Contract law regulates a large number of legal relationships between companies. Especially in the area of commercial contracts – i.e. contracts that your company concludes with its suppliers, cooperation partners and customers – it is of central importance that all agreements are legally secure and comprehensible and that they are interlinked in each of the numerous conflict areas so that your company is not caught between the millstones. As a lawyer for contract law, specialist lawyer for commercial and corporate law and specialist lawyer for International Business Law I can support you and your company in drafting and negotiating contracts, reviewing existing contracts for pitfalls and identifying risks for disputes.
Typical risk situations
Your supply chains may face some of the following challenges.
1. Delivery bottlenecks and procurement risk
Unfortunately, supply bottlenecks are not just a phenomenon of the Corona crisis. They arise in a wide variety of industries for a wide variety of reasons. From a commercial perspective, every company should proceed from the following legal principle: the procurement risk is always borne by the seller of the goods.
If your company is a manufacturer of end products or intermediate components, procurement must be secured on the purchasing side. Your company cannot usually claim that it is impossible to obtain supplies from other sources due to the high costs of obtaining supplies from other sources or that the basis of the transaction has changed. Courts usually only confirm disproportionateness if the supplier's expenditure is disproportionate to the customer's interest in receiving supplies. On the one hand, it is therefore not important whether the supplier is no longer making a profit from the deal. On the other hand, the customer's interest in receiving supplies will usually increase, particularly in the event of supply bottlenecks, so that the threshold of disproportionateness is shifted upwards.
The objection that purchasing costs have risen so much that the basis for the sales transaction has disappeared does not usually work either. This is because it always depends on the common basis of the transaction. However, this is not affected if only one contracting party - in this case the supplier - bears the procurement risk. The principle of contractual loyalty is not undermined by the fact that the manufacturer or reseller's expectation of reliable supplies is disappointed. Only in exceptional cases such as the Corona crisis has the Federal Court of Justice confirmed a serious disruption of the basis of the transaction in individual cases.
Contractual arrangements regarding supply bottlenecks and procurement risk are possible if the contracting parties negotiate this and the buyer accepts that he will assume part of the procurement risk, either by accepting price adjustments or lower delivery quantities. However, this is not the same as delivery reservation or withdrawal clauses that the supplier uses as standard with every buyer. This is usually a matter of general terms and conditions in which the procurement risk cannot simply be waived.
2. Supply bottlenecks and the distribution of available quantities
The question also arises as to how the manufacturer should proceed if the quantity it has in stock is not sufficient to meet all of its customers' delivery requirements. The supplier is bound by the contractual and terms and conditions it has agreed with its respective supplier. It cannot therefore sell the available quantities to those customers who - in retrospect - are prepared to accept a higher price. The principle of "first come, first served", according to which customers are supplied in the order in which they place their orders, is also not an option under legal law. In both cases, the supplier would be breaking the contracts with its customers without justification and would be liable for damages. In order to avoid such liability, the main option in such cases is to subsequently agree with the customers to deliver partial quantities. If such an agreement cannot be reached and there is no fixed-term contract, the supplier would "only" be in default without refusing to provide full performance. This reduces the risk of liability proportionately, but does not eliminate it.
3. Force majeure clauses
In practice, however, so-called “force majeure” clauses often help – even force majeureclauses However, these clauses do not eliminate the supplier's risk of having to purchase, manufacture and deliver under changed conditions that are unfavourable to him. The procurement risk itself is not changed. However, they suspend the obligation to comply with delivery deadlines under specific events and conditions. This must be the case - especially if the force majeureclause in the supplier's general terms and conditions of sale - are events that are objectively outside the control of the contracting parties. In addition, this suspension of performance obligations may only last for a limited period of time - usually only a few months. After this suspension has expired, the customer must have the option of withdrawing from the contract, reclaiming any advance payment and demanding compensation.
4. Passing on price increases
Price changes are closely linked to supply bottlenecks - or at least the desire of suppliers to adjust their pricing conditions to the increase in the prices of raw materials or components. In principle, the principle of contractual loyalty also applies to the agreed prices. There is no general right to unilaterally adjust prices.
However, such an agreement can be made between companies, including in general terms and conditions of sale. However, such unilateral price adjustment clauses must clearly and transparently regulate the conditions for the price adjustment, must not lead to or serve to maintain the supplier's profit margin and must apply to price changes in both directions, i.e. not only to price increases.
Summary Part 1
A common mistake in contract law is to act hastily and unprepared. When signing contracts, it is especially important to review them carefully and understand all clauses and also pay attention to missing clauses. A lawyer can help to check documents for errors and ensure that no disadvantageous terms are overlooked or important provisions omitted. In Part 2 The topics of delivery of defective products, framework agreements and delivery schedules, cooperation and sales and procurement restrictions are discussed.
