Script Law: Purchase Contract PDF

# Part 2: Purchase contract ## A. General Disputes often arise between the parties as to what exactly they have agreed. 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' declarat...

# Part 2: Purchase contract ## A. General Disputes often arise between the parties as to what exactly they have agreed. 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. For example, 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 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.37 If 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. 38 In 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). 39 Because 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. 40 41 Also, 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: 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? ## 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? ## 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 43 exclude 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 44 obvious 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 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: **§ 2 Binding nature of orders placed by the buyer** 1. Orders of the buyer are only binding if the buyer places or confirms them in writing. 2. The Seller must confirm the Buyer's orders in writing within a period of two calendar weeks or, in particular, execute them without reservation by dispatching the goods (acceptance). 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 spelling and calculation errors) and incompleteness of the order including the order documents to the Buyer for the purpose of correction or completion before acceptance; otherwise the contract shall be deemed not concluded. **§ 2 Binding nature of offers made by the seller** 1. Offers of the seller are subject to change and non-binding. 2. Orders of the buyer are binding contract offers. 3. If nothing to the contrary results from the order, the Seller may accept contract offers within two calendar weeks of their receipt. Acceptance may be declared either in writing (e.g. by order confirmation) or by delivery of the goods to the Buyer. 4. The Buyer must point out obvious errors (such as spelling and calculation errors) and incompleteness of the offers including the offer documents to the Seller for the purpose of correction or completion before acceptance; otherwise the contract shall be deemed not to 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 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, 46 others 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, 48 so 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 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 unfavorable 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. 56 57 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 PreiskIG, however, so-called cost element clauses are not objectionable under the PreisklG. These are clauses according to which the amount owed 58 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 PreiskIG. 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 ### 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? **§ 3 Price** 1. The price stated in the order is binding. The respective statutory sales tax and the costs for packaging are included in the price. 2. A price adjustment by the seller does not take place. 3. Unless otherwise expressly agreed between the parties, the purchase price includes free delivery. 4. Customs duties, fees, taxes or other public charges shall be borne by the seller. 5. The purchase price includes ancillary services of the seller such as assembly and installation. **§ 3 Price** 1. Unless otherwise agreed in individual cases, the Seller's prices current at the time of conclusion of the contract shall apply, ex warehouse and in each case plus statutory value added tax. 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. If the goods are shipped to another destination at the request and expense of the Buyer (sale to 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 and other public charges shall be borne by the buyer. 5. The purchase price does not include ancillary 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 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.