Standard business terms are all contract terms that are pre-formulated for more than two contracts which one contractual party (the user) presents to the other party when the contract is concluded (Section 305 (1) Sentence 1, of the German Civil Code).
If the contracting parties were to negotiate the “Take-or-Pay” clause, it would not constitute a standard business term, but rather a customized agreement, which allows for far greater flexibility in its terms. In our experience, “Take-or-Pay” clauses are typically classified as standard business terms. This is because, in many cases, these payment clauses are either deleted or accepted without any specific negotiation of the wording.
The law governing standard business terms (Sections 305 – 310 German Civil Code) sets forth strict requirements for the validity of contractual clauses, which, according to established case law, may also apply to contracts in the B2B sector. If a contractual clause violates the law governing standard business terms, it is deemed invalid. In such cases, the underlying statutory provisions take their place.
However, a payment obligation in the sense of a “Take-or-Pay” clause is not provided for by law. The principle of equivalence applies here: no payment is due unless the service has been performed. However, this does not take into account the costs associated with reserved production slots, which the manufacturer cannot allocate to other customers due to (sometimes last-minute) cancellations. This is due to the complex, months-long planning in advance that precedes every contract manufacturing project. Last-minute changes are possible only in very rare cases.
Anyone who believes they can now claim these costs as damages fails to recognize the resulting problem: lost profits are excluded in the vast majority of manufacturing contracts. As a result, without a “Take-or-Pay” clause, the manufacturer has virtually no recourse against the customer to claim compensation for product quantities that were not accepted.
The legal situation is complex. Among other things, a “Take-or-Pay” clause must neither violate the specific statutory prohibitions on clauses (Sections 308 and 309 of the German Civil Code) nor unreasonably disadvantage the customer contrary to the principles of good faith. To ensure that a “Take-or-Pay” clause is legally valid under the law governing standard business terms, the following provisions may be helpful:
Exceptions to the payment obligation: It may be advisable to agree on exceptions to strict “Take-or-Pay” obligations. One possibility, for example, is to allow the customer to prove that the amount of damages is less than the sum claimed by the manufacturer. This may be appropriate, for instance, if the unused production slots are resold to third parties.
„Bring-or-Pay“: Depending on the contractual situation, it may also be appropriate to structure the provision to apply to both parties – that is, to include a “Bring-or-Pay” obligation: If the manufacturer fails to meet the agreed product quantities, it must pay compensation, such as making up the difference in product price.
Tolerance range: It may also be in the interests of both parties to agree on a threshold above which the “Take-or-Pay” clause takes effect. Only if the purchased quantity falls below, for example, 5% of the agreed quantity must the customer pay for the difference.
Despite these suggestions, the following remains true: Whether a “Take-or-Pay” clause is valid under the standard business terms law can only be determined based on the circumstances of each individual case.
In conclusion, “Take-or-Pay” clauses can be a useful tool for ensuring payment for ordered product batches. It is crucial that the interests of both contracting parties are given balanced consideration. The more carefully this balancing act is achieved, the greater the chance that the contractual clause will withstand a review under the law governing standard business terms in the event of a dispute. The approach offering the greatest legal certainty is to negotiate the contractual clause with the other contracting party so that the strict requirements of the standard business terms law do not apply.
Further reading: Vertragsstrafen im kaufmännischen Geschäftsverkehr – Wie vereinbare ich sie wirksam?
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