Supplies: on the unilateral modification of the price of goods supplied in confirmed orders due to an increase in the cost of raw materials

The supplier may not unilaterally change the economic conditions of sale for deliveries on confirmed orders, unless this is specifically agreed at the time of conclusion of the agreement.

In recent months we have been receiving recurring queries from different types of clients with a common denominator: their respective suppliers have sent them formal communication informing them of the modification of the conditions of sale of their products to ensure their financial viability, allowing them to transfer to the final sale price the cost increases occurring from the time of receipt of the order to the time of manufacture and/or delivery.

The cause of these communications usually lies in the increase in production costs suffered by product manufacturers as a result of the rise in the cost of raw materials, as well as the increase in the cost of international transport from origin.

The problem does not focus on the supplier’s freedom to set his prices, since with few exceptions related to competition law, there is no regulation that limits his freedom to act in the market, and more specifically to establish the economic criteria that should serve as a basis for the marketing of his products.

It is happening, however, that suppliers take advantage of these communications to inform their customers that the “new sales conditions” also apply to orders already placed and in process, and that these “new sales conditions” casually include the supplier’s power to vary the price of the supply, if market circumstances so require and with the excuse of ensuring the supplier’s financial viability.

However justified the measure may seem in purely economic terms, the fact is that suppliers seek to pass on “downstream” the increase in production costs, given that in most cases their customers are not in a position to pass on the extra cost to the final purchaser, either because the elasticity of demand does not allow it, or because of the existence of contracts already formalised in the execution phase and which do not provide, in turn, for updating and/or variation of the purchase price.

In this context, we should note the following issues of interest:

First. – As regards the legal qualification of the contractual relationship between the supplier and the customer, these are commercial sales and purchases perfected by means of orders placed and accepted, and therefore subject to the terms and conditions agreed between the parties at the time the transaction is perfected, or failing that, and in the absence of specific inter partes regulation, subject to the regulation of commercial sales and purchases offered by the Spanish Commercial Code -articles 325 and following-.

Second. – Normally, the relationship is developed in a contractual framework of successive tract with continuous acts of sale and purchase under the same terms and conditions, so we can affirm that we are dealing with commercial supply agreements or contracts.

It is a non-typified contract that generates lasting obligations for the parties, in contrast to the sale and purchase as a contract of instantaneous execution.

The difference between the two lies in the different function of time in legal relations. In contracts of instantaneous performance, the contracting party’s interest lies in the performance being carried out at a specific time, and only when this happens is that interest satisfied.

In so-called duration contracts, such as supply, the interest of the contracting parties lies in the performance being prolonged over time, precisely because this performance responds to a stable need.

In this second case, the duration of the performance affects the cause of the contract, in such a way that the contract does not fulfil its economic function if its performance is not prolonged over time: the utility for the contracting party is proportional to the duration of the contract, obliging the supplier to provide a periodic and stable performance (GARRIGUES, J: Estudios sobre el contrato de compraventa mercantil).

With the supply, the supplied party guarantees that he will have the goods he needs at the precise moment and for a price determined in advance.

In this sense, the question of the alteration of the price of the goods supplied is closely related to the consideration of the contract as random or commutative.

In the first case, the supplier will argue that the element of the passage of time, which is essential to the contract and which can lead to a deviation of market prices from the contract price at the time of performance, invites the admission of this element of randomness. In the second case, the supplier will argue that the economic risk that may arise from fluctuations in the price of the goods is inherent in any contract when the services are intended to follow one another over time, and that the risk of any fluctuations must therefore be taken into account by the supplier when fixing the price.

Thirdly. – Given that in the supply there is not a single performance, but several autonomous performances linked to each other in such a way that what matters are the isolated performances that are reiterated over the agreed time, in order to resolve the existing problem we must go to the moment of contractual perfection, and therefore when the consent that generates obligations on the parties to the contract is produced.

Article 54 of the Code of Commerce – in thesame sense, Article 1262 of the Civil Code – informs us that “the offeror and the acceptor being in different places, there is consent from the moment the offeror knows of the acceptance or from the moment that, the acceptor having sent it to him, he cannot ignore it without being in breach of good faith”.

Consequently, in our opinion, for each order there will be a moment of contractual perfection; a consent that will occur when the supplier – the offeror – reasonably knows of the acceptance of the acceptor – the supplied – and after contractual perfection, the parties undertake and bind themselves in strict compliance with the agreed conditions of supply, or failing that with the provisions of the law: as regards the supplier, to supply the goods subject to the order placed and accepted, in the manner and within the periods foreseen; and the supplied, to satisfy the price indicated in the order and accepted by him.

Thus seen, each performance considered in itself is an act of sale, and therefore the performance of the supplier must be matched by the performance of the supplied, i.e. the payment of the price.

Any subsequent modification, both of the services to be provided by the supplier – type, quantity, form and term of the goods to be delivered – and of the services to be provided by the supplied party – receiving the goods and paying the agreed price – must necessarily be the subject of a new agreement, novatory of the previous one, in which the supplied party must be a party and expressly accept.

Precisely in order to avoid the disadvantages inherent to time in the execution of periodic services, it has been customary to agree in supply contracts clauses for updating the price due to possible fluctuations in production costs; and even clauses for altering the price due to supervening causes that generate excessive onerousness in the service to be provided by the supplier, usually linked to advance notice sufficiently in advance so that the supplied party is aware of the new economic reality of the contract.

However, the possibility of altering the price once it has already been fixed and in orders placed, i.e. in the process of delivery, in a sort of contractual regulation of rebus sic stantibus at the supplier’s discretion, which we consider may exceed the principle of good faith promoted by article 1258 of the Civil Code, especially if the supplier intends to transfer the problem to its supplier.

Fourth. – The General Conditions of Sale that a supplier may apply to its suppliers are legal and will govern the supply relationship between the parties, provided that they pass the incorporation control provided for in Law 7/1998, of 13 April, on general contracting conditions (LCGC). In this regard, Article 5 of the LCGC provides that the general terms and conditions will be incorporated into the contract “when the adherent accepts their incorporation into the contract and they are signed by all the contracting parties”.

And it cannot be understood that there has been acceptance of the incorporation of the general terms and conditions into the contract “when the predisposer has not expressly informed the adherent of their existence and has not provided him with a copy ofthem”.

On the particular assumption that the supplier informs of the new general terms and conditions of sale by stating that they are available on its website, when the contract does not have to be formalised in writing, the LCGC requires that “the predisposer announces the general terms and conditions in a visible place within the place where the business is concluded, that it inserts them in the documentation of the contract that accompanies its conclusion; or that, in any other way, it guarantees the adherent an effective possibility of knowing their existence and content at the time of the conclusion of the contract“.

In any case, the General Conditions of Sale will only be applicable from the moment they are incorporated into the contract and not before, so that any modification of them will not be taken into account in transactions already completed, unless the pre-existing and applicable conditions mention the supplier’s power to modify them unilaterally and that such modification applies to orders already placed, in this case, the entire clause should be analysed under the interpretative perimeter of the contra proferentem rule foreseen in article 6 of the same law, and considering that in any case those general conditions which the adherent has not had a real opportunity to know completely at the time of the conclusion of the contract, as well as those which are illegible, ambiguous, obscure and incomprehensible, will not be incorporated into the contract.

In conclusion, it does not seem justified for the supplier to be able to alter the price agreed on supplies in progress, unless this provision is specifically included in the contractual terms and conditions that governed the relationship at the time the transaction – order – was perfected, conditions that in any case must have passed the incorporation control in order to be enforceable.

The fact that the supplier is not in possession of the goods to be supplied, but must manufacture or purchase them at the risk of fluctuations in the prices of raw materials is the risk that he must assume, and in this note lies the risk of profit or loss inherent in any future performance whose price is fixed in advance.

Only in exceptional cases of supervening excessive onerousness can the supplier avail himself of the rebus sic stantibus rule in order to modify the price of the supplies previously concluded, although, as is well known, this is a principle that contradicts the principle of pacta sunt servanda and which the doctrine of the First Chamber of our Supreme Court has admitted with few exceptions.

The Commercial Department of AddVANTE remains at your disposal for further information or to resolve any queries that may arise in relation to this article.