Standard terms in B2B: freedom of contract is the exception, INN.LAW

Peter Poleacov28 July 202611 min

A machine builder supplies a plant for 80,000 euros. Its terms of sale cap liability at the order value, the way the industry does it. Two years later the plant fails, the customer’s production stops for a week, and the customer claims 400,000 euros in lost profit.

The liability clause does not help. It is void, and the statute takes its place – a statute that knows no cap. The machine builder had done nothing wrong that he could have noticed. He had simply not expected a court to review his terms at all.

That is the point where German contract law works differently from what most people assume.

Standard terms in the legal sense are more than the document

The common misconception is that standard terms are the small print at the back of a contract. The statute sees it differently, and it says so in a subsection almost nobody reads.¹

The first sentence sets the threshold, and it is lower than it sounds. A multitude exists as soon as threefold use is intended when the contract is concluded, which is why the English translation says more than two.²

The second sentence settles the misconception. Whether the provision sits in an annex, in the middle of the contract, or in your order confirmation makes no difference. It does not even need a heading.

That brings far more under standard-terms law than is usually assumed. Your framework agreement, your quotation template, your non-disclosure agreement, your purchasing conditions. As soon as the text comes from a template, the control applies. It does not even have to be your template, because a clause that is customary in the industry is pre-formulated as well.

And the statute assesses clause by clause. There is no contract that is standard terms as a whole or free of them as a whole. Every provision stands on its own. A single, genuinely negotiated provision remains an exception inside its own document, and every other clause stays standard terms. Whoever misses this treats a laboriously negotiated contract as safe although only one of its thirty clauses escaped the control.

“We have never had trouble with our terms”

That is the most common reaction, and it is wrong twice over.

The first error is set out above. The sentence means the document, while the law means every pre-formulated clause, including the contract itself.

The second error is the more uncomfortable one. “No trouble” does not describe the legal position, it describes the absence of litigation. The same companies argue about their conditions all the time, in purchasing, in sales, on every larger order. And when it gets serious, the matter is settled commercially.

There is nothing wrong with the commercial solution. I recommend it myself, because a settlement is almost always faster and cheaper than a judgment. The only question is the price at which you settle.

Whoever does not know whether his clause holds negotiates without a floor. The other side does not have to prove the clause is void; putting the point plausibly on the table is enough. The concession that follows is the real price of the weak clause. It appears in no statistic, because there never were proceedings, and it appears in no minutes, because it is booked as goodwill.

“We have never had trouble” therefore does not prove that the terms hold. It proves that the cost fell somewhere else.

A consumer protection statute governs industrial business

German standard-terms law was not designed on a drawing board. The courts, first the Reichsgericht and later the Federal Court of Justice, reviewed pre-formulated conditions without any statutory basis at all. That case law then shaped the Standard Terms Act, which entered into force on 1 April 1977 and was transferred into Sections 305 to 310 BGB in 2002.³

The occasion was protecting the weaker side. For contracts between businesses the legislator therefore made an exception. The two lists of prohibited clauses in Sections 308 and 309 BGB do not apply directly there. Only, the Federal Court of Justice has largely taken that exception back by treating those prohibitions as an indication in commercial dealings too. What is prohibited toward consumers is therefore usually void between businesses as well.

The standard of Section 307 BGB applies to everyone in any event. It requires that a clause must not unreasonably disadvantage the other party, and it requires clarity. In the case law most clauses do not fail because they are unfair. They fail because they are unclear.

Negotiated is almost never negotiated

The statute leaves one way out. A provision that is individually negotiated is not a standard term (Section 305(1) sentence 3 BGB). Only the threshold is higher than the word suggests. Negotiating is not enough. The user of the clause has to put its core genuinely up for disposal, which means being prepared to drop it.

For a limitation of liability that would mean offering unlimited statutory liability as the alternative. Nobody does that. This is why an individual agreement is barely achievable in practice, and whoever wants to achieve it needs to know how. That is a subject of its own and the next article in this series.

When the clause falls, the statute applies

The harshest rule of German standard-terms law is not in the statutory text but in the case law. A void clause is not cut back to the maximum still permitted. It falls away entirely, and the default rules take its place (Section 306(2) BGB).

An excessive contractual penalty therefore does not become a reasonable one. It is gone. An overbroad limitation of liability does not become a narrow one. It is gone, and full statutory liability applies. That is why a silent invalidity costs a multiple of what avoiding it would have cost.

The error is not in one contract, it is in all of them

Software has an advantage that a set of clauses does not. When a defect is found, the vendor ships an update overnight, and the next morning the corrected version runs everywhere.

Standard terms have no such route. A clause that has been sitting in every order confirmation for three years sits in every contract concluded during those three years. There it cannot be changed unilaterally. Any change is an amendment to the contract and needs the other side’s consent. Why would they consent? The void clause works in their favor.

The error therefore multiplies at the speed of your own sales, and it freezes the moment the contract is signed. Under framework agreements with automatic renewal it keeps running until the last term expires.

Then there is the timing. A void clause is usually noticed at the point where you need it, which is in a dispute. Whoever proposes an amendment at that moment concedes the defect.

There is a way out, only a narrower one than it sounds. In a running supply relationship every order is a new contract. Whoever incorporates the new version cleanly with each order replaces the portfolio step by step. That is incorporation discipline rather than a question of law, and it takes exactly as long as the ordering cycle.

From this follows the economic point of the whole subject. Reviewing a set of clauses costs once. The error costs per contract it sits in, and how many that is you only learn afterwards.

The exit almost nobody takes

Because other legal systems allow considerably more, the obvious idea is to contract out of German law. The flight into Swiss law even has a name. In practice it is rarely taken. In a study for the German Federal Ministry of Justice, 74.8 percent of the companies surveyed stated that in domestic contracts they never choose foreign law to escape standard-terms law. Even among the largest companies the figure was 64.2 percent.⁴

The exit is open, and it has its price. Whoever chooses a foreign legal system trades a familiar strictness for unfamiliar rules.

The counter-argument I consider strong

It is tempting to see standard-terms law as a shackle. That view falls short. Lars Leuschner, who examined the strictness of the control empirically and has called for its reform, describes it at the same time as useful in two ways.⁵ It balances bargaining power, so it works where a strong counterparty could otherwise dictate. And it lowers the cost of contracting for everyone.

The second point is usually overlooked. If every clause were free, each side would have to review and negotiate every contract. For most transactions that effort would be out of all proportion to the value of the order. B2B does not only mean group against group; 96.5 percent of businesses are micro and small enterprises. For them the control replaces a review they could not afford.

Both are true. The control costs the drafter room and saves the market cost. Whoever writes standard terms works inside that tension and should know it rather than complain about it.

Where to read on

Whether your terms hold is decided in sequence, at four stages. The articles in this series follow that order.

Four stages, in this order. Each presupposes the one before it, and the review ends as soon as one does not hold.

1. Negotiating

The first question is not whether the clause is valid but whether it is a standard term at all. Where a provision has been negotiated in detail, standard-terms law does not apply to it, and every later stage falls away. When a clause escapes the control, and why the attempt regularly fails, is shown in No individual agreement.

2. Incorporation

Without valid incorporation the best text is meaningless. International requirements are stricter than domestic ones, and where both sides put forward their own conditions, the procedure decides rather than the better clause. Read on in How to incorporate standard terms internationally.

3. Transparency

The single most common source of error. How one unclear phrase brings down an entire clause is set out in As far as legally permissible? Not a good idea. That a clause can also be valid and still useless is shown by No oral side agreements exist. But they do!.

4. Legal consequence

What the fallback to the statute actually costs is calculated in Why your limitation of liability in B2B contracts fails.

Before all four stages lies a question that is not a stage. Where to source your conditions, and why generic text fails predictably, is covered in Standard terms: template, generator, or lawyer?.

Plain words

German standard-terms control is strict, and it is not predictable. The second is the real imposition.

Whoever wants to know whether a clause holds finds no rule to check it against. He finds casuistry. The commentaries on standard-terms law have reached a weight you could put the shot with, and they became that heavy because almost every common clause carries its own history of decisions. Two formulations that want the same thing can end differently, and sometimes the difference is a single word.

From that follows how one approaches standard terms. Not from the rule, because the rule is too general to answer the question. From the decision instead. Which clause of this kind has already been reviewed, what did it fail on, and what remains standing once the objectionable part is struck?

Whoever thinks that way writes differently. He builds the text so that it separates, so that one error does not take the whole clause with it. He knows the price of failure before he signs, because that is the number he decides against. And he asks first who put the template forward. Because whoever supplies the text carries its risk.

Frequently asked questions

Does standard-terms law apply to the whole contract or to single clauses?

To single clauses. A contract is not standard terms or an individual agreement as a whole; every provision is assessed on its own. One clause can be individually negotiated while every other clause in the same document remains standard terms. That view also governs the question whether a clause was individually negotiated, because an intensely negotiated provision does not rub off on the others.

Does standard-terms law apply between businesses?

Yes, and in practice almost fully. The lists of prohibited clauses in Sections 308 and 309 BGB do not apply directly, but the Federal Court of Justice treats them as an indication in commercial dealings as well. The standard of Section 307 BGB, above all the transparency requirement, applies in any event.

Does a confirmation that the clause was individually negotiated help?

No. Sections 305 et seq. BGB are mandatory law between businesses too and are not at the parties’ disposal. A declaration signed by both sides stating that the contract was individually negotiated carries no legal weight.

Section 305(1) BGB, in the English translation published on gesetze-im-internet.de by the Federal Ministry of Justice; the German original is authoritative. ↩
BGH, judgment of 11 July 2019 – VII ZR 266/17 para. 31. ↩
Leuschner/Meyer, AGB-Recht für Verträge zwischen Unternehmern, final report for the German Federal Ministry of Justice and Consumer Protection, 2014, pp. 12 et seq. ↩
Final report (fn. 3), p. 279 (question 30). ↩
Leuschner, Die Bifunktionalität der AGB-Kontrolle als Schlüssel zur Neuausrichtung der §§ 305 ff. BGB im unternehmerischen Rechtsverkehr, ZIP 2025, 2467 (2470 et seq.); on the strictness of the control, id., NJW 2016, 1222. ↩

Reference: Poleacov, P. (2026). Standard terms in B2B: freedom of contract is the exception. INN.LAW. https://inn.law/en/perspectives/standard-terms-b2b-germany/