Purchasing Terms and Conditions under German Law

What are purchasing terms and conditions?

Purchasing terms, often abbreviated as AEB for general terms of purchase (Allgemeine Einkaufsbedingungen), are conditions pre-formulated for a multitude of contracts that the buyer imposes on the other side at the conclusion of the contract. They therefore meet the definition of standard business terms under Section 305(1) BGB. What matters is not the label but the fact that the clauses are pre-formulated and intended for use in more than a single case. Even a set of terms that a company draws up only once for internal use and then routinely applies to its orders counts as standard business terms.

The purpose of purchasing terms is to shift the contractual balance in the buyer's favour. The statutory law of sale and commercial law are in principle balanced, but they allocate risks in some places differently from what the buyer wants. Purchasing terms step in there. They extend warranty periods, secure adherence to deadlines with contractual penalties, establish indemnity claims for product and intellectual property infringements, and ward off the supplier's retention of title (Eigentumsvorbehalt). What matters is that this shift only holds so far as the law of standard terms permits it. Purchasing terms are a drafting instrument within statutory limits, not a blank cheque.

Are purchasing terms standard business terms, and which set applies?

Yes, purchasing terms are standard business terms and are subject to Sections 305 et seq. BGB. The frequently asked question of whether, in case of doubt, the standard terms or the purchasing terms apply rests on a misunderstanding: purchasing terms are standard business terms, only those of the buyer. The real contrast is not between standard terms and purchasing terms, but between the buyer's purchasing terms and the supplier's terms of sale or delivery. Both are standard business terms, and both claim to govern the same contract.

For business-to-business dealings a relaxed regime applies. Under Section 310(1) BGB, the strict incorporation requirements of Section 305(2) BGB do not apply towards businesses, nor do the clause prohibitions of Sections 308 and 309 BGB in their direct effect. That does not mean that anything is permitted in B2B. The fairness review under Section 307 BGB remains, and the value judgements of Sections 308 and 309 BGB feed into that review as an indication of unreasonable disadvantage. For practice this means that purchasing terms are easier to incorporate against suppliers than against consumers, but by no means unlimited in their content.

When do purchasing terms apply in B2B?

Purchasing terms apply once they are validly incorporated into the contract. Towards a business, any form of agreement of intent suffices for this, including a tacit one. Unlike in consumer transactions, no express notice and no formal opportunity to take note of the terms are required. As a rule it is enough that the buyer refers sufficiently clearly to its purchasing terms when the contract is concluded and that the supplier does not object to their application. A reference on the order or in the framework agreement, combined with the possibility of retrieving the text if needed, carries the incorporation.

In an ongoing business relationship the applicability solidifies further. If the purchasing terms are used across a series of orders without objection, they also apply to follow-up orders, without having to be attached anew each time.

A special role is played by the commercial letter of confirmation (kaufmännisches Bestätigungsschreiben): if a merchant confirms the conclusion of the contract in writing, attaching or referring to its terms, and the other side stays silent, those terms become part of the contract, in so far as the recipient could in good faith have expected such a provision. This effect works both ways and can equally help the supplier's terms of sale to prevail. The safest course therefore remains not to leave incorporation to silence, but to agree it expressly in a framework agreement.

What happens when purchasing and sales terms clash?

The standard case in B2B business is the clash. The buyer orders with reference to its purchasing terms, the supplier confirms the order with reference to its terms of sale, and neither of them accepts the other's terms. This constellation is known as the battle of forms. For it, the German case law has settled on the residual-validity theory (Restgültigkeitstheorie), also called the knock-out rule.

It works in three steps. First, the contract comes into being despite the conflicting terms, because both sides evidently want the exchange of performance and the clash of clauses does not change that. Second, the mutually conflicting clauses of both sets do not become part of the contract; they cancel each other out. Third, in place of the clauses that fall away, the default statutory law takes over, following the underlying idea of Section 306(2) BGB, that is the law of sale and commercial law of the BGB and HGB. Only where the terms coincide, or where only one side makes a provision and the other stays silent, do the respective clauses take effect.

For the buyer this has a sobering consequence. A mere defensive clause along the lines of "Only our purchasing terms apply; conflicting terms are not recognised" does not prevent the buyer's own favourable clauses from failing in the clash. It merely ensures that the supplier's terms do not take effect either, and throws both sides back onto the statute.

Anyone who really wants to impose their terms in a battle of forms must take the decisive points out of the standard-terms dispute and agree them individually, for example in a framework agreement, a quality assurance agreement or an express confirmation by the other side.

In cross-border business the picture shifts further. Under the UN sales law the treatment of conflicting standard terms is disputed: the Federal Court of Justice (Bundesgerichtshof, BGH) applies the knock-out rule here as well (judgment of 9 January 2002, VIII ZR 304/00), while a minority view derives from Art. 19 CISG the last-shot theory. Other legal systems, above all Anglo-American ones, tend instead to let the terms sent last govern. Anyone purchasing internationally should therefore regulate choice of law and incorporation separately.

What belongs in general terms of purchase?

Good purchasing terms map the procurement process as one coherent system. They start with a precise description of quantity, quality and specification, binding delivery dates and provisions on partial deliveries, packaging and the passing of risk. Where timing is business-critical, a proportionate and capped contractual penalty can support delivery performance. It should depend on fault and explain how any further loss is treated.

Quality and warranty provisions need to coordinate goods-inward inspection, the commercial duty to inspect and notify defects under section 377 HGB, cure, self-remedy and the allocation of costs. A quality assurance agreement may add detail, but should not contradict the framework agreement or the purchasing terms. Limitation periods can be extended, subject to the controls applying to standard terms.

Liability and indemnity clauses commonly address product liability, recall costs and infringement of intellectual property rights. Robust provisions are linked to the supplier's sphere of responsibility and supported by appropriate insurance. The passing of title and the treatment of simple, extended or all-monies retention of title should be stated expressly, as should payment periods, cash discounts and invoicing requirements.

Confidentiality, data protection, export control and supply-chain compliance complete the contract architecture. Those obligations need to reflect the product, the supply chain and the buyer's actual leverage. An untested large-group template is therefore rarely the best solution: purchasing terms work only when tailored to the company's procurement and supplier base.

Which clauses are enforceable against suppliers?

The line is drawn by Section 307 BGB. A clause is unenforceable if it unreasonably disadvantages the supplier contrary to the requirements of good faith, in particular if it is no longer compatible with the essential basic idea of the statutory provision or restricts material rights in such a way that the purpose of the contract is jeopardised. In business dealings this is the decisive control norm, and the clause prohibitions of Sections 308 and 309 BGB have indicative effect. Four areas deserve particular attention.

Duty to give notice of defects (Section 377 HGB). The buyer wants to extend the short commercial period for inspection and notice, so as not to lose its rights over defects at the slightest delay. A measured extension is permissible, for example specifying the immediate notice as a certain number of working days. A clause that effectively removes the duty to give notice, or makes it incalculable for the supplier, breaches the basic idea of Section 377 HGB and is unenforceable. The reverse case, where suppliers tighten the buyer's inspection duty in their terms of sale, is likewise only enforceable to a limited extent.

Retention of title. Warding off simple retention of title through purchasing terms is in principle possible, but it collides with the supplier's security interest and, in the battle of forms, is usually thrown back onto the statute. Conversely, supplier clauses that extend an extended or enlarged retention of title until all future claims are settled are, under settled BGH case law (BGHZ 137, 212), unenforceable where they lead to over-collateralisation. The buyer has good arguments here, but should not leave the point to the clash of clauses; it should regulate it clearly.

Payment terms. Here lies a trap for the buyer that is often overlooked. Long payment terms in purchasing terms favour the buyer, but they disadvantage the supplier as the creditor of the payment claim. Under Section 308 no. 1a BGB, a payment period of more than 30 days set out in standard terms (calculated from receipt of the counter-performance or receipt of the invoice) is, in case of doubt, presumed to be unreasonably long.

This clause control applies directly in business dealings too, because Section 308 no. 1a BGB, unlike the other clause prohibitions, is not caught by the exception in Section 310(1) sentence 1 BGB. Section 271a BGB draws the line at 60 days: a longer payment period is enforceable only if it is expressly agreed and is not grossly unfair in view of the creditor's interests. A standard-form 90-day period in purchasing terms is therefore open to challenge. Anyone who wants to impose long payment terms must agree them individually and justify them on the merits.

Contractual penalty and indemnity. Contractual penalties for late delivery are an effective means, but they are subject to a reasonableness review. They must be limited in amount, must not be out of proportion to the order value and should be tied to culpable conduct. If there is no upper limit, or daily rates accumulate without limit, the clause fails.

Indemnity clauses that make the supplier answer, without regard to fault and without any limit in amount, for every conceivable third-party claim likewise do not withstand the fairness review. What remains enforceable is an indemnity tied to the supplier's sphere of responsibility, for example to product defects or infringements of intellectual property rights for which it is answerable.

Purchasing terms are therefore enforceable wherever they shift the statutory model in a measured way that does justice to both interests. Where they reverse it and offload the risk one-sidedly onto the supplier, they come to nothing, and in a dispute the statute applies again.

How do the LkSG and CSDDD reach into purchasing terms?

Supply chain law has turned purchasing terms into an instrument of compliance. Companies that themselves fall under the Supply Chain Due Diligence Act (Lieferkettensorgfaltspflichtengesetz, LkSG) must pass on their human-rights and environmental expectations to their suppliers, and the practical place for this is the purchasing terms and supplier contracts. Typical elements are the commitment to a code of conduct, assurances of compliance with labour and environmental standards, audit rights and information obligations, and mechanisms for sanctions and termination in the event of breaches.

This pass-through also reaches suppliers that do not themselves fall under the Act, because larger buyers pass the requirements down the chain by contract. For mid-sized buyers as for their suppliers this is a double check point: as the addressee of others' clauses and as the user of their own.

The legal framework is also in motion. The European supply chain directive CSDDD is to replace national law, its transposition deadline has been postponed, and the LkSG's annual reporting obligation has been dropped. The substantive due-diligence obligations, however, continue to exist.

For the drafting of purchasing terms this means framing the supply chain clauses so that they meet the current obligations and at the same time remain adaptable to the coming European regime. The details of supply chain law are dealt with in a separate article.