For commercial contracts governed by substantive Swiss law, the CO is the primary source of law. The CO includes broad laws on contract law and regulations on specific forms of contracts, such as purchase contracts, leases, and contracts for work or services. These rules also apply (by analogy) to contract kinds not expressly covered by the CO (so-called innominate contracts).
Commercial Contract Formation and Validity
The contractual parties’ exchange of an offer and corresponding acceptance is the primary requirement for contract formation. The contract’s essential terms (essentialia negotii) must be included in both the offer and the acceptance. Contracts can generally be concluded without any formal criteria. Assignments, suretyships (guarantees), and property sale contracts are the principal exceptions to this norm. In practice, the parties frequently include explicit conditions in their contractual relationship to establish the content of their agreement.
Additionally, the fundamental notion of contractual freedom underpins Swiss contract law. It offers the parties the ability, within the bounds of mandatory legislation, to conclude or not conclude a contract, select their contractual partner, determine the contract’s content, and terminate or change a contract. Swiss contract law comprises few mandatory elements; further restrictions may be imposed by laws other than contract law, such as competition law, unfair competition law, criminal law, or tax law. A contract (or any part of it) is void if its conditions are impractical, illegal, or immoral.
Moreover, where there is a clear disparity between performance and counter-performance under a contract (due to one party’s exploitation, inexperience, or thoughtlessness), the injured party may declare within one year that it will not honor the contract and demand restitution for any performance already made. Furthermore, a party who enters into a contract due to (fundamental) error, fraud, or coercion may normally declare to the other party within one year that it does not intend to honor the contract; nonetheless, such party may become liable for damages.
Adoption and Use of Standard Terms
In B2B relationships, the rules governing general terms and conditions are nearly identical to those governing individual contracts, particularly the concept of offer and acceptance. According to the Federal Supreme Court, judicial authority over standard terms in business-to-business partnerships is limited to their incorporation. It does not include substantive control over their content (except for the application of mandatory law). Nonetheless, the inclusion of standard terms is a tool for controlling the substance of such terms, particularly under the general rule that odd standard phrases are not incorporated into the contract. Furthermore, if the structure of a specific provision allows for two distinct interpretations, the drafting party must bear the risk of ambiguity.
Contract Breach and Remedies
The type of breach determines the set of remedies accessible to the aggrieved party under Swiss law: impossibility, defective performance (including delivery of non-conforming products), or delay. If execution of an obligation is impossible for objective reasons before or at contract completion, the contract is void. Under the idea of culpa in contrahendo, the party who breaches the contract may be accountable for damages. In contrast, if the execution of an obligation becomes impossible after the contract’s conclusion due to the fault of one of the parties, the contract remains legal. In general, the offended party may seek restitution.
In the event of a party’s failure to perform properly, the other party may, as a general rule, seek either particular performance or damages. In practice, the common remedy is monetary damages (positive interest). In the event of purchase contracts and labor contracts, further remedies for non-conformity of the goods (or works) apply.
If a party fails to perform on time, it must pay damages for the delay. Subject to certain conditions, the aggrieved party may also (i) waive performance and seek compensation for damages incurred as a result of non-performance (positive interest), or (ii) withdraw from the contract and seek compensation for damages incurred as a result of non-performance (negative interest). Unless the parties agree differently, a debtor in default on paying a financial debt must pay default interest of at least 5% per annum.
Under Swiss law, both liquidated damages (meant to compensate for expected damage) and contractual penalties (meant to punish) are regularly utilized. However, at his discretion, a court may lower the number of liquidated damages or a contractual penalty if he believes it is excessive.
Liability and Liability Limitation
In general, the obligor is accountable for any fault attributable to it. The obligor carries the burden of establishing that it was not at fault for the contract’s incorrect or non-performance.
Swiss law allows for the limitation (and exclusion) of liability, such as for specific types of damages or financial limits. Any arrangement reached in advance that purports to limit liability for any unlawful purpose or gross negligence, on the other hand, is null and void. Furthermore, suppose the limitation of responsibility occurs in connection with state-licensed commercial activity (e.g., banks). In that case, the advance limitation of liability for mild negligence may be void as well, at the discretion of the court. Furthermore, under specified sections of the CO (e.g., governing purchase contracts or contracts for work) or specific laws such as the Product Liability Act, limitation of liability is not authorized for death or personal harm.
Termination and Term
In general, a contract can be entered into for a set period or unlimited time. A fixed-term contract expires with no warning. A contract with an indefinite term, on the other hand, maybe terminated by either party by giving notice of termination by the termination provisions agreed between the parties or, if a contract lacks any termination provisions or if mandatory termination provisions apply (such as lease or services), according to the statutory provisions of the CO.
In addition, in the case of continuous obligations, either party may cancel a Contract with immediate effect for valid reasons at any moment. Valid reasons are circumstances that make the contract’s continuation unacceptable to the terminating party. Such termination must be declared as soon as possible.