Standard terms in B2B: freedom of contract is the exception

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. The plant fails a few months after delivery. 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 it could have noticed. It had simply not expected a court to review its 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. The German original speaks of a Vielzahl, a multitude of contracts. 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 that one side presents, 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. The law means every clause that is pre-formulated for several contracts and that one side presents, including the contract itself.

The second error is the more uncomfortable one. “No trouble” describes not the legal position but the absence of litigation. The same companies argue about their conditions all the time, in purchasing, in sales, on every larger order. And in a dispute, the parties settle 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 from weakness. The other side does not have to prove the clause is void. Raising the point plausibly 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 statute protecting the weaker side also governs industrial business

German standard-terms law began in case law. At first the courts reviewed pre-formulated conditions without a standard-terms statute. They did so mostly in contracts between businesses. From 1900, the Reichsgericht relied on common decency (Section 138 of the German Civil Code, Bürgerliches Gesetzbuch, BGB). Later the Federal Court of Justice relied on good faith (Section 242 BGB). That case law then shaped the German Standard Terms Act (AGB-Gesetz, AGBG), 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 in Section 310(1) sentence 1 BGB. The two lists of prohibited clauses in Sections 308 and 309 BGB do not apply directly there, apart from the deadlines for payment, verification, and acceptance in Section 308 Nos. 1a and 1b BGB. But Section 307 BGB also applies there insofar as it leads to the invalidity of the clauses listed in Sections 308 and 309 BGB (Section 310(1) sentence 2 BGB). Building on this, the Federal Court of Justice has largely undone the effect of the exception. If a clause used toward consumers falls under a prohibition in Section 309 BGB, that indicates that it is also void between businesses.⁴ What Section 309 BGB prohibits toward consumers is therefore usually void between businesses as well.

The standard of Section 307 BGB applies to everyone in any event, apart from a few statutory exceptions. Since 15 December 2023, these include certain financial transactions between businesses (Section 310(1a) BGB). The same applies to the individual provisions of the VOB/B, the German standard terms for construction work. This holds where the VOB/B is incorporated as a whole without any change (Section 310(1) sentence 3 BGB). The standard requires that a clause must not unreasonably disadvantage the other party, and it requires clarity.

Negotiated is almost never individually negotiated

The statute leaves one way out. A provision that is individually negotiated is not a standard term (Section 305(1) sentence 3 BGB). But the courts require more than the word suggests. Negotiating is not enough. The user of the clause has to put its core genuinely up for negotiation, 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. The article “Standard terms or individually negotiated?” shows the way.

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 but 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 sits in every contract your own sales team concludes. With the signature it becomes part of the contract. 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 without a framework agreement 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.

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 employees surveyed stated that in domestic contracts they never choose foreign law to escape standard-terms law. Even among respondents from the largest companies the figure was 64.2 percent.⁵

Where a contract has a genuine international element, the exit is open, and it has its price. Whoever chooses a foreign legal system trades a familiar strictness for unfamiliar rules. In purely domestic contracts, by contrast, standard-terms law still applies, at least before state courts. It is part of mandatory German law (Article 3(3) of Regulation (EC) No 593/2008, the Rome I Regulation). The parties can, however, agree on an arbitral tribunal instead of the state courts. Whether it must apply standard-terms law as well is unsettled.⁶ How that route works and where its limits lie is shown in “Why your limitation of liability in B2B contracts fails”.

The counter-argument I consider strong

It is tempting to see standard-terms law as a burden. That view is only half right. 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.⁷ 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 also means group against group, but 96.5 percent of businesses are micro and small enterprises.⁷ 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.

Diagram: four stages in sequence. One, negotiation: is the clause a standard term or individually negotiated? Two, incorporation: did the text become part of the contract? Three, content review: does the clause survive the standard, above all transparency? Four, legal consequence: what applies once it falls, namely the statute. If the clause was individually negotiated, the standard-terms review ends at negotiation. If the clause fails at incorporation or content review, the statute applies.

1. 01NegotiationIs the clause a standard term, or was it individually negotiated?
2. 02IncorporationDid the text become part of the contract at all?
3. 03Content reviewDoes the clause survive the standard, above all transparency?
4. 04Legal consequenceWhat applies once it falls? The statute, without your cap.

If the clause was individually negotiated, the standard-terms review ends at negotiation. If the clause fails at incorporation or content review, the statute applies.

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. What the Federal Court of Justice means by individual negotiation, why the attempt regularly fails, and which three questions actually help is shown in the article “Standard terms or individually negotiated?”. Why a clause that merely asserts individual negotiation achieves nothing is covered in the article “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”. Whose terms apply when both parties incorporate their terms effectively and the clauses conflict is shown in “Battle of forms: Whose terms apply?”.

3. Transparency

How one unclear phrase can make an entire clause void is set out in “To the extent permitted by law? 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 individual cases. The commentaries on standard-terms law have grown long, because almost every common clause has its own history of decisions. Two formulations that want the same thing can end differently, and sometimes the difference is a single word.

So one does not approach standard terms from the rule. It is too general to answer the question. One approaches them from the decision. 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 drafts the text in separable parts. Then one error does not make the whole clause void. 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 negotiating one provision intensely does not make the others individually negotiated.

Does standard-terms law apply between businesses?

Yes, and in practice almost fully. Apart from the deadlines for payment, verification, and acceptance in Section 308 Nos. 1a and 1b BGB, the lists of prohibited clauses in Sections 308 and 309 BGB do not apply directly, but the Federal Court of Justice treats a breach of Section 309 BGB as an indication of invalidity in commercial dealings as well. The standard of Section 307 BGB, above all the transparency requirement, applies in any event, apart from a few statutory exceptions such as the German standard terms for construction work (VOB/B) incorporated as a whole without change and certain financial transactions (Section 310(1) sentence 3 and (1a) BGB).

Does a confirmation that the clause was individually negotiated help?

No. Sections 305 et seq. BGB are mandatory law between businesses too, and the parties cannot exclude them by a declaration. A declaration signed by both sides stating that the contract was individually negotiated has no legal effect.

Notes

1. Section 305(1) of the German Civil Code, in the English translation published on gesetze-im-internet.de by the Federal Ministry of Justice; the German original is authoritative. ↩

2. BGH, judgment of 11 July 2019 – VII ZR 266/17 para. 31. ↩

3. Leuschner/Meyer, AGB-Recht für Verträge zwischen Unternehmen, final report for the German Federal Ministry of Justice and Consumer Protection, 2014, pp. 15 f., 18. ↩

4. BGH, default judgment of 19 September 2007 – VIII ZR 141/06, paras. 11 f. ↩

5. Final report (fn. 3), p. 278 (question 30); the 1,220 respondents conclude contracts for their companies, and the largest companies are those with more than 2,000 employees (p. 7). ↩

6. Cf. BGH, order of 9 January 2025 – I ZB 48/24, para. 42. ↩

7. Leuschner, Die Bifunktionalität der AGB-Kontrolle als Schlüssel zur Neuausrichtung der §§ 305 ff. BGB im unternehmerischen Rechtsverkehr, ZIP 2025, 2467 (2470 f.); on the strictness of the control, id., NJW 2016, 1222. ↩^{1 2}

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/

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