What Does Take Or Pay Agreement Mean
d) According to the calculation above, the seller adjusted the price of the quantities to be paid based on the price to be paid which was ultimately paid to his supplier. This means that the determination of damages should take into account the overall economic situation of the victim, i.e. the negative and positive consequences of the damaging event. However, at least in the context of oil and gas, courts tend to interpret “Take or Pay” contracts as an alternative means of delivery; a gas buyer can either buy the gas or pay a deficit amount. In other words, the courts find that as long as the purchaser buys either the gas or makes the payment of the default, there has been no infringement and therefore there is no damage that can be liquidated because the payment of the deficit amount is not a remedy, but another means of benefit. The Oklahoma Supreme Court explained this reasoning in Roye Realty – Developing, Inc. v. Arkla, Inc., 1993 OK 99, 863 P.2d 1150. In that case, Arkla, a gas buyer, argued that the default payment provision in a “Take or Pay” contract was in fact a liquidated damages provision. The Oklahoma Supreme Court rejected Arklas` assertion and stated that in addition to overhead, there are two other reasons why energy projects go to such futures or paid contracts: given this vital importance, most readers would be surprised how often a so-called take-or pay contract is not actually written as such , the commercial result being much less desirable than the seller and its lenders had anticipated. This error is not limited to inexperienced negotiators and their advice. In a recent infrastructure project with a capital cost of more than $1 billion, the parties were surprised to find, rather belatedly in the development schedule, that the so-called “take-or pay” contract was not really the case, although it was described as such in the sponsor information memorandum on the project and signed by project lenders and a highly respected project finance firm.
In another example, a buyer was able, under a long-term gas sales contract, to reduce his “take-or pay” commitment by a drop in market demand, which made the contract a “demand contract” (more detailed below) despite the take-or pay nomenclature. Only the use of the phrase “take or pay” in an agreement does not necessarily make it that way. The rules to be taken or payable are generally between companies and their suppliers who require the purchasing company to have a specific delivery of goods taken by the supplier until a certain time at the risk of paying a fine to the supplier if they do not.