extent that he has to pay upon delivery of the goods without being able to examine them beforehand.78 The case law justifies this view with the literal meaning of the term "cash" or "Kasse": According to conventional usage and the view of the trade, in the case of the also otherwise usual cash clauses such as "cash against invoice" or "net cash against invoice and loading documents", a cash payment agreement of the content that the obligation to perform in cash may only be fulfilled against cash payment or transfer or a handing over of a covered cheque equivalent to these forms of payment, but not by offsetting. As with the "COD" clause, the agreed provision of a documentary letter of credit also triggers an exclusion of set-off: The 79documentary credit contains a cash payment agreement with an implied exclusion of set-off, because the buyer undertakes with the letter of credit clause to instruct the letter of credit bank to unconditionally pay the purchase price to the seller against presentation of the agreed documents. 80 Suggested wording: §5 Offsetting (1) The buyer/seller may offset to the full legal extent. (2) The seller/buyer may only offset with legally established or undisputed claims. G. Retention If, for example, the seller has entered into considerable obligations towards third parties in the production of the object of purchase and is dependent on the prompt payment of the purchase price, the buyer can exert pressure on the seller by withholding due payments: The buyer can, for example, achieve better contractual terms in renegotiations or - if the market situation has developed to his disadvantage - by insisting on his right of retention he can press the seller to show that he is prepared to "voluntarily" withdraw from the contract after all.81 The general right of retention in § 273 (1) BGB grants the debtor a right of retention if the debtor has a claim against the creditor which is due and arises from the same legal relationship on which the debtor's obligation is based. In business transactions between entrepreneurs, §§ 273 77 Cf. MüKoBGB/Wurmnest BGB § 309 marginal no. 10. 78 BGH (19.09.1984) NJW 1985, 550. 79 BGH (19.09.1984) NJW 1985, 550. 80 BGH () NJW 1973, 899, 900. 81 MüKoHGB/Mankowski CISG Art. 71 marginal no. 3. 21 and 320 of the German Civil Code (BGB) may be excluded in general terms and conditions unless the counterclaims on which the assertion of the right of retention is based are undisputed or have been finally determined by a court of law. § 309 no. 2 BGB has no indicative effect for contracts with entrepreneurs for the interpretation of § 307 BGB. 82 Suggested wording: §6 Retention (1) The buyer/seller may exercise rights of retention to the full statutory extent. (2) The buyer/seller may withhold payments due as long as he has claims against the seller/buyer arising from incomplete or defective performance. (3) The seller/buyer shall only have a right of retention on the basis of counterclaims that have been legally established or are undisputed. H. Handover If the buyer wishes to obtain custody of the object of sale, he must either collect the object or the seller must deliver the object to him. This can be done by the seller bringing the item to the buyer himself or by sending it to him by commissioning a third party to transport it. If the thing is to be handed over to the buyer immediately after the conclusion of the contract, there is no problem. The situation is different if time elapses between the conclusion of the contract and the handover, for example because the buyer does not want to collect the goods but wants them to be delivered. Here it is questionable whether, where and when the seller has to deliver. Because of the central importance of delivery for the buyer, the parties should agree on this. The BGB assumes that the seller does not have to bring the goods to the buyer. The parties must also agree on a transport of the goods by a third party. The delivery time depends on the agreement of the parties. If there is no agreement between the parties, the BGB requires the seller to deliver immediately in case of doubt. The place of performance and thus also the "whether" and "where" of the delivery is regulated there by § 269 BGB. According to § 269 (1) BGB, performance must take place at the place where the debtor was domiciled at the time of the creation of the debt relationship, unless the parties have agreed otherwise or the circumstances indicate otherwise. It does not follow from the provision that all debts should, as a rule, be debts for collection. It can only be inferred from the norm that in case of doubt a debt of delivery is not agreed.83 If the debt has arisen in the debtor's business, according to § 269 (2) BGB, if the debtor had his place of business in another place, the place of business takes the place of the domicile. Furthermore, § 269(3) BGB clarifies that it cannot be inferred from the mere fact that the debtor has assumed the costs of dispatch that the place to which the dispatch must be made is to be the place of performance. This standard is necessary because, for example, in the case of agreements such as "free domicile", "cif", "fob", "free rail", "free border" or "free rail", parties may wish to regulate the costs and risk, but not the place of performance. 84 The "when" of the delivery - i.e. the time of 82 BGH (10.10.1991) NJW 1992, 575, 577. 83 MüKoBGB/Krüger BGB § 269 marginal no. 5; Bamberger/Roth/Lorenz BGB § 269 marginal no. 4. 84 BGH (19.09.1983) NJW 1984, 567; MüKoBGB/Krüger BGB § 269 Rn. 17. 22 performance - is regulated in principle by § 271 (1) BGB: If a time for performance is neither determined nor can be inferred from the circumstances, the creditor can demand performance immediately and the debtor can effect it immediately. The characteristic "immediately" is to be understood objectively: The debtor must perform as quickly as is possible for him according to objective standards - taking into account any necessary preparation. 85 In addition to the "whether", "where" and "when" of the delivery, it is particularly significant for the seller and in need of regulation what the consequences are if he cannot deliver - for example because he himself has not been supplied in time by his supplier or does not have sufficient stocks. In these cases of non-availability of performance, the entrepreneur will want to make his obligation to perform dependent on either being supplied himself or - in the case of performance under a limited generic debt - on his stock not yet being exhausted.86 In principle, this is possible: Insofar as a reservation of self-supply ("timely and correct self-supply reserved") has been agreed, a failure of "self-supply" by the upstream supplier releases the supplier from his obligation to deliver.87 However, case law requires that the seller benefiting from a reservation of self-supply can only be released from his delivery obligation if he had concluded a congruent covering transaction at the time of the conclusion and is let down by the partner of this purchase contract. 88Congruence exists if these contracts are of such a nature that, in the natural course of events, it is possible to fulfil the sales contract with the goods expected from the purchase contract.89 In other words, the goods must be basically the same, at least the same quantity, the same quality, and the delivery or unloading times must be the same as those of the sales contract. Furthermore, the performance of the purchase contract may not be made dependent on a condition or other circumstances lying in the sphere of the upstream suppliers.90 If the seller wishes to draft a clause which releases him from his obligation to perform in the event of non-availability of the service, he should observe § 308 No. 8 of the German Civil Code (BGB) - although this is not applicable to B2B transactions. In this provision, the legislator requires the user to inform the contracting party without delay of the non-availability and to reimburse him without delay for any counter-performance. If terms and conditions of sale provide for the seller's right to be released from the obligation to deliver in the event of non- availability of the performance, the clause should also contain this obligation of the seller. The buyer, who is usually obliged to deliver the goods to third parties, cannot be interested in such a provision. It is advisable to provide in the terms and conditions of purchase that the seller bears the procurement risk: Such clauses establish a strict liability of the seller. Whether a procurement risk can be agreed in general terms and conditions or whether the parties must agree on this individually has not yet been conclusively clarified. In practice, however, this question should only play a role for special debts or unreasonable items (custom-made products). If, on the other hand, the parties have agreed on an unlimited generic debt, the associated assumption of a procurement risk by the seller makes it questionable whether a pre-formulated reservation of self-delivery can then be effectively agreed between merchants at all. 85 MüKoBGB/Krüger BGB § 271 marginal no. 32; Bamberger/Roth/Lorenz BGB § 271 marginal no. 20. 86 MüKoBGB/Wurmnest BGB § 308 no. 8 marginal no. 3. 87 Graf von Westphalen, Vertragsrecht und AGB-Klauselwerke, Lieferzeitklauseln marginal no. 12. 88 BGH (22.03.1995) NJW 1995, 1959, 1960. 89 BGH (22.03.1995) NJW 1995, 1959, 1960. 90 v. Westphalen/Thüsing VertrR/AGB-Klauselwerke, Conditions of Purchase Rn. 13, beck-online 23 On the whole, clauses which impose a delivery obligation on the seller and a condition subsequent are disadvantageous for the buyer. If the buyer has already resold the goods, he will want to ensure with his terms and conditions of purchase that he will be supplied, that all delivery dates are binding and that - should his seller fail to deliver on time - he can make a covering purchase - i.e. the purchase of goods from another seller - without further ado. In case of doubt, the buyer - if his seller does not deliver - does not want to have to set a grace period in order to then be able to demand the difference between the original purchase price and the purchase price of the covering purchase from the seller as compensation: In other words, he does not want to 9192trigger the consequences of a relative fixed transaction according to the German Civil Code (BGB), but those of a fixed transaction under commercial law according to § 376 of the German Commercial Code (HGB). This cannot be achieved solely by means of provisions in purchasing conditions: In the case of a firm deal, the parties must specify a precise delivery time or period and agree that the contract "stands or falls" with the observance or non-observance of the delivery time or period. This can happen if, for example, the parties have used commercial terms such as "fixed", "precise", "latest" or "exact". 93A strong interest of the buyer in timely performance 94or corresponding provisions in purchasing conditions are not sufficient.95 If the buyer wants the legal consequences of the fixed transaction to occur in the event of late delivery, he must agree this individually with the seller. Terms and conditions of purchase, on the other hand, can regulate the delivery period and the consequences of late delivery: Delivery periods in terms and conditions of purchase are effective if they remain within the framework set by § 307 (2) No. 1 BGB. It depends on which delivery periods are customary in the industry and whether it is a matter of series production in stock or of custom-made products to be manufactured first. In any case, the seller must generally be in a position to comply with the stipulated delivery period on the basis of normal circumstances and careful management. Sometimes purchasing conditions provide that the supplier's default shall not be subject to any fault. Such clauses are invalid: Such clauses contradict the principle of § 280 para. 1 sentence 2 BGB in conjunction with § 280 para. 2 BGB; the supplier must retain the statutory grounds for exemption from performance undiminished. 9697 The BGH is strict on this point. The supplier's liability for fault complies with a "requirement of fairness" to be established pursuant to § 307 (2) no. 1 BGB. 98Whether clauses in purchasing terms and conditions are invalid which waive the requirement of a reminder as a precondition for default is a matter of dispute: While some authors are of the opinion that the reminder is 99mandatory due to its warning function, others are of the opinion that commercial transactions are much more dependent on the scrupulous observance of deadlines than other legal transactions with the consequence that the reminder is dispensable.100 Terms and conditions of purchase can circumvent this 91 BeckOF Vertrag, Form. 10.1 Note 1-60 marginal no. 22, beck-online. 92 v. Westphalen/Thüsing VertrR/AGB-Klauselwerke, Einkaufsbedingungen Rn. 15 Rn. 15, beck-online. 93 BeckOK HGB/Schwartze, 24th ed. Apr. 15, 2019, HGB § 376 para. 6. 94 v. Westphalen/Thüsing VertrR/AGB-Klauselwerke, Einkaufsbedingungen Rn. 9, beck-online. 95 BeckOK HGB/Schwartze, 24th ed. Apr. 15, 2019, HGB § 376 para. 6. 96 BeckOF Vertrag, Form. 10.1 Note 1-60 marginal no. 13, beck-online. 97 v. Westphalen/Thüsing VertrR/AGB-Klauselwerke, Einkaufsbedingungen Rn. 3, beck-online. 98 BGH (18.10.2017) NJW 2018, 291. 99 v. Westphalen/Thüsing VertrR/AGB-Klauselwerke, Einkaufsbedingungen Rn. 6, beck-online. 100 MüKoBGB/Wurmnest, 8th ed. 2019, BGB § 309 No. 4 Rn. 12. 24 problem by providing for fixed delivery dates or deadlines from the outset in accordance with § 286 (2) nos. 1 and 2 BGB, because then the reminder is also dispensable in accordance with the statutory regulation. Since the question of whether a reminder can be waived in purchasing conditions as a prerequisite for default in delivery has not yet been clarified by the highest courts, the terms and conditions of sale should make it clear that a reminder is required in order to trigger default in delivery. Lump sums for damages caused by delay can be useful in both purchasing and sales conditions: The buyer bears the full burden of showing and proving damages incurred in the event of a delay in delivery. This burden may mean that the buyer cannot successfully enforce all damage positions against the seller in court. Likewise, the seller is interested in limiting his risks in the event of delayed delivery and in being able to foresee possible claims for damages already at the time of conclusion of the contract. In the case of lump sums for damages the principles laid down in § 309 No. 5 lit. a BGB must be observed, which - even if not directly - also apply to commercial transactions between entrepreneurs; there they lead via § 307 in conjunction with § 310 para. 1 sentence 2 BGB to the invalidity of lump sum agreements which are not compatible with § 309 No. 5 lit. a BGB. 101Pursuant to § 309 No. 5 lit. a BGB the agreement of a lump-sum claim of the user for damages or compensation for a reduction in value in general terms and conditions is invalid if the lump sum exceeds the damage to be expected in the regulated cases according to the usual course of events or the usually occurring reduction in value. The amount stipulated as a lump sum in the GTC is thus to be compared with the average damage that normally arises according to the estimate of an informed observer. The actual amount of the damage or the reduction in value is not relevant.102 In addition, § 309 No. 5 lit. b BGB may have to be observed when drafting the clause. Accordingly, pre-formulated lump sums for damages are invalid if the other party to the contract is not expressly permitted to prove that no damage or reduction in value has occurred at all or that it is at least substantially lower than the lump sum. However, it is disputed whether this proof to the contrary must also be granted to the contractual partner in business dealings. An 103alternative to liquidated damages are contractual penalties for exceeding the delivery time: Contractual penalties are intended to exert pressure on the supplier to deliver on time.104 Unlike liquidated damages, a contractual penalty clause does not have to provide the contracting party with counter-evidence that the damage did not occur or was lower. A disadvantage of the contractual penalty, however, is the reservation of its assertion required under § 341 (3) BGB upon acceptance of the delayed performance: 105The creditor can only claim a penalty upon acceptance of performance if he has reserved this right upon acceptance. The prerequisite is that the reservation is declared "upon" acceptance as performance.106 A deviation from this provision in general terms and conditions is only permissible to the extent that the reservation can be declared in time up to the final invoice; the provision cannot be waived further.107 The fact that general terms and conditions cannot completely waive 101 MüKoBGB/Wurmnest, 8th ed. 2019 marginal no. 28, BGB § 309 no. 5 marginal no. 28. 102 v. Westphalen/Thüsing VertrR/AGB-Klauselwerke, Schadenspauschalierungsklauseln Rn. 15, beck-online. 103 v. Westphalen, AGB-Recht ins BGB - Eine erste "Bestandsaufnahme, NJW 2002, 12, 20. 104 v. Westphalen/Thüsing VertrR/AGB-Klauselwerke, Einkaufsbedingungen Rn. 16 Rn. 16, beck-online. 105 BeckOF Vertrag, Form. 10.1 Note 1-60 marginal no. 20, beck-online. 106 HK-BGB/Reiner Schulze, 10th ed. 2019 Rn. 1, BGB § 341 Rn. 1. 107 OLG Düsseldorf (30.06.2000) NJW-RR 2001, 1387, beck-online 25 the requirement of reservation results from the possible duration of a claim against the debtor: the user could leave him in the dark until the end of the limitation period as to whether and, if so, when the user will still have recourse to the penalty claim.108 When drafting the contractual penalty clause, it must be ensured that there is an appropriate relationship between the amount of the contractual penalty on the one hand and the maximum burden on the customer due to the forfeited contractual penalty on the other. The amount of the contractual penalty therefore becomes unreasonable within the meaning of § 307 (1) of the German Civil Code if its sanction is out of reasonable proportion to the breach of contract, its weight and its consequences for the user of the GTC.109 A customary maximum limit of 5% has also become established for purchase contracts due to the case law of the BGH on form- based contractual penalties in construction contracts. In practice, this maximum limit is also frequently used for lump sums for damages in sales contracts. 110Closely connected to the question of the place of delivery is the passing of risk: Terms of sale provide that the buyer has to collect the goods from the seller's business premises, whereas terms of purchase want to oblige the seller to bring the goods to the buyer. In both cases the passing of risk is governed by § 446 BGB: With the handover of the sold item, the risk of accidental loss and accidental deterioration passes to the buyer - i.e. regardless of whether this occurs at the seller's or the buyer's premises. As a rule in business practice, however, the sale by delivery to a place other than the place of performance has become the norm - i.e. the use of a third party to transport the goods to the buyer - is actually the exception in general terms and conditions. Here the legislator regulates the passage of risk in § 447 Abs. 1 BGB: If the seller, at the request of the buyer, ships the sold item to a place other than the place of performance, the risk shall pass to the buyer as soon as the seller has delivered the item to the forwarding agent, the carrier or any other person or institution designated to carry out the shipment. The consequence of the transfer of risk is that the seller does not have to perform again if the item is lost and the buyer is not entitled to any warranty rights against the seller for deterioration of the item. In both cases the buyer must pay the purchase price. If the seller's obligations are not only limite

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