The topic of price increases is currently occupying all sectors and industries. Stable prices are the basis for a stable business relationship. Fixed purchase prices during the contract period are the basis for calculating the margin and sales prices. Negotiations of the purchase price or the sales price in relation to the next trade level are the most important topic in the respective annual talks. Entrepreneurs who act as buyers of goods and services and sellers of products on the market rely on them. The prices for raw materials, food and paper have risen sharply during the corona pandemic, as have transport costs and electricity prices. Strong demand and the disruption of supply chains are causing delivery bottlenecks in almost all industries. Suppliers are forced to pass on price increases to their customers and set quotas – both often against clear contractual regulations. Almost every company is affected by delivery bottlenecks and price increases in both purchasing and sales. Purchasing tries to fend off supplier price increases. The sales department tries to minimize the damage and pass the price increase on to the customers within a reasonable period of time. All reject price increases, insist on the contractual agreements and claim damages. How should entrepreneurs deal with this situation when the purchase price increases but the selling price cannot be adjusted?
As a specialist lawyer for commercial and corporate law and specialist lawyer for international business law, I have been advising a large number of my clients on such issues for a long time. It is important to include the situation of the buyer and the seller in the legal examination. The contractual regulations and statutory claims for damages must be checked accordingly. Where the contractual regulations – as often – are incomplete, statutory law, in particular the German Civil Code, is decisive.
Contractual clauses on price adjustment
Clauses with which companies want to address price adjustments are mainly found in general terms and conditions. Here, too, a distinction must be made between purchasing and selling. In general terms and conditions of purchase, a right to price increases, even generally to price adjustments, is generally excluded. It is precisely the goal of purchasing to be able to calculate with stable purchase prices. This is the only way to achieve internally specified trading margins. Clauses intended to prevent an increase in purchase prices are effective in general terms and conditions.
Price adjustment in terms and conditions
In general terms and conditions of sale, on the other hand, the possibility is often provided for the seller to subsequently increase prices without being entitled to damages or other compensation. In this way, the seller wants to counter the risk in his contract that his own costs will increase. Subsequent price adjustments to consumers are only permissible within narrow limits. In one group of cases, it is a requirement that there are four months between the conclusion of the contract and the delivery. Another group of cases involves long-term contracts, such as the supply of electricity.
General terms and conditions clauses that are intended to enable the agreed price to be subsequently increased in the b2b area, i.e. business dealings, are also only permissible under strict conditions. The Federal Court of Justice (BGH) has decided several times that the clause in the general terms and conditions of sale must not only allow for price increases, but also for price reductions. The clause must therefore allow a subsequent adjustment of the price in both directions. Another requirement is the transparency of the price change. According to the BGH, the regulation must therefore clearly state the reasons for and the extent to which a price adjustment is made. The adjustment of the old prices must be based, for example, on concrete cost increases to be named, but can be based on changes in an industry index. In addition, it must be determined how high the price adjustment will be, for example in percentage terms, and when it should take effect. Adjustments with retrospective effect are significantly more critical than price adjustments in the future. In addition, a price increase must not lead to the seller increasing his profit. Any price adjustment must therefore generally take into account the interests of the other contracting party. Price adjustment clauses often also stipulate that the buyer can declare the termination of the contract or exercise a right of withdrawal if he does not want to accept the upward price adjustment.
Contractual arrangement for price adjustments
A permissible price increase in general terms and conditions is therefore linked to many requirements, which in business transactions often fall short of the requirements of case law. However, if the provider and the customer have sat down together, negotiated regulations for changes to the customer’s purchase prices and agreed an individual rule with each other, the above-mentioned prerequisites do not apply. These only apply in the case of pre-formulated terms and conditions.
In addition, commercial legal protection under the UWG also protects against price increases. Demanding an increase in the subscription price may in itself be unfair. This is the case, for example, when the manufacturer or supplier coerces his customer, for example when he threatens to stop delivery. In this case, the buyer can demand injunctive relief and damages according to the UWG because the seller violates his obligation to deliver according to the purchase price. He then also owes damages in the form of lost profits, for example because the buyer has to accept an expensive offer from a third-party supplier in order not to expose himself to claims for damages from his own customer.
Price adjustment according to the BGB
Without contractual regulations, it is difficult in practice to unilaterally increase the customer’s purchase prices. If the supplier and customer enter into a contractual agreement, this forms the basis for a subsequent price increase. The BGB, on the other hand, does not allow any unilateral price increases. The negotiation of purchase prices and sales prices can only take place by contract, because the price is always determined by the parties.
At present, one reason for an adaptation of the purchase prices in the corona pandemic is seen, the effects and duration of which were not foreseeable for anyone. Therefore, a disruption of the business basis is often claimed as a substitute for a contractual rule. In many cases, however, this will be difficult to achieve in court. Disruptions to the business basis are only considered if the disruption does not fall within the commercial risk sphere of one of the parties. However, the problem of fluctuating purchase prices for raw materials is a typical problem for suppliers. He cannot pass this risk on to his customers. The fact that he is the injured party due to the current scarcity of raw materials and parts is basically acceptable. Rising inflation, for example, is also part of the commercial risk and thus falls within the sphere of the parties. A disturbance of the business basis is not to be seen in this.
In the case of delivery bottlenecks or even the failure of deliveries, many suppliers also argue with economic impossibility. Impossibility only exists if the manufacture and delivery of the goods cannot be accomplished due to a lack of own delivery. In these cases, however, there is usually no right to adjust prices. Even if the raw material and parts prices have risen so much that a company can only produce and deliver at a loss, it is actually impossible to work economically. However, this is generally not sufficient for economic impossibility in the legal sense. Because in these cases the debtor can still pay, even if it is no longer worthwhile for him. The case law is therefore very reluctant to speak of economic impossibility even in the case of an exorbitant price increase.
It is therefore difficult to enforce higher prices after the contract has been concluded. Within the framework of an effective purchase contract, the prices are firmly agreed. There is an exception for so-called long-term contracts, such as dealership contracts. A price list is often referred to there. Here, the issue often arises in court as to whether the price list is meant at the beginning of the contract or whether the entrepreneur can exchange it regularly and thus adjust the prices. The courts tend to regard a price adjustment as effective by referring to the currently valid price list. The authorized dealer can therefore not claim any damage if he cannot pass the prices on to his customers. As a rule, retailers are not entitled to retain the old price list, even if their margin is reduced.
exception of force majeure
In the event of force majeure, also known as “force majeure” (read more about ” force majeure and delivery entitlement ” here), the legal situation, particularly with regard to damages, may be different in individual cases. Force majeure is any event beyond the control of the contracting parties. As a specialist lawyer for international commercial law, the examination and drafting of contractual regulations on force majeure is an important part of the advice, both in the drafting of the contract, the contract negotiations and the examination of whether a claim for damages exists. The BGB does not contain any direct regulations on force majeure, so that contractual agreements on this are recommended. The provisions of the German Civil Code contain at most provisions on temporary impossibility, which, however, do not apply to questions of price regulation. But often the BGB is not applicable. However, force majeure is not automatically every event that makes a service more difficult. Increases in the price of raw materials or electricity are not usually included. Delivery bottlenecks should be mentioned in the contract as a special case of force majeure. In particular, it is advisable to include a self-supply reservation.
Price increase – compensation for unilateral action
If the service is not provided or if the entrepreneur refuses the service because it is not profitable due to the price increase or because the buyer does not accept an increased purchase price, the entrepreneur is liable for damages. For liability for compensation for the damage, it is essential to check the applicable law and the place of jurisdiction, since no contractual claims for damages are regularly agreed. If German law is applicable, the claim for compensation for damage is based on the German Civil Code. Damage for which compensation is to be paid includes all economic losses suffered by the customer. The claim for damages is intended to compensate for all losses incurred by the customer as a result of the violation of a contractual obligation or other rights. In particular, he is entitled to compensation for lost profits by way of compensation for damages. It can also be a replacement for the costs of a cover purchase, for example if the buyer obtains the service elsewhere and has to pay the increased purchase price there that he refused to pay to the entrepreneur. All pecuniary loss is covered by the claim for damages. However, contractual limitations of liability must also be observed in this respect.
The injuring party who is obliged to pay damages can assert that everything that the injured party has saved or could have saved must be offset against his liability for damages. However, the tortfeasor must prove this. In particular, as an example, it can become difficult to argue that a cover purchase was bought too expensively. Because the tortfeasor himself insisted on an increase in prices, for which he now has to pay by way of damages. It should also be noted that the price risk cannot be covered by insurance. A price increase is not a financial loss under insurance law. An insurance company therefore does not have to pay any damages or compensation.
Price increase – tips on how to behave in practice
An entrepreneur who is exposed to a price increase request should observe the following things in practice:
– First of all, the supplier’s contracts and general terms and conditions of sale should be checked to see whether a right to subsequent price increases has been effectively agreed. For each price increase, a concrete justification should be requested in a detailed letter, possibly setting a deadline.
– A price increase should generally be rejected. Where this is not commercially possible because the company is dependent on delivery, the entrepreneur should reserve all rights, in particular his right to compensation.
– The payment should also be initiated subject to reclaim
If, on the other hand, a company sees itself in the situation that it has to increase its prices itself, in particular in order to pass on its own increased purchase prices, the following is important:
– In this situation, too, the entrepreneur should check whether a price increase right was agreed upon when the contract was concluded.
– The announcement of a price increase and its justification in a detailed letter make it easier to start negotiations with the buyer, who may not have an alternative for procurement and is therefore dependent on the delivery.
– A subsequent price increase will always be effective for a court if the buyer has agreed to the price increase. The entrepreneur should therefore ensure that the customer expressly agrees to the increase in his purchase prices, preferably in writing.
– Liability for damages should not be accepted.
Both the purchasing and sales conditions should contain regulations on price increases and how to avert them, on deadlines, compensation for damages and the respective requirements.