Explain Take Or Pay Agreement
It is also a “homicide clause.” These agreements are usually signed by companies when their suppliers ask them to purchase a certain amount of items until a specified date, and a fine is imposed if they do not. In this type of agreement, the seller is protected against a possible loss of money from the production of the item that the buyer should buy. Another area that is the subject of in-depth discussion when negotiating a payment contract to be paid is whether the seller is required to actually deliver the goods or whether the seller is simply required to make that quantity available to the buyer at the agreed point of delivery. From a strictly legal point of view, delivery essentially requires the seller`s offer as well as receipt and acceptance by the buyer. For example, a seller cannot supply gas in a plumbing system if the buyer has not designated such a quantity for transport with the plumbing operator and the seller cannot supply gas from a plumbing system if the buyer closes a valve immediately after the point of delivery. Similarly, a seller cannot provide liquid or liquid fuel to the buyer`s receiving terminal if the buyer does not authorize the vessel to dock and connect to the unloading facilities. In all previous cases, the seller is able (and wants) to launch or supply the gas for delivery, but the delivery has been prevented by an act or omission of the buyer. In the past, the Supreme Court of England and Wales has also considered whether these clauses are prohibited as an excessive sanction, which is not compensatory, since the rule does not allow a penalty to be carried out against a party who has breached the agreement. In this dilemma, the Court ruled in favour of the validity of the clause, provided that it did not create a contractual and economic imbalance to the detriment of a party and (provided that the amount of damage, or even damage to the parties) depended on the amount of (specific) damage actually suffered by the parties. Take-or-pay clauses are common in long-term supply contracts in the energy sector, the most typical example being natural gas sales contracts between a supplier and its customers. Under the take-or-pay clauses, the customer – a buyer from a supplier/seller – is required to either pay the price for certain quantities of natural gas and quantities accepted in advance, or to pay the corresponding price, whether he buys them or not.
For its part, the seller undertakes to receive the amount of natural gas agreed in advance. (b) the magnitude of the seller`s losses to be educated by the buyer is equal to the losses incurred by its supplier and the supplier has already argued that these losses are being replaced in the sense that there is a direct causal link with the failure of the determined purchaser to take the quantities of natural gas, i.e. the loss of the seller is the direct consequence of the buyer`s failure to receive the quantities of natural gas.