1 Principle

1. 49 The principle of freedom of contract (Vertragsfreiheit, liberté contractuelle, libertà contrattuale) is an aspect of the broader concept of private autonomy (Privatautonomie, autonomie privée, autonomia privata).Footnote ² The principle of private autonomy states that the subjects of law are – within the limits of the law – free to govern their own affairs.

2. 50 The principle of private autonomy is derived from Articles 27 and 94 of the Swiss Federal Constitution on economic freedom (Wirtschaftsfreiheit, liberté économique, libertà economica).Footnote ³

3. 51 The principle of freedom of contract encompasses the freedom to enter into a contract and to choose a contractual partner at will (see paras 52–54), the freedom of content (see paras 55–57), the freedom of form (see paras 58–62), and the freedom to modify and to terminate the contract (see paras 63–65).

2 Aspects

3 Mandatory and Optional Statutory Provisions

1 Duty to Fulfil and Right to Claim

1. 77 An obligation (Obligation, obligation, obbligazione) is a legal relationship between two persons (or groups of persons).Footnote ²⁰

2. 78 The term ‘obligation’ encompasses the following two indivisible aspects:

   • From the perspective of the debtor (Schuldner, débiteur, debitore), the obligation is the duty to fulfil the debtor’s debt (Schuld, dette, debito); and

   • From the perspective of the creditor (Gläubiger, créancier, creditore), the obligation is the right to demand and receive the debtor’s performance when it is due (Forderung, Forderungsrecht; créance; credito, pretesa). If the debtor does not fulfil the debt, the creditor has the right to enforce the claim with the assistance of the court, respectively the arbitral tribunal, and the enforcement authorities (actionability of the claim).

2 Obligation as an Inter Partes Right

1. 79 An obligation is an inter partes right (relatives Recht, droit relatif, diritto relativo) because it only has effects between the persons that are affected by the obligation through a special relationship. Such a special relationship can, for example, arise out of a contract (see para. 83).

2. 80 The contrary of a relative right is an erga omnes right (absolute right; absolutes Recht, droit absolu, diritto assoluto). An erga omnes right gives the beneficiary the right to dispose of the object and to prevent others from having an influence over that object or right. The right is erga omnes because it can be asserted against anyone. The beneficiary has the right to demand that every person refrains from certain behaviour or tolerates the beneficiary’s behaviour without the need for a special relationship between this person and the beneficiary.

3. 81 There are three types of erga omnes rights:

   • Personal rights (Persönlichkeitsrecht, droit de la personnalité, diritto della personalità) give the beneficiary absolute protection from unlawful interventions with respect to the latter’s person, in particular life, health, privacy and confidential affairs, personal freedom, honour, economic freedom, photo, name, etc. (Arts 27–30a CC).

   • Rights in rem (Sachenrecht, droit réel, diritto reale) give the beneficiary the immediate control of physical objects. The most important of the rights in rem is the action in rem for restitution (Art. 641 CC). It encompasses complete control over an object and the unrestricted right to use the object, within the limits of the law; and

   • Intellectual property rights (Immaterialgüterrecht, droit de la propriété intellectuelle, diritto della proprietà intellettuale) give the beneficiary the immediate control of intangible assets such as copyrights, patents or trademarks.

1 Principle

1. 82 Any claim, that is, any right which the beneficiary wants to legally enforce, must have at least one legal basis (Rechtsgrund, cause (juridique), causa; causa).Footnote ²¹ A claim may have several legal bases.

2. 83 An obligation can originate from the parties’ will (voluntary legal basis) or independently of the parties’ will (involuntary legal basis):

   • The most important voluntary legal basis of an obligation is the contract (Vertrag, contrat, contratto). The obligation comes into existence because two or more persons want it to. This is why the formation of a contract is a bilateral legal act (zweiseitiges Rechtsgeschäft, acte juridique bilateral, atto giuridico bilaterale). For the distinction between unilateral and bilateral contracts, see paras 344–345;

   • The most significant involuntary legal basis of an obligation is a statute (Gesetz, loi, legge). For the different kinds of obligations arising out of statute, see para. 85;

   • Some obligations do not have their legal basis in a statute but in case law (Rechtsprechung, jurisprudence, giurisprudenza). Case law has created such obligations based on the special relationship between the parties. For the different kinds of obligations arising out a special relationship, see paras 86–89 (see Figure 3.1).

1. 84

   

   Figure 3.1: Origins of obligations

2 Obligations Created by Statute

1. 85 The following kinds of obligations arise from statute:

   • Obligations in tort (Arts 41–61 CO; Haftpflicht, ausservertragliche Haftung; responsabilité civile, responsabilité délictuelle, responsabilité extra-contractuelle; responsabilità civile, responsabilità delittuale, responsabilità extra-contrattuale): ‘Any person who unlawfully causes damage to another, whether wilfully or negligently, is obliged to provide compensation’ (Art. 41(1) CO). Article 41(1) CO is the basic statutory provision on liability in tort based on fault. Under Swiss law, there are also various kinds of strict liability;Footnote ²²

   • Obligations arising out of unjust enrichment (Arts 62–67 CO; ungerechtfertigte Bereicherung, enrichissement illégitime, arricchimento indebito): ‘A person who has enriched himself without just cause at the expense of another is obliged to make restitution’ (Art. 62(1) CO). Articles 62–67 CO aim at offsetting transfers of assets without a legal basis (e.g., erroneous payment to someone else’s bank account);

   • Obligations arising out of agency without authority (Arts 419–424 CO; Geschäftsführung ohne Auftrag, gestion d’affaires sans mandat, gestione d’affari senza mandato): ‘Any person who conducts the business of another without authorisation is obliged to do so in accordance with his best interests and presumed intention’ (Art. 419 CO). ‘The agent is liable for negligence’ (Art. 420(1) CO); and

   • Further obligations arising from statute: these can be found, in particular, in family law (e.g., the duty of assistance among the members of the family community, Arts 328–330 CC) or inheritance law (e.g., rights of the statutory heirs to the estate, Arts 560–579 CC).

3 Obligations Created by Case Law

1. 86 The courts have created obligations in situations where the parties are in a special relationship (see para. 79), which impose on them a duty to act in good faith (Art. 2(1) CC; see paras 71–72). The most important obligations created by case law are claims for loss arising from pre-contractual liability (see paras 90–99) as well as from a breach of trust (see paras 87–89).

2. 87 The Federal Supreme Court created the liability for breach of trust (Vertrauenshaftung, responsabilité fondée sur la confiance, responsabilità fondata sulla fiducia), in particular, through the Swissair case of 1994Footnote ²³ and the Ringier (or Grossen) case in 1995:Footnote ²⁴

   • In the Swissair case, a company used the logo of the famous parent company Swissair for marketing purposes. In its letters, the company referred to the fact that the logo belonged to the Swissair corporate group. The company went bankrupt and the creditors claimed damages from the parent company Swissair alleging that they only did business with the company because they relied on the guarantee from the parent company Swissair due to the marketing documents. The Federal Supreme Court held that the parent company created a special legal relationship towards the creditors which led to the liability of Swissair.Footnote ²⁵

   • In the Ringier (or Grossen) case, the Federal Supreme Court awarded damages to an athlete who had been selected by the latter’s federation for the world championship and afterwards prohibited from participating without cause. According to the Federal Supreme Court, the federation’s liability was based on a special relationship created by statute.Footnote ²⁶

3. 88 Subsequently, the Federal Supreme Court has widened the scope of application of the liability for breach of trust to pre-contractual liability (see paras 90–99), liability in tort for advice and information (see para. 1929),Footnote ²⁷ expert liability (see para. 1929)Footnote ²⁸ and liability for legal appearance in the context of bills of exchange.Footnote ²⁹ In recent years, however, decisions of the Federal Supreme Court on liability for breach of trust have become rarer, which is probably also related to the ongoing dogmatic and legal policy concerns of the legal doctrine.

4. 89 According to case law, liability for breach of trust presupposes the following six cumulative conditions: (1) a special relationship between the party causing the loss and the party incurring the loss; (2) trust worthy of protection created by the party causing the loss in the party incurring the loss; (3) impossibility or unacceptability of entering into a contract; (4) breach of trust contrary to good faith; (5) natural and legal causation between the breach of trust and the loss; and (6) fault of the party causing the loss.Footnote ³⁰

1 Principle

1. 90 There is no statutory provision on pre-contractual liability (vorvertragliche Haftung, responsabilité précontractuelle, responsabilità precontrattuale; culpa in contrahendo) under Swiss law, contrary to various other legal systems of the Civil law tradition, such as under German (Section 241 (2) BGB), French (Art. 1112 Code civil français (French Civil Code, CCF)) and Italian (Art. 1337 Codice civile italiano (Italian Civil Code, CCI)) law. The Federal Supreme Court recognised pre-contractual liability in a decision of 1951.Footnote ³¹

2. 91 Common law legal systems, in contrast to Civil law legal systems, are reluctant to impose any duties on the parties during the pre-contractual phase. English courts do not recognise a general doctrine of fault in bargaining, or a general doctrine of good faith negotiations.Footnote ³² Instead, English law uses a mix of Common law and equitable doctrines to protect a negotiating party, such as, in particular, proprietary estoppel, unjust enrichment and misrepresentation.Footnote ³³

2 Conditions

3 Consequences of Pre-contractual Liability

1. 98 If no contract has been concluded due to a culpa in contrahendo, the injured party’s claim is usually for damages. Based on Article 26(1) CO, negative interest damages (see para. 434) are owed.Footnote ⁴² The injured partner must therefore be placed in the same position as if the contract negotiations had never taken place. This applies, in particular, to (useless) expenses incurred by the negotiating partner in reliance on the conclusion of a contract (e.g., travel expenses, costs for expert opinions, etc.). If pre-contractual obligations are only breached at a later stage of the negotiations, only the expenses incurred after the breach are to be reimbursed.Footnote ⁴³ Exceptionally, in case of gross negligence, positive interest damages (see para. 434) may also be awarded in equity according to Articles 26(2) or 39(2) CO.Footnote ⁴⁴

2. 99 If a disadvantageous contract has been concluded due to a culpa in contrahendo, certain authors refer the injured party to the rules on unfair advantage (Art. 21 CO) and lack of consent (Arts 23–31 CO; see paras 221–273).Footnote ⁴⁵ Other authors grant the injured party the right to terminate the disadvantageous contract in whole or in part.Footnote ⁴⁶ In addition, damages may also be awarded.Footnote ⁴⁷

1 Principle

1. 100 According to Article 1 CO, ‘[t]he conclusion of a contract requires a mutual expression of intent by the parties’.

2. 101 The formation of a contract therefore has the following elements: There must be at least two expressions of intent. This implies, firstly, that each party has developed an (inner) intent (see paras 102–103) and, secondly, that each party declares the intent to the other party (see paras 104–105). The expressions of intent, directed towards the conclusion of a contract, are called the offer and acceptance (see paras 106–121). They have to be exchanged, which means that one party must take notice of the other party’s intent (see paras 122–124). The parties must come to an agreement, that is, they must mutually consent to the contract. Both the offer and the acceptance must therefore have the same content (see paras 127–130).

2 Expression of Intent

1. 102 The offer and acceptance are expressions of intent. The expression of intent (Willensäusserung, Willenserklärung; manifestation de volonté; manifestazione della volontà) is the expression of an intent to establish, amend or terminate an obligation or legal relationship.Footnote ⁴⁸

2. 103 The expression of intent can be split into the following three sub-elements:

   • The intent to act (Handlungswille), which is the will of the declarant to perform an act;Footnote ⁴⁹

   • The intent to legally bind oneself (Geltungswille), which is the will of the declarant to perform a legal act;Footnote ⁵⁰ and

   • The intent to trigger a certain legal consequence (Rechtsfolgewille), which is the will of the declarant to bring about a certain legal consequence.Footnote ⁵¹

3. 104 With respect to the formation of a contract, it is not sufficient to have the will to act, the will to legally bind oneself and the will to trigger a certain legal consequence. This (purely internal) intent needs to be communicated to the other party.

4. 105 The communication of the expression of intent may take different forms:

   • The explicit communication of the expression of intent (ausdrückliche Willensäusserung, manifestation de volonté expresse, manifestazione espressa della volontà) is where the declarant expresses the intention to bring about a certain legal consequence by a socially recognised means of communication or by a means of communication agreed by the parties in the individual case.Footnote ⁵² These are usually oral or written statements (expressis verbis), that is, statements in the form of spoken or written words. The declarant may also express such intention by other socially recognised signs (e.g., nodding the head, shaking the head, raising the hand during an auction);Footnote ⁵³

   • The implicit communication of the expression of intent (konkludente Willensäusserung, manifestation de volonté par actes concluants, manifestazione della volontà per atti concludenti) is where the intention of the declarant to bring about a certain legal consequence is not directly expressed in the declaration, but only results indirectly from the behaviour of the declarant or other circumstances;Footnote ⁵⁴ and

   • Silence (stillschweigende ‘Äusserung’, manifestation de volonté tacite, manifestazione tacita della volontà) is the ‘expression’ of intent through simple passive silence or doing nothing.Footnote ⁵⁵ In principle, silence – which is particularly important in practice – is a subcategory of the category of implicit communication. As a general rule, silence or doing nothing does not constitute an intent to bring about a certain legal consequence (see para. 121). Therefore, the rule ‘qui tacet consentire videtur’ (‘qui ne dit mot consent’) only applies within narrow limits (see para. 121).

3 Offer

1. 106 The offer (Antrag; offre; offerta, proposta) is the first expression of intent in which the offeror authorises the offeree to enter into a contract of a specific content with the offeror.Footnote ⁵⁶ An expression of intent is only an offer if the person declaring the intent has the will to bring about a certain legal consequence (see para. 103), that is, to conclude a contract with a specific content.

2. 107 The offer must be received by the offeree. Therefore, the validity of the offer depends on the addressee receiving the offer (see paras 122–124).

3. 108 With respect to its content, the offer must include all (subjectively and objectively) essential elements (see para. 61) of the future contract.Footnote ⁵⁷

4. 109 With respect to its form, according to the statutory law, the offer does not have to comply with any specific formal requirements in order to be binding (Art. 11(1) CO; see paras 180–189).

5. 110 The offer triggers the following two consequences:

   • The offer authorises the offeree to conclude a contract with the content described in the offer by accepting it in accordance with the offer;Footnote ⁵⁸ and

   • The offer binds the offeror.Footnote ⁵⁹

1. 111 The binding effect starts, in principle, when the addressee receives the offer (see paras 122–124).

2. 112 The binding effect is limited in time. Articles 3, 4 and 5 CO serve to determine the duration of the offer’s binding effect:

   • Offer limited in time: if the offeror limits the offer in time, the offeror is bound by the offer until the time limit expires (Art. 3(1) CO). The offeror can limit the offer in time either by reference to a specific date (Art. 79 CO; e.g., ‘until 3 October 2023’) or a specific period of time (Art. 77 CO; e.g., ‘within eight days’). The time limit can also arise out of the circumstances (‘immediately after your return from England’);

   • Offer unlimited in time: if the offeror makes the offer without a time limit (which is not recommended), the time during which the offeror is bound by the offer depends on whether the offer was made in the parties’ presence or absence. An offer is made in the parties’ presence (Antrag unter Anwesenden, offre entre presents, proposta fra presenti; Art. 4 CO) if the offeror and the offeree are in direct, immediate communication so that a live exchange between the two is possible.Footnote ⁶⁰ This is not only the case if the offeror and the offeree are face to face, but also if they are talking on the phone, or are communicating through an instant message program (MMS). An offer is made in the parties’ absence (Antrag unter Abwesenden, offre entre absents, proposta fra assenti; Art. 5 CO) if the offeror and the offeree are communicating through a medium which involves a time lag (letter, e-mail, etc.). In this case, the offer remains binding on the offeror until such time as the latter might expect to receive a duly sent reply (Art. 5(1) CO). The duration of the binding effect corresponds to the usual total duration of the following three periods: (1) the usual duration of the transmission of the offer from the offeror to the offeree; (2) the offeree’s reasonable period of time for consideration; and (3) the usual duration of the transmission of the acceptance from the offeree to the offeror.Footnote ⁶¹

1. 113 If the positive reaction by the offeree reaches the offeror too late, it can, in principle, no longer trigger the consequences of an acceptance (see paras 116–121). However, if the acceptance was sent off in time but arrives too late, the offeror must react immediately by declining the acceptance if the offeror does not want to be bound by the original offer (Art. 5(3) CO).

2. 114 An expression of intent without binding effect is not an offer but a (non-binding) invitation to treat (Einladung zur Offertstellung, invitation à faire une offre; invito a fare un’offerta; invitatio ad offerendum).

3. 115 The binding effect of an expression of intent can be excluded in the following three ways:

   • Exclusion by declaration: The offeror is not bound by the offer if the offeror has made an express declaration to that effect (Antrag ohne Verbindlichkeit, offre sans engagement, proposta senza impegno; Art. 7(1) CO). In trade, clauses such as ‘while stock lasts’, ‘without obligation’ or ‘on a non-binding basis’, etc., are common;

   • Exclusion by statutory law: According to Article 6a(1) CO, the sending of unsolicited goods does not constitute an offer. The recipient can freely dispose of the goods. The recipient is not obliged to keep or return such goods (Art. 6a(2) CO). However, where unsolicited goods have obviously been sent in error, the recipient must inform the sender. Furthermore, according to Article 7(2) CO, the sending of tariffs, price lists and the like does not constitute an offer. By contrast, the display of merchandise with an indication of the price does generally constitute a (binding) offer (Art. 7(3) CO). According to Articles 3(1) and 7–9 of the Ordinance on Price Indication of 11 December 1978 (OPI), store owners must put clear and easily readable prices on their products if they offer these products to consumers or if they advertise their products (Art. 2(1)(a) and (d) IPO);

   • Exclusion deriving from the circumstances: An expression of intent in view of the establishment of a relationship arising from an act of kindness (Gefälligkeitsverhältnis, rapport de complaisance, rapporto di cortesia) does not have any (legally) binding effect (see paras 1924–1929). Therefore, the relationship arising from an act of kindness does not give rise to any legal obligation to perform the promised act of kindness.Footnote ⁶²

4 Acceptance

1. 116 The acceptance (Annahme, acceptation, accettazione) is the second expression of intent by which the offeree, that is, the addressee of the offer (see para. 107), concludes a contract with the offeror with the content specified in the offer.Footnote ⁶³ By the acceptance, the acceptor agrees to conclude a contract with the content described in the offer (see Art. 1118(1) CCF).

2. 117 Like the offer (see para. 106), the acceptance must be received by the offeror. Therefore, the validity of the acceptance depends on the addressee receiving the acceptance (see paras 122–124).

3. 118 The content of the acceptance is determined by the content of the offer (see para. 108). The offeree’s will to conclude a contract must be congruent in terms of content with the objective (see para. 61) and (for the offeror, subjective; see para. 61) essential elements of the contract.Footnote ⁶⁴ According to Article 2(1) CO, where the parties have agreed on all essential elements, it is presumed that the contract will be binding, notwithstanding any reservations as regards non-essential elements. In the event of a failure to reach an agreement on such non-essential elements after the contract is concluded, the arbitrator or judge must determine them with due regard to the nature of the transaction (Art. 2(2) CO).

4. 119 If the content of the recipient’s expression of intent differs from the offer due to amendments or additions regarding essential elements (see para. 61), there is no acceptance within the meaning of Article 3 CO. If such an expression of intent, which differs from the offer with respect to essential elements, expresses the intent of the recipient to conclude a contract (see para. 102), there is a counter-offer (Gegenantrag, Gegenofferte; contre-offre; controfferta), which, in turn, can be accepted by the original offeror.Footnote ⁶⁵

5. 120 According to the statutory law, the acceptance, like the offer (see para. 109), is not subject to any particular formal requirement (Art. 11(1) CO; see paras 180–189).

6. 121 Silence or doing nothing (see para. 105) is generally not considered to be an acceptance (Art. 6 CO). However, a contract is concluded despite the offeree remaining silent or doing nothing in reaction to the offer, if this was to be expected because of ‘the particular nature of the transaction or the circumstances’ (Art. 6 CO). There are a series of typical circumstances in which the offeror may and must infer the offeree’s will to accept the offer: (1) when the parties to the negotiation agreed that the silence of the offeree in reaction to the future offer would constitute an acceptance; (2) when the offeror unilaterally waives an express acceptance; (3) when the offeree previously expressed the will to conclude the contract; (4) when there exists an ongoing business relationship between the negotiating parties; and (5) when the contract negotiations have reached such a stage that their favourable outcome is practically fixed.Footnote ⁶⁶ Article 395 CO sets out specific rules regarding the conclusion of the simple mandate contract (see paras 1937–1951).

5 Receipt of the Offer and Acceptance

1. 122 Both the offer (see para. 106) and acceptance (see para. 116) are expressions of intent that must be received by the addressee in order to deploy any legal effect (empfangsbedürftige Willensäusserung, manifestation de volonté sujette à réception, manifestazione della volontà soggetta a ricezione; see Section 130 BGB). Receipt (Empfang, Abnahme, Zugang; réception;, ricevimento) is the entry of the expression of intent into the sphere of influence of the addressee.Footnote ⁶⁷

2. 123 The exact point in time in which the expression of intent is received is important for questions such as the following: From what point in time is a person bound by the declaration made (see para. 111)? At what point in time is the contract concluded (see para. 126)? Can the expression of intent be withdrawn (see para. 125)?

3. 124 The principle of receipt (‘mailbox theory’; Empfangstheorie, Zugangstheorie; théorie de la réception;, teoria dell’atto ricettizio)Footnote ⁶⁸ has the following two core elements:

   • The expression of intent must have entered into the addressee’s sphere of influence (Einflussbereich, Machtbereich; sphère d’influence; sfera d’influenza). The addressee’s sphere of influence includes not only the latter’s home, business premises and mailbox, but also the latter’s post office box, answering machine, fax machine and e-mail server, electronic mailbox or wall in a social media service (Linkedin, etc.); and

   • Whether and when the addressee actually takes note of the expression of intent is irrelevant. This means that the expression of intent must be brought to the attention of the addressee in such a way that, under normal circumstances, the addressee can be expected to take note of it.Footnote ⁶⁹

6 Withdrawal of Offer and Acceptance

1. 125 Both the offer (see paras 106–115) and acceptance (see paras 116–121) can be withdrawn under certain conditions (Art. 9 CO): if the offer or acceptance and the corresponding withdrawal are received simultaneously, or if the corresponding withdrawal overtakes the offer or the acceptance, the relevant offer or acceptance is considered revoked.

7 Time of Conclusion of the Contract

1. 126 Timewise, the contract is concluded when the acceptance enters the offeror’s sphere of influence, pursuant to the principle of receipt (see para. 124).

8 Congruency of Offer and Acceptance

1. 127 The contract is only concluded if the offer (see paras 106–115) and acceptance (see paras 116–121) are congruent with respect to their content (Art. 1(1) CO).

2. 128 If the offer and acceptance are congruent, there exists a consensus (Konsens, accord, consenso) between the parties and the contract is concluded with the content corresponding to the parties’ common intent.

3. 129 If the offer and acceptance are incongruent, there exists a disagreement (Dissens, désaccord, dissenso) between the parties:

   • If the parties are aware of this fact, there exists an open disgreement (offener Dissens; désaccord patent, dissentiment manifeste; dissenso palese) between themFootnote ⁷⁰ and the contract is not concluded;

   • If the parties are not aware of this fact, there exists a hidden disagreement (versteckter Dissens; désaccord latent; dissentiment inconscient, dissenso occulto). This is, in particular, the case when the offer and acceptance are formally congruent, but each party understands them differently.Footnote ⁷¹

1. 130 In order to determine whether the parties have the same understanding of their mutual expressions of intent, the expressions of intent must be interpreted (see paras 131–132).

9 Interpretation of Expressions of Intent

1. 131 The interpretation (Auslegung, Interpretation; interprétation, interpretazione) of expressions of intent aims at determining the content of the expression of intent insofar as this content is in dispute between the parties.Footnote ⁷²

2. 132 Based on Article 18 CO, the Federal Supreme Court has developed the following procedure in order to determine whether the parties’ respective expressions of intent are congruent (see paras 127–130) and, thus, whether the contract has been concluded:

   • First, the actual will of the person expressing the intent (i.e., the declarant) needs to be determined (subjective or empirical interpretation; subjektive Auslegung, empirische Auslegung; interprétation subjective, interprétation empirique; interpretazione soggettiva, interpretazione empirica).Footnote ⁷³ If the recipient understands this actual will in the same way as the declarant intended it, this shared understanding is decisive, irrespective of whether the declarant expressed the intent properly. This is because according to Article 18(1) CO, the actual intent of the parties is decisive, not any false expressions of such intent. If the interpretation leads to the result that both parties wanted the same thing, it is called an actual (or natural) consensus (tatsächlicher Konsens, accord de fait, consenso di fatto; see para. 128). According to the Federal Supreme Court, the parties’ will and knowledge is a question of fact which it does not, in principle, review on appeal (Art. 105(1) of the Federal Act on the Federal Supreme Court of 17 June 2005 (FSCA));Footnote ⁷⁴

   • Second, if the recipient misunderstands the declarant (i.e., the recipient does not understand the actual intent of the declarant), the question arises whether the understanding of the declarant or the recipient’s one should prevail. The intent must thus be objectively or normatively determined (objektive Auslegung, normative Auslegung; interprétation objective, interprétation normative; interpretazione oggettiva).Footnote ⁷⁵ The basis for this interpretation is the principle of trust (Vertrauensprinzip, principe de la confiance, principio dell’affidamento). According to this principle, the arbitrator or judge determines how the recipient could and should, in good faith (Art. 2 CC; see paras 71–72), have understood the intent of the declarant under the circumstances.Footnote ⁷⁶ In the context of the conclusion of the contract, the arbitrator or judge thus determines how each party could and should, in good faith, have understood the other party’s expression of intent under the circumstances and to what extent these (normative) understandings are congruent (see para. 127). To the extent they are congruent, there exists a normative (or legal) consensus (normativer Konsens, accord de droit, consenso normativo; see para. 128). The Federal Supreme Court reviews this objective interpretation on appeal as a question of law. The Court, however, is bound by the factual determinations made by the Cantonal court with respect to the external circumstances of the parties’ will and knowledge (Art. 105(1) FSCA).Footnote ⁷⁷

1 Wording of the Contract

1. 135 The starting point of any interpretation is the wording of the contract (literal interpretation).Footnote ⁸⁰

2. 136 It is assumed that the parties understood the words they used in accordance with the common usage (allgemeiner Sprachgebrauch; sens courant, sens habituel; linguaggio comune) at the time of the conclusion of the contract.Footnote ⁸¹

3. 137 If a word has a specific technical meaning in a trade or in a professional circle (Fachausdruck, sens technique spécifique, termine specifico) and all contracting parties belong to this specialist circle, this specific meaning takes precedence over the general understanding of the word (see para. 136).Footnote ⁸²

4. 138 The fact that the parties use specific legal terms is only decisive if the parties are business people who may be presumed to have a certain familiarity with legal terminologyFootnote ⁸³ or if the parties have been advised by persons with legal expertise.Footnote ⁸⁴

5. 139 The parties may also understand a term in a certain sense which deviates from common usage (see para. 136).Footnote ⁸⁵ They can formally exercise this liberty by explicitly defining the individual meaning of this term in their contract (definition clauses).

2 All Relevant Circumstances

1. 140 Contracts are to be interpreted in the light of the relevant circumstances (relevante Begleitumstände, circonstances relevantes, circonstanze rilevanti) in which they were concluded.Footnote ⁸⁶ All accompanying circumstances that have an influence on how a reasonable person could and should, in good faith (Art. 2 CC; see paras 71–72) have understood the contract (or the expression of intent of another person; see para. 102) must be considered (background factual matrix).

2. 141 The persons involved in the contract negotiations must have known these circumstances, or at least been aware of them.

3 Context

1. 142 The individual expression or sentence is usually part of the contract as a whole and thus should be interpreted in its systematic context (systematic interpretation).

2. 143 Context such as the sentence structure, the structure of the contractual document, the relationship to other documents exchanged, etc., must thus be considered.Footnote ⁸⁷

4 History and Genesis of the Contract

1. 144 The contract is usually the result of a certain development (historical interpretation).

2. 145 The history of the contract includes the previous relationships between the parties, in particular, previous contractsFootnote ⁸⁸ as well as practices and customs existing between the parties.Footnote ⁸⁹

3. 146 The genesis of the contract concerns, in particular, the entire conduct of the parties directly before and during the conclusion of the contract.Footnote ⁹⁰ In particular, the statements exchanged during the contract negotiations,Footnote ⁹¹ draft contracts, minutes of meetings,Footnote ⁹² etc., are important for the interpretation. In addition, the other conduct of the parties before and at the timeFootnote ⁹³ of the conclusion of the contract is important (with respect to the parties’ conduct after the conclusion of the contract, see paras 156–158).

4. 147 Sometimes contracts contain an entire agreement clause (merger clause; Ausschliesslichkeitsklausel, Integrationsklausel; clause d’intégralité; clausula di integralità) by which the parties stipulate that the contract reflects all the points of their agreement and that all previous written or oral agreements are not part of their contract.Footnote ⁹⁴ However, as a contractual clause, the entire agreement clause is also open to interpretation. The arbitrator or judge is generally bound by such a clause if the parties have negotiated it individually (see para. 319).Footnote ⁹⁵ However, an entire agreement clause only reinforces the presumption, which applies anyway, that the contract expresses all (important) aspects of the agreement between the parties.Footnote ⁹⁶

5. 148 The Common law approach to this issue is not uniform. Whereas US law provides for a similar rule (Restatement Second of Contracts, Section 214),Footnote ⁹⁷ English law has a diametrically opposed approach to the parties’ behaviour prior to the conclusion of the contract.Footnote ⁹⁸ However, the differences between English and continental European law should not be overstated. On the one hand, the exceptions to the principle, in particular, the special meaning exception, the estoppel by convention exception and the rectification exception,Footnote ⁹⁹ are so significant that they call into question the principle that pre-contractual conduct cannot be taken into account.Footnote ¹⁰⁰ On the other hand, parties often raise arguments relating to the interpretation and rectification of the contract at the same time, with the result that the courts of first instance cannot disregard the history and genesis of the contract.Footnote ¹⁰¹

5 Parties’ Interests and Purpose of the Contract

1. 149 The contract must also be understood in light of the parties’ respective interests and the purpose they were pursuing by its conclusion (teleological interpretation).

2. 150 The parties’ interests (Interessenlage, intérêts respectifs des parties, interessi delle parti) include the reasons and expectations which have led each party to conclude the contract.Footnote ¹⁰²

3. 151 The purpose of the contract (Vertragszweck, but du contrat, scopo del contratto) pursued by the parties is also important.Footnote ¹⁰³

4. 152 The parties often declare their mutual interests and/or the purpose of the contract explicitly at the beginning of the contract, in the preamble or in the recitals (Präambel, préambule, preambolo).Footnote ¹⁰⁴ If this is not the case, these means of interpretation must in turn first be determined by interpretation.Footnote ¹⁰⁵

5. 153 In English law, the parties’ interests and the purpose of the contract are also taken into account in the interpretation of the contract as ‘original assumptions’.Footnote ¹⁰⁶

6 Trade Usages

1. 154 Trade usages (Verkehrsübung, usage commercial, uso commerciale) are also a means of interpretation. The expressions used (see paras 135–139) and the conduct adopted by the parties (see paras 156–158) may and must, as a rule, be understood in the sense that they have in accordance with the trade usages of the industry in question.

2. 155 The INCOTERMS (International Commercial Terms 2020) published by the ICC in Paris (see paras 958–959)Footnote ¹⁰⁷ and the Uniform Customs and Practices for Documentary Credits (UCP 600 ) are examples of such trade usages.

7 Parties’ Conduct after the Conclusion of the Contract

1. 156 According to the Federal Supreme Court, the parties’ conduct after the conclusion of the contract can only be considered when carrying out a subjective interpretation (see para. 132). With respect to the objective interpretation (see para. 132), the parties’ subsequent conduct is of no importance.Footnote ¹⁰⁸

2. 157 However, there is no convincing reason why the subsequent conduct of the parties should not also form an element of the circumstances in the context of an objective interpretation and thus also be used for the interpretation.Footnote ¹⁰⁹ The purpose of interpretation, whether subjective (see para. 132) or objective (see para. 132), is indeed to determine what reasonable parties acting under the circumstances at the time of the conclusion of the contract would have expressed and consequently intended by the use of their words or by their other conduct (see para. 132).

3. 158 Other legal systems, such as the ItalianFootnote ¹¹⁰ and SpanishFootnote ¹¹¹ legal systems explicitly recognise the parties’ subsequent conduct as a means of interpretation. English law, on the other hand, takes a restrictive stance and generally does not consider the parties’ post-formation conduct as a means of interpretation.Footnote ¹¹² However, there are exceptions to this principal stance when (1) it can be proven that the parties have specifically agreed to subsequently amend or terminate the contract;Footnote ¹¹³ and (2) in cases of estoppel by convention (see para. 148).

1 Necessity of Interpretation

1. 160 Even a seemingly clear wording of an expression of intent or a contractual provision requires interpretation in order to ascertain its meaning. Therefore, the wording alone may never be considered decisive.Footnote ¹¹⁵ Swiss law therefore rejects any plain meaning rule (Eindeutigkeitsregel, théorie de l’acte clair, interpretazione basata sul chiaro senso del testo). The means of interpretation (see paras 134–158), for example, the context of the contract (see paras 142–143) or the purpose of the contract pursued by the parties (see paras 149–153), may in fact lead to the conclusion that a contractual provision does not correctly express the meaning of the parties’ agreement.

2. 161 The rule that the interpretation must not stick to the literal sense of the words used (Buchstabenauslegung; interprétation littérale, au pied de la letter; interpretazione letterale)Footnote ¹¹⁶ is also found in other legal systems, such as under German,Footnote ¹¹⁷ Austrian,Footnote ¹¹⁸ FrenchFootnote ¹¹⁹ and ItalianFootnote ¹²⁰ law, as well as in European harmonisation projects such as the Principles of European Contract Law (PECL)Footnote ¹²¹ and the Draft Common Frame of Reference (DCFR).Footnote ¹²² Spanish lawFootnote ¹²³ expressly provides for the plain meaning rule. In English law, there seems to be no actual plain meaning rule. The case law sometimes emphasises that the court should primarily give effect to the ‘clear and unambiguous language’ of a contractual provision.Footnote ¹²⁴ The clearer the ‘natural meaning’ of an expression, the less easily the court should depart from it. Other decisions, on the other hand, emphasise that the interpretation must go beyond the natural meaning of the expression and seek other possible understandings based on the circumstances of the transaction in question.Footnote ¹²⁵

2 Priority of Clear Wording

1. 162 According to the case law of the Federal Supreme Court, the clear wording enjoys priority over other means of interpretation.Footnote ¹²⁶ If the other means of interpretation do not lead with certainty to a different result of interpretation, the wording shall prevail.

3 Interpretation in Accordance with Good Faith

1. 163 Under an objective interpretation (see para. 132), contracts (and expressions of intent) must be interpreted in accordance with the principle of good faith (Art. 2 CC; see paras 71–72). This includes, in particular, the principle of trust (see para. 132).

2. 164 The assumption underlying the interpretation of the contract that the parties intended an appropriate solution is also based on the principle of good faith (Art. 2 CC; see paras 71–72).Footnote ¹²⁷ If, however, the interpretation shows that the parties wanted a solution, in that specific individual case, which appears to the arbitrator or judge to be unreasonable, the arbitrators or judges may not substitute their own values for those of the parties.Footnote ¹²⁸

4 Contract Conclusion as the Relevant Point in Time

1. 165 Within the framework of objective interpretation (see para. 132), the arbitrator or judge determines, with the help of the various means of interpretation (see paras 134–158), how the parties could, and should, have understood their contract at the time of its conclusion.

2. 166 The contract must thus be interpreted ‘ex tunc’, which means that the arbitrator or judge must mentally go back to the time of the conclusion of the contract and ask how the parties could and should have understood their mutual expressions of intent and the resulting contract at that time in view of all the accompanying circumstances known to them (see paras 140–141).Footnote ¹²⁹

5 Interpretation as a Whole

1. 167 It follows from a systematic interpretation (see paras 142–143) that the individual contractual provision is to be interpreted in the overall context in which it stands.Footnote ¹³⁰

2. 168 Conflicting provisions within a contract are therefore to be interpreted in a ‘harmonising’ manner as far as possible, so that they have an appropriate meaning as a whole. If different meanings of a contractual provision are justifiable, the meaning that does not contradict any other contractual provision and thus gives the contract as a whole an appropriate meaning shall prevail.Footnote ¹³¹

6 Contra Proferentem Rule

1. 169 According to the contra proferentem rule (Unklarheitsregel, règle des clauses ambiguës, regola in case di dubbio), ambiguities in a contract are to be interpreted in case of doubt to the detriment of the author of the contractual text (in dubio contra stipulatorem, in dubio contra proferentem). If the arbitrator or judge finds that there are two possible interpretations of a contractual provision (ambiguity), such arbitrator or judge must prefer the one that is less favourable to the author of the provision.Footnote ¹³²

2. 170 Under Swiss law, the contra proferentem rule only applies when the following three cumulative conditions are met:

   • The means of interpretation (see paras 134–158) do not lead to a clear result. It is therefore not sufficient that the parties disagree on the interpretation (see para. 133). Rather, it is necessary that several meanings are seriously arguable and the means of interpretation fail, with the result that the existing doubt (‘in dubio’) between the different meanings can only be resolved with the help of the contra proferentem rule;Footnote ¹³³

   • The ambiguous part of the contract (clause or section) was drafted exclusively by one party;Footnote ¹³⁴ and

   • Of the two (or more) meanings, one is less favourable to the drafter of the contract text.

1. 171 In practice, the contra proferentem rule is mainly used for the interpretation of General Terms and Conditions (GTCs), especially in the insurance sector (in dubio contra assecuratorem).Footnote ¹³⁵ Case law has not yet clearly stated whether the scope of application of the contra proferentem rule should be limited to GTCs or not.Footnote ¹³⁶

2. 172 This maxim of interpretation, which originates from Roman law, is widely recognised in comparative law. It is generally known in French,Footnote ¹³⁷ SpanishFootnote ¹³⁸ and AustrianFootnote ¹³⁹ law, whereas in GermanFootnote ¹⁴⁰ and ItalianFootnote ¹⁴¹ law, it is limited to the interpretation of GTCs. English law also recognises the contra proferentem rule, namely, in connection with exclusion or exemption clausesFootnote ¹⁴² and unfair terms in consumer contracts.Footnote ¹⁴³ The rule has also found its way into the European GTC Directive,Footnote ¹⁴⁴ which has been implemented in all EU Member States. International and European harmonisation projects such as the Unidroit Principles of International Commercial Contracts (2016) (PICC),Footnote ¹⁴⁵ the PECLFootnote ¹⁴⁶ and the DCFRFootnote ¹⁴⁷ also include this rule.

7 Other Interpretation Maxims in Cases of Ambiguity

1. 173 The contra proferentem rule (see paras 169–172) is the most important maxim for deciding cases of ambiguity. In addition, there are a number of other maxims that can be employed in cases of ambiguity, namely the following:

   • Favor negotii: Among several reasonable interpretations of a contractual provision, in case of doubt, the one which ensures its validity is to be preferred (vertragserhaltende Auslegung, effet utile, interpretazione volta a salvaguardare l’efficacia del contratto).Footnote ¹⁴⁸ Comparatively, German,Footnote ¹⁴⁹ French,Footnote ¹⁵⁰ Italian,Footnote ¹⁵¹ SpanishFootnote ¹⁵² and English lawFootnote ¹⁵³ as well as the Common European Sales Law (CESL),Footnote ¹⁵⁴ the PICC,Footnote ¹⁵⁵ the PECLFootnote ¹⁵⁶ and the DCFRFootnote ¹⁵⁷ also include this rule of interpretation;

   • Interpretation in conformity with the non-mandatory provisions of statutory law: Among several reasonable interpretations of a contractual provision, in case of doubt, the interpretation which is in conformity with the non-mandatory provisions of statutory law (see paras 69–70) is to be preferred. Non-mandatory statutory law usually provides for a solution that balances the interests of both parties.Footnote ¹⁵⁸ Anyone who wishes to deviate from the non-mandatory law must therefore express this with sufficient clarity;Footnote ¹⁵⁹ and

   • Restrictive interpretation of clauses deviating from non-mandatory statutory law: It follows from the interpretation in conformity with the non-mandatory statutory law that provisions which deviate from the non-mandatory law are to be interpreted restrictively in case of doubt.Footnote ¹⁶⁰ Therefore, notably waivers (Verzichtserklärung, déclaration de renonciation, dichiarazione di rinuncia),Footnote ¹⁶¹ exclusion clauses (Freizeichnungsklausel, clause exclusive de responsabilité, clausola esclusiva di risponsabilità; see paras 473–479)Footnote ¹⁶² and statements of receipt in full and final settlement (Saldoquittung, quittance pour solde de compte, ricevuta a saldo; see paras 3069–3070)Footnote ¹⁶³ are to be interpreted restrictively.

1 Principle of Freedom of Form

1. 176 The principle of freedom of form (Formfreiheit, liberté de la forme, libertà della forma) provides that the validity of legal transactions (Rechtsgeschäft, acte juridique, atto giuridico) does not depend on their form.Footnote ¹⁶⁴ This means that, in principle, contracts can be formed orally, by conclusive actions or – in certain circumstances – even by doing nothing (see para. 121).

2. 177 The principle of freedom of form means that the contract is, in principle, already concluded when the substantive requirements for its conclusion (see paras 100–132) are fulfilled, without any additional formal requirements having to be met. Since these substantive requirements essentially consist of the ‘meeting of the minds’ between the contracting parties (see paras 127–130), the principle of freedom of form is sometimes also referred to as the principle of consent (Konsensprinzip, principe du consensualisme, principio del consenso; see para. 59).

3. 178 Article 11 CO expresses the principle of freedom of form as follows: ‘(1) The validity of a contract is not subject to compliance with any particular form unless a particular form is prescribed by law. (2) In the absence of any provision to the contrary on the significance and effect of formal requirements prescribed by law, the contract is valid only if such requirements are satisfied.’

4. 179 Freedom of form is one aspect of the freedom of contract (Vertragsfreiheit, liberté contractuelle, libertà contrattuale; see para. 49).

2 Statutory Formal Requirements

3 Consequences of a Violation of Formal Requirements

4 Formal Requirements Contractually Agreed Upon

1. 196 If the statutory law does not impose any formal validity requirements on the contract in question, the parties can nevertheless agree to subject their contract to a certain formal requirement (see para. 182). The parties can also agree to subject their contract to a stricter formal requirement than the one imposed by the statutory law, for example, public deed (see para. 185) instead of simple written form (see para. 183).

2. 197 If the parties have agreed to subject the conclusion of such a contract to the compliance with a certain formal requirement, it is assumed that the parties do not intend to be bound until such formal requirements are met (Art. 16(1) CO).

3. 198 If the parties reserve the use of the written form without further specifications, the requirement of the simple written form as defined by statute (Arts 13–15 CO; see para. 183) applies (Art. 16(2) CO).

1 Principle of Freedom of Content

1. 199 Freedom of content (Inhaltsfreiheit, liberté du contenu, libertà di definire il contenuto del contratto) is the substantive aspect of the freedom of contract (see para. 49).

2. 200 According to this principle, the parties may, within the limits of the law, establish the content of their content at their discretion (Art. 19(1) CO).Footnote ¹⁹¹ The content of the contract must not be unlawful, immoral or impossible (Art. 20(1) CO).

2 Limits to the Freedom of Content

3 Consequences of a Violation of the Limits to the Freedom of Content

1 Principle

1. 221 According to the principle of trust (see para. 132), which dominates Swiss law, the declarant is bound by a declaration in the way the recipient of the declaration had to, and was allowed to, understand it objectively and in good faith (Art. 2 CC; see paras 71–72) according to the specific circumstances.

2. 222 Under the title ‘Lack of consent’, however, Articles 23–31 CO cover a number of situations in which the actual intention and the declaration diverge in such a way that the declarant is entitled to liberate itself from what was not intended by avoiding the contract. However, the question of a possible lack of consent only arises when it is established, on the basis of interpretation according to the principle of trust (see para. 132), that the declarant is bound to a declaration that such declarant had not intended.Footnote ²²⁰ The issue of interpretation (Art. 18(1) CO; see paras 133–173) must therefore always precede an analysis based on lack of consent.

3. 223 Cases of a lack of consent can be divided into the following two main groups:

   • Cases in which a party correctly formed an intent to make a certain declaration, but the declaration does not correspond to such intent (mistake in declaration; see paras 226–234); and

   • Cases in which a party incorrectly formed an intent to make a certain declaration because of a mistake (mistake concerning the basis for the conclusion of the contract, see paras 235–239; motive mistake, see paras 240–241) or because such party was under the influence of the contracting partner, respectively a third party (wilful deception, see paras 251–256; duress, see paras 257–261).

2 Mistake

3 Wilful Deception

4 Duress

5 Consequences of a Lack of Consent

1. 262 The lack of consent entails the following three consequences.

1 Principle

1. 280 The following four conditions must be met for the principal to be liable for the consequences of a contract formed by the agent:

   • Authority to act for someone else (see paras 281–294);

   • Acting in the name of someone else (see paras 295–297);

   • The agent has capacity of discernment within the meaning of Article 16 CC; and

   • Contract permits agency: The contract in question must permit agency. This is the case, in particular, in contract law. However, there are, in particular, in family law (e.g., marriage) and inheritance law (e.g., testamentary disposition), legal acts that do not permit agency. In these highly personal areas, persons must act for themselves.

2 Authority to Act for Someone Else

3 Acting in the Name of Someone Else

1. 295 The second prerequisite for agency is that the agent indeed acts in the name of someone else. This second prerequisite is of a factual nature.Footnote ²⁷⁸

2. 296 In principle, there is only an agency if the (authorised) agent indeed acts towards the third person in someone else’s name.Footnote ²⁷⁹ The agent may express this intent explicitly (‘by making himself known as such’ pursuant to Art. 32(2) CO). In case of a dispute between the agent and the third party, the declaration is interpreted according to the principle of trust (see para. 132). If such an interpretation leads to the conclusion that the agent has indeed acted in someone else’s name, the effect of agency occurs even if the agent did not have the will to represent someone else.Footnote ²⁸⁰ If the validity of the contract concluded by the agent is subject to formal requirements (Art. 11 CO; see paras 176–198) and if these requirements cover the parties to the contract, the identity of the represented parties must also comply with these formal requirements (with respect to the contract of sale of real estate, see paras 894–909). The authorised agent may also implicitly express the intention to act towards the third person in someone else’s name (i.e., ‘if the other party must have inferred the agency relationship from the circumstances’ pursuant to Art. 32(2) CO).

3. 297 In exceptional cases, there is an agency even though the (authorised) agent does not act towards the third person in someone else’s name. This exception applies when the third person ‘did not care with whom the contract was made’ (Art. 32(2) CO).

4 Agency without Authority

1. 298 In principle, if the person claiming to be the agent (pseudo-agent) acts without authority, there is no agency (see para. 294).

2. 299 Consequently, the principal for whom the agent has acted without authority, is not bound (Art. 38(1) CO). However, the principal can ratify the acts of the agent (Art. 38(1) CO; see para. 303).

3. 300 The third person towards whom the agent has acted without authority, is bound in the sense that such third person must accept the ratification by the principal (Art. 38(2) CO).

4. 301 The absence of authority may be due to the fact that the powers: (1) were never granted; (2) had expired before the act was performed (see paras 292–294); (3) did not (or no longer) extend to the act that was performed; or (4) were exercised in violation of the rules of a joint power of attorney (see para. 290).Footnote ²⁸¹

5. 302 If the third party suffers a loss, the latter can claim compensation from the pseudo-agent (Art. 39 CO). The third party can obtain compensation for the latter’s negative interest damages (Art. 39(1) CO), that is, the third party must be put in the financial situation in which this party would have been in if the contract had never been concluded. If the pseudo-agent is at fault and if equity so requires, the third party can even claim compensation for positive interest damages (Art. 39(2) CO), that is, the third party must be put in the financial situation in which the latter would be in had the contract been performed.Footnote ²⁸²

6. 303 The principle of nullity of the act performed by the pseudo-agent introduces insecurity in commercial transactions. This is why the statutory law provides for the following important exceptions:

   • Ratification: The pseudo-principal can retroactively validate the act that the pseudo-agent has done by a ratification (Genehmigung, ratification; approvazione, ratifica) (Art. 38(1) CO; see para. 299). The third party is bound until the pseudo-principal decides on the ratification, since the third party has validly committed itself (Art. 38(2) CO; see para. 300). The third party becomes free as soon as the principal refuses to ratify the act, expressly or implicitly (Art. 39(1) CO; see para. 302). Until the ratification or refusal, the act of the pseudo-agent remains in abeyance. It might become valid or not, depending only on the principal.Footnote ²⁸³ In order to clarify the situation, the third party may set a suitable time limit for the pseudo-principal to ratify the act or not (Art. 38(2) CO). If the pseudo-principal ratifies the act, the contract is validly concluded. If the pseudo-principal does not ratify the act, the third party is freed. If the pseudo-principal does not react within the set time limit, the ratification is deemed to be implicitly rejected and the third party is not bound any longer;

   • Protection of the qualified appearance: Irrespective of the principal’s will, Articles 33(3) and 34(3) CO protect the third party where the latter has relied in good faith (Art. 2 CC; see paras 71–72) on an appearance created by the principal. These rules aim at ensuring contractual security and make the pseudo-principal bear the risk that arises from an appearance created by the latter.Footnote ²⁸⁴ The Code of Obligations provides for the protection of the qualified appearance in the following three cases: (1) The pseudo-principal has made it known to the third party that the agent has an authority which goes beyond the authority actually conferred (Art. 33(3) CO). In such a case, the scope of the authority is determined according to the wording of the communication made to the third party (Art. 33(3) CO), which means that the effect of agency occurs to this extent, without regard to the scope of the (internal) authority.Footnote ²⁸⁵ This presupposes, however, that the third person relies in good faith on the communication;Footnote ²⁸⁶ (2) The pseudo-principal has brought to the attention of the third party an authority which such pseudo-principal has never been granted (Art. 33(3) CO a fortiori);Footnote ²⁸⁷ and (3) The pseudo-principal fails to inform the third party of the withdrawal or restriction of the authority that such principal had made known to the third party (Art. 34(3) CO).

   • Specific case of Article 37 CO: The agent (and the third party, Art. 37(2) CO) are not aware of the expiry pursuant to Article 35 CO (see para. 292) or the revocation of the agent’s authority (Art. 37(1) CO).

1. 304 An (internal) authority can also be based on conclusive actions (konkludente Handlung, acte concluant, atto concludente; see para. 176). In particular, it may result from the two following situations:

   • Agency by estoppel: Where the principal knows that another party is representing such principal against its will, but the principal does not object to this unsolicited agency, there exists an (internal) agency by estoppel (Duldungsvollmacht, procuration par tolérance, procura apparente). Such agents may therefore infer that they have received the authority by estoppel;Footnote ²⁸⁸ or

   • Apparent authority: Where, on the one hand, the principal is unaware that another party is pretending to be its agent but should have become aware of this by exercising the care that could be expected of such principal and, the agent could interpret the principal’s conduct in good faith as a grant of authority, there exists an apparent (internal) authority (Anscheinsvollmacht, procuration apparente, procura apparente).Footnote ²⁸⁹

1 Overview

1. 314 Due to the incomplete statutory regulation in Switzerland (see para. 306), case law and doctrine have had to counter the dangers associated with GTCs with the general rules, in particular, of the Code of Obligations.

2. 315 The following three control levels are to be distinguished:

   • Consensus control: GTCs are contractual provisions and not general and abstract statutory norms.Footnote ³⁰⁰ Nor are GTCs to be characterised as (contractually codified) customary law or as a source of law of their own kind.Footnote ³⁰¹ In themselves, therefore, GTCs have no legal significance whatsoever. In order for GTCs to become part of a contract at all, the parties must reach a consensus on them. GTCs therefore only apply if the parties incorporate them in a specific contract. Whether this is the case in an individual situation is determined by the general rules on consensus (see paras 100–132). However, because of their special nature and dangers (see paras 308–313), case law and legal doctrine have developed additional rules on GTCs (see paras 316–322);

   • Interpretation control: If the parties have reached a consensus with respect to the incorporation of GTCs, the further question of their meaning arises, which may require interpretation. Interpretation is also carried out according to the general rules on interpretation (see paras 133–173). However, case law and legal doctrine have developed specific rules for this as well (see paras 323–324); and

   • Content control: If the parties have reached a consensus with respect to the incorporation of the GTCs and if their meaning has been determined by interpretation, if necessary, the final question is whether the GTCs are valid with respect to their content. This question is also basically determined according to the general rules on the validity of contracts with respect to their content, in particular, according to Articles 19–21 CO (see paras 199–220). In addition, however, specific aspects of GTCs, in particular, the content limits set by Article 8 UCA, must also be taken into account (see paras 325–326).

2 Consensus Control

1. 316 The parties agree to apply the GTCs subject to the following two cumulative conditions: (1) the parties incorporate the GTCs into their contract (see para. 317) and (2) there are no deviating individual agreements between them. If the customer incorporates the GTCs only globally (see para. 317), the following two additional cumulative conditions must be met: (3) the customer had the opportunity to obtain knowledge of the content of the GTCs in a reasonable manner prior to the conclusion of the contract (see para. 318) and (4) the GTCs do not contain any clauses that the customer did not expect and, from the latter’s point of view, did not have to expect at the time of the conclusion of the contract (unusualness rule; see para. 321).

2. 317 GTCs are only valid if the parties make them part of their specific contract. The parties must therefore incorporate the GTCs into their contract by a concordant expression of intent (Art. 1(1) CO; see para. 127). The parties can incorporate the GTCs either expressly or tacitly. If the customer consents to the incorporation of the GTCs without taking note of them or understanding their scope, this is referred to as a global incorporation (Globalübernahme, intégration globale, ripresa globale).Footnote ³⁰² The contrary of the global incorporation is the total incorporation (Vollübernahme, intégration globale, ripresa totale), which is the case when the customer indeed reads the GTCs, understands them and accepts them (expressly or tacitly).Footnote ³⁰³ However, mere clauses of ‘style’ (Vertragsfloskel, clause de style, clausula di stile) are deemed not to have been incorporated.Footnote ³⁰⁴ Clauses of ‘style’ are contractual clauses that neither party wants, and in the case of a GTC clause not even in the sense of a global incorporation.

3. 318 If a customer merely agrees to GTCs globally (see para. 317), the GTCs can only be considered to be covered by consensus according to the principle of trust (see para. 132) if the user provides the customer with a reasonable opportunity to take note of the content of the GTCs at the latest when the contract is concluded.Footnote ³⁰⁵ Consequently, the GTCs must be formulated in a comprehensible manner and presented in a print-readable way.Footnote ³⁰⁶ In addition, the GTCs must be drafted in a language customary at the place of conclusion of the contract vis-à-vis domestic customers. In the case of international customers, it is advisable to prepare the GTCs in English as a worldwide language. In general, the language of negotiation and the language of the contract shall be authoritative vis-à-vis foreign-language customers. If the customer negotiates in a foreign language, then the latter must bear the language risk with regard to the GTCs drafted in this language, unless the user was able to recognise that the customer did not have sufficient command of this language.Footnote ³⁰⁷ In e-commerce, the customer must be able to download the GTCs easily using an average IT infrastructure, save them on the latter’s device in reproducible form and print them out in good quality at the latest when the customer makes a declaration of intent. A clearly visible direct hyperlink to the downloadable and printable GTCs (e.g., in pdf format) or a pop-up window (scroll box) on the order page of a website is sufficient. A clear reference to the availability of the GTCs on the Internet may also be sufficient, provided the reference is made in an e-mail that is relevant for the conclusion of the contract.Footnote ³⁰⁸ In e-commerce as well, the GTCs must be written in a language that is understandable for the customer.

4. 319 If the parties have (validly) incorporated the GTCs (see para. 317) and at the same time (or even later), have concluded an individual agreement (negotiated terms; Individualabrede, accord individuel, condizione individuale) deviating from them, the individual agreement prevails.Footnote ³⁰⁹

5. 320 In business transactions, it often happens that each party tries to include their own GTCs in the contract (battle of the forms). This is the case, for example, when the seller refers in the offer to the seller’s terms of delivery and the buyer refers in the acceptance to the buyer’s terms of purchase. GTCs typically do not concern objectively essential elements of the contract (see para. 61), which is why the collision of GTCs does not prevent the contract from being validly concluded (see paras 100–132). The GTCs of both parties become part of the contract insofar as they do not contradict each other.Footnote ³¹⁰ This solution deserves preference over the theory of the last word (Theorie vom letzten Wort, théorie du dernier mot, teoria dell’ultima parola). According to this theory, the GTCs of the accepting party apply in principle, provided that the offeror has started to perform the contract without reservation.Footnote ³¹¹ If, on the other hand, the offeror expresses from the outset that the latter will not accept the deviating GTCs of the offeree, neither the one nor the other GTCs would become part of the contract if they contradict each other. The theory of the last word must be rejected for the following reasons: First, it contradicts the general rules of consensus-building, according to which an acceptance that deviates from the offer in insignificant points is not a counter-offer (see paras 118–119). Second, it leads to random results, depending on which of the two parties in the chronological sequence is the offeror or the offeree.Footnote ³¹² In contrast to US law (Art. 2.207 Uniform Commercial Code), however, English law still operates according to the ‘last shot analysis’.Footnote ³¹³ English authors also accuse the trust theory analysis of disregarding the decisive sequence of offer and acceptance.Footnote ³¹⁴

6. 321 If the customer only globally agrees to the GTCs (see para. 317), disadvantageous clauses which the customer did not expect (subjectively) and, from the customer’s point of view, could not reasonably have expected at the time of concluding the contract (objectively), do not apply. Such unusual or surprising clauses (ungewöhnliche Klausel, überraschende Klausel; clause insolite; clausola inusuale) do not become part of the contract.Footnote ³¹⁵ German law (Section 305c(1) BGB) and the PICC (Art. 2.1.20) expressly include this rule. One has to assess the unusual character of a clause at the time of the conclusion of the contract.Footnote ³¹⁶ Unusual clauses to which the user draws the customer’s attention become part of the contract. In this case, the user may assume that a customer, even one who is inexperienced in business, consciously agrees to the unusual GTC clause in question. Consequently, a customer who has been made aware of a GTC clause that is highlighted in bold print and larger font cannot (any longer) invoke the unusualness rule.Footnote ³¹⁷

7. 322 If there is no consensus between the parties on the incorporation of GTCs, they do not become part of the contract. However, this does not necessarily mean that the contract has not been concluded.Footnote ³¹⁸ Any gaps in the contract resulting from this may have to be filled by the arbitrator or judge (see para. 342).Footnote ³¹⁹

3 Interpretation Control

1. 323 A dispute on the interpretation of GTCs presupposes that the parties have made the GTCs part of a specific contract by incorporating them (see para. 317). If this is the case, GTCs are in principle interpreted according to the same method (see paras 131–132), with the same means (see paras 134–158) and based on the same maxims (see paras 159–173) as any contractual provision.Footnote ³²⁰

2. 324 Although GTCs are pre-formulated for a large number of contracts (see para. 308), they must be interpreted individually as part of the concrete specific contract, that is, taking into account all the circumstances surrounding the conclusion of the contract in question. The Federal Supreme Court rejects the view held in GermanyFootnote ³²¹ that GTCs should be interpreted without regard to the individual case and the parties’ ideas (principle of uniform interpretation).Footnote ³²²

4 Content Control

1. 325 According to Article 8 UCA, ‘[s]hall be deemed to commit an act of unfair competition, anyone who, in particular, uses GTCs that create a significant and unjustified imbalance between contractual rights and obligations, thus infringing the principle of good faith to the detriment of the consumer’. The idea behind this statutory provision, which came into force on 1 July 2012, is that GTCs can lead to unfair competition if they affect the market negatively. Notwithstanding, Article 8 UCA only protects consumers, not, for example, SMEs, even though these might need to be protected as well.

2. 326 Outside of consumer contracts (see paras 363–368), Swiss courts only verify the content of GTCs in a limited way, that is, according to the general rules on the validity of contracts with regard to their content (Arts 19–20 CO; see paras 199–220).

1 Classification Based on the Characteristic Obligation

1. 330 The classification found in the Specific Part of the Code of Obligations which is based on the characteristic obligation (charakteristische Leistung, prestation caractéristique, prestazione caratteristica) distinguishes between the following contracts.

2. 331 The contracts of disposition (Veräusserungsvertrag, contrat d’aliénation, contratto di alienazione) are those in which one party undertakes to transfer (permanently) to another the ownership of an object or a right, whether free of charge or in exchange for payment.Footnote ³²³ The contract of sale (Arts 184–236 CO; see paras 567–1109), the contract of exchange (Arts 237–238 CO) and the contract of donation (Arts 239–252 CO) belong to this category.

3. 332 Contracts for the transfer of use (Gebrauchsüberlassungsvertrag, contrat de cession d’usage, contratto di cessione d’uso) are those in which one party transfers to another the use or enjoyment of an object, a right, or even a value for a certain period of time, whether free of charge or in exchange for payment.Footnote ³²⁴ The lease contract (Arts 253–273c CO), the usufructuary lease contract (Arts 275–304 CO), the contract of loan for use (Arts 305–311 CO) and the fixed-term loan (Arts 312–318 CO) belong to this category.

4. 333 Employment contracts (Arbeitsvertrag, contrat de travail, contratto di lavoro) are those in which one party places itself at the service of another in a relationship of subordination, for a certain period of time.Footnote ³²⁵ The individual employment contract (Arts 319–342 CO) and the specific individual employment contracts such as the apprenticeship contract (Arts 344–346a CO), the commercial traveller’s contract (Arts 347–350a CO) and the homeworker’s contract (Arts 351–355 CO) belong to this category.

5. 334 Service contracts (Dienstleistungsvertrag, contrat de services, contratto di servizio) are those in which one party undertakes to independently carry out a specific activity for the benefit of another.Footnote ³²⁶ The contract for work and services (Arts 363–379 CO; see paras 1113–1888), the publishing contract (Arts 380–393 CO) as well as the simple mandate contract (Arts 394–406 CO; see paras 1894–2505) and all specific types of mandate contracts such as the marriage or partnership brokerage contract (Arts 406a–h CO), the letter of credit and the loan authorisation (Arts 407–411 CO), the brokerage contract (Arts 412–418 CO), and the commercial agency contract (Arts 418a–v CO; see paras 2506–2878) belong to this category. This category of contracts can be further divided into the following two subcategories:

   • Contracts with a duty to achieve a certain result (Vertrag mit Erfolgspflicht, contrat de résultat, contratto con l’obbligo di raggiungere determinati risultati) are those contracts in which the service provider promises to achieve a result expected by the other party (e.g., contract for work and services; see paras 1113–1888). In order to determine whether the services have been rendered in accordance with the contract, the result obtained will be compared with the result promised, in principle, disregarding the behaviour of the party responsible for achieving it;Footnote ³²⁷ and

   • Contracts with a duty of diligence (Vertrag mit Sorgfaltspflicht, contrat de moyens, contratto con un obbligo di diligenza) are those contracts in which the service provider promises only to perform the services diligently and with a view to the result expected by the other party, but not to achieve the result itself (e.g., simple mandate contract; see paras 1894–2505). In order to determine whether the services have been rendered in accordance with the contract, the manner in which the service provider has rendered the services will be assessed, irrespective of whether or not the intended result has been achieved.

1. 335 Guarantee or surety contracts (Sicherungsvertrag; contrat de garantie, contrat de sûreté; contratto di garanzia) are those in which one party undertakes to provide another with specific security for the performance of an obligation.Footnote ³²⁸ The contract of surety (Arts 492–512 CO) belongs to this category.

2. 336 Random contracts (zufallsbedingter Vertrag, contrat aléatoire, contratto aleatorio) are those with a random element. The contract of gambling and betting (Arts 513–515a CO) as well as the life annuity contract and the lifetime maintenance contract (Arts 516–529 CO) belong to this category. The insurance contracts (Versicherungsvertrag, contrat d’assurance, contratto di assicurazione) by which one party (the insurance company) undertakes, in return for payment of premiums, to provide a benefit to another (the insured person) in the event of occurrence of a specific risk, are close to this category.Footnote ³²⁹

3. 337 The simple partnership contract (einfache Gesellschaft, société simple, società semplice) is governed by Articles 530–551 CO. Despite its name, the simple partnership is a contract and not a company. It is one of the contracts by which the parties undertake to perform obligations in order to achieve a common goal.

4. 338 The interest of this classification lies in the structure of the Specific Part of the Code of Obligations. The same criterion of characteristic obligation is used by Article 117 PILA to determine the law applicable to an international contract in the absence of a choice of law by the parties.

2 Classification Based on the Existence of a Specific Statutory Regime

1. 339 The classification based on the existence of a specific statutory regime distinguishes between the following contracts.

2. 340 The nominate contracts (Nominatvertrag, contrat nommé, contratto tipico) are those for which the legislator has developed a specific statutory regime.Footnote ³³⁰ This definition calls for the following two clarifications:

   • It does not matter where the specific statutory regime is located. It may be the Code of Obligations, other domestic statutes or international law;

   • The statutory regime must be specific, in the sense that it must achieve a certain level of detail. Some contracts are regulated in detail by statute (e.g., lease contract, Arts 253–273c CO), whilst others are regulated in a much more summary manner (e.g., the simple mandate contract, Arts 394–406 CO; see paras 1894–2505), or even only by allusion (e.g., guarantee of performance by third party, Art. 111 CO). The delimitation with respect to the innominate contracts is therefore a question of degree and not of kind.

1. 341 The innominate contracts (Innominatvertrag, contrat innommé, contratto innominato) are those for which the legislator has not developed a specific statutory regime.Footnote ³³¹

2. 342 The interest of this classification lies in the application of the statutory regime and the regime of gap-filling in the contract (see para. 69). In the case of a nominate contract (see para. 340), the parties must comply not only with the general mandatory rules (see paras 67–68), but also with those specific to the contract in question (e.g., Art. 404 CO for the simple mandate contract; see paras 2382–2446). When there is a gap in a nominate contract, the arbitrator or judge will, in principle, fill it using the (mandatory and optional) statutory regime governing the contract in question. This is not the case if the parties have reserved their agreement on one or more secondary points (Art. 2(2) CO; see para. 118), without finally fixing it. In such a case, the arbitrator or judge fills the gap taking into account the ‘nature of the transaction’ (Art. 2(2) CO) and without being bound by the optional statutory provisions (see paras 69–70).Footnote ³³² Innominate contracts are examined in detail below; see paras 2879–2915.

3 Classification Based on the Number of Obligations Undertaken

1. 343 The classification based on the number of obligations undertaken by the parties distinguishes between the following contracts.

2. 344 Unilateral contracts (einseitiger Vertrag, contrat unilatéral, contratto unilaterale) are those in which only one party promises the performance of an obligation to the other.Footnote ³³³ The typical example is the contract of donation (Arts 239–252 CO). These contracts can be found in other Civil law countries (e.g., Art. 1106(2) CCF, according to which a contract is unilateral ‘when one or more parties bind themselves towards one or more parties without the latter assuming a reciprocal obligation’), whereas Anglo-American laws show restraint and require, in principle, a counter-performance (consideration) for the formation of a contract.Footnote ³³⁴

3. 345 Bilateral contracts (zweiseitiger Vertrag, contrat bilatéral, contratto bilaterale) are those in which both parties undertake an obligation to each other.Footnote ³³⁵ Contrary to multilateral contracts (see para. 346), the respective interests of the parties are opposed (e.g., in the contract of sale, the buyer is interested in the object, whereas the seller is interested in the price). Within the category of bilateral contracts, a distinction is made between the following two subcategories:

   • Perfect bilateral or synallagmatic contracts (vollkommen zweiseitiger Vertrag, synallagmatischer Vertrag; contrat bilatéral parfait, contrat synallagmatique; contratto bilaterale perfetto, contratto sinallagmatico) are those contracts in which the parties undertake obligations which are in an exchange relationship (synallagma). One party undertakes an obligation only because the other party in turn also undertakes (another) obligation in exchange (do ut des). The typical example is the contract of sale (Art. 184 CO: the seller undertakes to transfer ownership of the object sold to the buyer in return for the sale price; see paras 580–590). When the statutory law refers to the bilateral contract (Arts 82–83, 107, 119(2) CO), it refers to the perfect bilateral contract;Footnote ³³⁶ and

   • Imperfect bilateral contracts (unvollkommen zweiseitiger Vertrag, contrat bilatéral imparfait, contratto bilaterale imperfetto) are those contracts in which only one party undertakes (free of charge) a main obligation, while the other party undertakes only a secondary obligation which is not in an exchange relationship. The typical example is the simple mandate contract concluded free of charge (Art. 394(3) CO; see paras 2332–2337), in which the agent undertakes to render services, while the principal does not undertake to pay any fees, but is simply bound by Article 402(1) CO to reimburse the expenses incurred by the agent in the proper performance of the simple mandate contract (see paras 2269–2295).

1. 346 Multilateral contracts (mehrseitiger Vertrag, contrat multilatéral, contratto multilaterale) are those contracts in which two or more persons undertake obligations that are combined to achieve a common goal (and are therefore not in an exchange relationship).Footnote ³³⁷ The typical example is the simple partnership contract (Arts 530–551 CO).

2. 347 The interest of this classification lies in the fact that certain provisions of the Code of Obligations only apply to perfect bilateral contracts:Footnote ³³⁸

   • If a party fails to perform an obligation which is in an exchange relationship with the consideration, the other party is entitled to retain the consideration (Art. 82 CO; see para. 394);

   • In case of delay in the performance of an obligation which is in an exchange relationship, the other party has the rights mentioned in Article 107(2) CO (see para. 461);

   • If the performance of an obligation which is in an exchange relationship with the consideration becomes impossible, the other party is released from the obligation to provide the consideration (Art. 119(2) CO; see paras 489–490).

4 Classification Based on the Relationship of the Obligations to Time

1. 348 The classification based on the relationship of the obligations to time distinguishes between the following contracts.

2. 349 Simple contracts (einfacher Vertrag, contrat simple, contratto semplice) are those contracts which have as their object isolated (often one-off) obligations which are performed at a specific point in time.Footnote ³³⁹ The contract of sale (Arts 184–236 CO; see paras 567–1109) with the obligations to transfer ownership of an object on the one hand and to pay the price on the other is a typical example. Within the category of simple contracts, the following subcategories are distinguished:

   • Contracts with immediate performance (or manual contracts) (Handgeschäft, Bargeschäft; contrat manuel, contrat à exécution immédiate; contratto ad esecuzione immediata) are those contracts in which the conclusion and the performance of the contract coincide in time.Footnote ³⁴⁰ Although the statutory model of a contract creating obligations is based on the idea that the conclusion and performance of the contract occur at different times (see paras 389–394), the vast majority of everyday transactions are manual contracts (e.g., buying a newspaper at a kiosk). In contrast to the classical model, where the parties promise each other future benefits, manual contracts are therefore characterised by promises of immediate benefits;Footnote ³⁴¹ and

   • Contracts with differed performance (Vertrag mit aufgeschobenem Erfüllungstermin, contrat à exécution différée, contratto ad esecuzione differita) are those contracts in which at least one party has the right to perform the obligation some time after the conclusion of the contract.Footnote ³⁴²

1. 350 Contracts of duration (Dauervertrag, contrat de durée, contratto di durata) are those contracts which have as their object an obligation which is continuous in time (Dauerschuld, dette durable, rapporto obbligatorio di durata) and which the debtor must perform for the duration of the contractual relationship.Footnote ³⁴³ Such an obligation is not extinguished by performance, but must be performed until it is extinguished by the passage of time or for some other reason, in particular, termination of the contract (see para. 353).Footnote ³⁴⁴ A typical example is the lease contract (Arts 253–273c CO): The landlord must transfer the use of the apartment continuously and for the entire time of the lease contract.

2. 351 The distinction between simple contracts (see para. 349) and contracts of duration (see para. 350) should not be confused with the one between short-term contracts (kurzfristiger Vertrag, contrat de courte durée, contratto a breve termine) and long-term contracts (langfristiger Vertrag, Langzeitvertrag; contrat de longue durée; contratto a lungo termine). Thus, a contract of duration can be a short-term contract. For example, a bicycle can be rented for only one hour. The short duration of this lease contract does not change the fact that the lease contract is a contract of duration. In contrast, a long-term contract in which the (one-off) performance of the contract only takes place a long time after the contract has been concluded (e.g., conclusion of a contract of sale today and transfer of ownership and payment of the price only in one year) remains a simple contract. The same applies to a simple contract which is carried out in several instalments, but over a long period of time. The life of a simple contract can thus be spread out over time without becoming a contract of duration.

3. 352 The sale with successive deliveries (Sukzessivlieferungsvertrag, vente à livraisons successives, vendita con consegne successive), for example, of electricity, gas, water or beer, can be a simple contract or a contract of duration. In a sale with successive deliveries, one party undertakes to make periodic partial deliveries of goods, the total quantity of which is defined in advance or only according to the needs of the other party. If the total quantity is known at the time the contract is concluded (e.g., a carpenter buys 10 square metres of wood which he can order for one year), the sale with successive deliveries is a simple contract (see para. 349). If, on the other hand, the number of partial deliveries depends on the duration of the contract (e.g., a brewery delivers 2,000 litres of beer per quarter to a restaurant owner until further notice), the sale by successive deliveries must be qualified as a contract of duration (see para. 350).Footnote ³⁴⁵

4. 353 The interest of this classification lies in the fact that simple contracts and contracts of duration do not follow the same regime with respect to the end of the contract:Footnote ³⁴⁶

   • In terms of terminology, a party puts an end to a simple contract by rescission (Aufhebung, résolution, recesso), whereas a party puts an end to a contract of duration by termination (Kündigung; résiliation; disdetta, risoluzione);

   • The termination of a simple contract has a retroactive effect (ex tunc), which means that the parties have to make restitution to each other with respect to the performances already rendered, according to the rules of unjust enrichment (Arts 62–67 CO; see para. 85). This regime is not adapted to the termination of a contract of (indefinite) duration, which can only have a prospective effect (ex nunc). Indeed, once the landlord has transferred the use of the flat for a certain period of time, it is no longer possible to go back and pretend that the tenant has never occupied the premises;

   • The same applies in case of nullity or invalidity (e.g., due to a lack of consent; see paras 263–265) of a contract of duration which the parties have already started to perform. It is then equally impossible to return (in particular, non-pecuniary) performances which the parties have already rendered in the belief that their contract was (or would remain) valid. This is the solution provided for in Article 320(3) CO for employment contracts, which can be generalised to all contracts of duration;Footnote ³⁴⁷ and

   • Unlike simple contracts, parties can terminate contracts of duration by ordinary termination or extraordinary termination. When a party terminates a contract of duration in an ordinary way, such party has to respect notice periods and terms (e.g., Art. 418q CO with respect to the commercial agency contract; see paras 2818–2827). In addition to ordinary termination, the statutory rules of several contracts of duration also provide for extraordinary termination for valid reasons (e.g., Art. 418r CO with respect to the commercial agency contract; see paras 2828–2857). Even though there is a lack of such statutory provisions for certain contracts of duration, the general principle is that either party to a contract of duration may terminate it at any time for valid reasons, that is, if the party concerned can no longer reasonably be expected to remain bound by the contractual duration commitment.Footnote ³⁴⁸

5 Classification Based on the Consequences of the Conclusion of the Contract

1. 354 The classification based on the consequences of the conclusion of the contract distinguishes between the following contracts.

2. 355 Contracts giving rise to obligations (Schuldvertrag, contrat générateur d’obligations, contratto con effetti obbligatori) are those which give rise to (at least) one obligation.Footnote ³⁴⁹ Contracts giving rise to obligations contain (at least) one act giving rise to obligations (Verpflichtungsgeschäft, acte générateur d’obligations, atto generatore di obbligazioni), that is, a legal act which gives rise to an obligation to do or refrain from doing, on the part of at least one party. All contracts in the Specific Part of the Code of Obligations are obligation-generating contracts. The following two phases can be distinguished in the ‘normal’ life of an obligation-generating contract:

   • The conclusion (Abschluss, conclusion, conclusione), which is the obligation-generating act. This generates an obligation for at least one of the parties. The obligation-generating act leads only to in personam effects and not to in rem effects. It merely increases the liabilities on the balance sheet of at least one of the parties. The conclusion of a contract of sale thus obliges, on the one hand, the seller to transfer possession and ownership of the object to the buyer and, on the other hand, the buyer to pay the price (Art. 184(1) CO; see paras 580–590). However, the conclusion of the contract of sale does not (yet) change anything regarding the ownership rights of the object, as the seller remains the owner of the object sold and the buyer remains the owner of the price until the contract is performed;

   • The performance (Erfüllung, exécution, esecuzione), which takes place by means of an act of disposal (Verfügungsgeschäft, acte de disposition, atto di disposizione), that is, a legal act by which the author transfers, modifies or extinguishes a right.Footnote ³⁵⁰ The act of disposal thus directly and definitively affects the existence or content of a right of the author. The act of disposal has in rem effects. It reduces the assets of the balance sheet of at least one of the parties. For example, when performing a contract of sale, the seller hands over the chattel to the buyer and thus transfers possession and ownership of the object sold to the latter (Art. 714 CC). The chattel sold thus leaves the seller’s assets and enters the buyer’s assets (see paras 622–672).

1. 356 Contracts of disposal (Verfügungsvertrag, contrat de disposition, contratto di disposizione) are those whose content is (only) an act of disposal (see para. 355). Contracts of disposal directly diminish the assets of their author. The assignment of a claim (Arts 164–174 CO; see paras 544–550) and the conventional extinguishment of a claim (Schulderlass, remise de dette, annullamento mediante convenzione; Art. 115 CO) are typical examples.Footnote ³⁵¹

2. 357 Status contracts (Statusvertrag, contrat relatif à un statut, contratto relativo a uno statuto) are those which result in the formation, modification or termination of a community relationship.Footnote ³⁵² Examples are the conclusion of a marriage (Art. 102 CC), the founding of an association (Art. 60 CC) or the joining of a simple partnership (Art. 542 CO).

3. 358 The interest of this classification lies, in particular, in the in personam or in rem effects produced by the conclusion of the contract.

6 Classification Based on the Existence of Consideration

1. 359 The classification based on the existence of consideration distinguishes between the following contracts.

2. 360 Contracts concluded in return for payment (entgeltlicher Vertrag; contrat conclu à titre onéreux; contratto a titolo oneroso) are those contracts in which the obligation of one party is in an exchange relationship with a principal obligation of the other.Footnote ³⁵³ Contracts concluded in return for payment are always perfect bilateral contracts (see para. 346).

3. 361 Contracts concluded free of charge (unentgeltlicher Vertrag, contrat conclu à titre gratuit; contratto a titolo gratuito) are those contracts in which the obligation of one party is not in an exchange relationship with a principal obligation of the other.Footnote ³⁵⁴ The party receiving the performance for no consideration may, however, be subject to secondary obligations, such as the obligation of the principal to reimburse the agent for expenses in a simple mandate contract concluded free of charge (Art. 402(1) CO; see para. 2273). Contracts concluded free of charge are therefore never perfect bilateral contracts (see para. 345), but unilateral contracts (see para. 344) or imperfect bilateral contracts (see para. 345). Contracts concluded free of charge in the Specific Part of the Code of Obligations are the contract of donation (Arts 239–252 CO), the contract of loan for use (Arts 305–311 CO), the interest-free fixed-term loan (Art. 313(1) CO), the simple mandate contract concluded free of charge (Art. 394(3) CO; see paras 2332–2337), the contract of bailment concluded free of charge (Art. 472(2) CO) and the life annuity contract concluded free of charge (Arts 516–520 CO).

4. 362 The interest of this classification lies in the fact that contracts concluded free of charge are subject to certain special rules.Footnote ³⁵⁵ The Code of Obligations thus takes account of the fact that the main characteristic obligation is provided without any consideration and that one of the parties is therefore at an economic advantage.Footnote ³⁵⁶ The Code of Obligations sets out such special rules:

   • In relation to the form. According to Article 243 CO, only the donor’s promise to give is subject to a written formal requirement, whereas the beneficiary’s acceptance may also be made by conclusive actions (see para. 176);

   • In relation to the possibilities of restitution or early revocation. The donor can revoke a promise to give that has already been performed (Art. 249 CO) or not yet performed (Art. 250 CO) in certain cases. The same applies to a loan for use concluded free of charge (Art. 309(1) CO). Article 476(1) CO provides for the same regime for the contract of bailment, irrespective of whether the contract was concluded in exchange for payment or not;Footnote ³⁵⁷

   • In relation to termination at any time. In the case of a contract of loan for use, the lender can terminate the contract ‘whenever the lender likes’ (Art. 310 CO). The same applies to the simple mandate contract (Art. 404(1) CO; see paras 2382–2446), which the Code of Obligations regards as a contract concluded free of charge (Art. 394(3) CO; see paras 2327–2329). However, this principle also applies when the simple mandate contract has been concluded in exchange for payment (see paras 2323–2331). The same applies to the contract of bailment (Art. 476(2) CO); and

   • In relation to liability. Article 248(1) CO provides that the donor is only liable for the loss incurred by the beneficiary due to the donation in the case of fraud or gross negligence (see also Art. 248(2) CO). Article 99(2) CO expresses the same idea in a general way.

1 No Personal Performance

1. 372 The debtor is only bound to perform personally where performance depends on the debtor’s person (Art. 68 CO).

2. 373 This is particularly the case with respect to service contracts (see paras 1110–1112). The simple mandate contract (Art. 398(3) CO; see paras 1894–2505) and the contract for work and services (Art. 364(2) CO; see paras 1113–1888) illustrate this.

3. 374 In non-service contracts (see paras 567–1109), the debtor can delegate performance to a third party. The contract can then be performed either by a substitute (Art. 399 CO for the simple mandate contract; see paras 1993–1995) or by an auxiliary (Art. 101 CO; see paras 1996–1998).

4. 375 A third party can also perform the obligation against the debtor’s will. The debtor is thereby freed of the obligation.Footnote ³⁶⁵

5. 376 The admissible performance by a third party does not, in principle, entail that the debtor recognises the obligation.Footnote ³⁶⁶

2 Several Debtors

1. 377 Sometimes an obligation must be performed by several debtors. Such plurality of debtors does not necessarily have to exist from the time of the conclusion of the contract (see paras 100–132). Additional debtors might also be joined at a later stage.

2. 378 The most frequent case of several debtors is that of joint and several liability (Art. 143–149 CO; Solidarschuld, solidarité passive, debito solidale). In this case, each debtor must perform the whole obligation (Art. 143(1) CO). In other words, each debtor remains bound towards the creditor until the whole claim is satisfied (Art. 144(2) CO). From the perspective of the creditor, this means that the latter can choose to demand partial or whole performance from each jointly and severally liable debtor (Art. 144(1) CO). Joint and several liability arises directly from statute (Art. 143(2) CO; e.g., according to Art. 50(1) CO in the field of tort liability: ‘where two or more persons have together caused damage’) or from the contract (Art. 143(1) CO). With respect to the external relationship between the different debtors and the creditor, the debtors share a common fate, which means that: (1) one debtor cannot impair the position of the other debtors by its personal act unless otherwise provided (Art. 146 CO); and (2) performance of the obligation by one debtor frees the other debtors from the obligation as well (Art. 147(1) CO). The internal relationship between the different debtors is governed by the following two principles: (1) Unless the legal relationship between the debtors indicates otherwise, each must assume an equal share of the payment made to the creditor (Art. 148(1) CO); and (2) if a debtor pays more than the latter’s share, the debtor has a right of recourse (Regress; recours; ricorso, regresso) against the other debtors for the amount that such debtor paid in excess of the latter’s share (Art. 148(2) CO).

3 Several Creditors

1. 379 Sometimes an obligation must be performed in favour of several creditors.

2. 380 The most frequent case of several creditors is that of joint and several claims (Art. 150 CO; Solidarforderung, solidarité active, credito solidale). In this case, each creditor can claim performance of the obligation from the debtor. The debtor can be released from the obligation by performing the obligation in favour of one of the creditors (Art. 150(2) CO). It is within the discretion of the debtor as to which creditor the debtor pays as long as none of them has taken legal action against the debtor (Art. 150(3) CO). Joint and several claims arise directly from statute (e.g., Art. 399(3) CO with respect to the simple mandate contract; see paras 2014–2027) or from the contract (Art. 150(1) CO).

1 Principle

1. 395 In long-term contractual relationships, in particular contracts of duration (see para. 350), the problem often arises that the factual or legal framework under which the contract was concluded changes in the course of time, which can lead to an aggravation of performance for the debtor or a devaluation of performance for the creditor. The question then arises whether (and if so, how) the contract can be adapted to the new circumstances or whether it must be fulfilled as agreed despite the disturbance of the equilibrium (Äquivalenzstörung, déséquilibre, squilibrio) that has occurred.

2. 396 The answer to the question of whether the contract should be adapted to the changed circumstances depends on the distribution of risk between the parties. Which party should bear the risk that circumstances change between the conclusion and the performance of the contract?

3. 397 This question may be regulated in advance, either by the parties themselves in their contract (see paras 402–405) or by statute (see paras 406–407). If this is not the case, the arbitrator or judge has to decide the question of adjustment by the arbitrator or judge of the contract (see paras 408–411).Footnote ³⁷²

4. 398 In principle, a contract is to be performed as it was concluded (principle of sanctity of contract; Vertragstreue, fidélité contractuelle, fedeltà contrattuale; pacta sunt servanda).Footnote ³⁷³ This rule applies, in principle, without restriction and is part of public policy (and of customary international law),Footnote ³⁷⁴ when parties with equal rights and comparable market power enter into a contract.Footnote ³⁷⁵ As long as performance does not subsequently become objectively impossible (Art. 119 CO; see paras 484–490), a party can therefore, in principle, not invoke the fact that the (above all economic) framework conditions of the contract have changed in favour of one party after the conclusion of the contract. The allocation of the risk of change is therefore not based on parity or solidarity, but is, in principle, unilaterally at the expense of the party who is adversely affected by the change in circumstances.Footnote ³⁷⁶

5. 399 Adaptation of the contract (Vertragsanpassung, adaptation du contrat, adattamento del contratto) is an exception to the principle of the sanctity of contract (see para. 398), which is based on the fact that the parties tacitly assume the continuation of certain circumstances when concluding their contract (clausula rebus sic stantibus).

6. 400 Swiss law does not have a general statutory provision on contract adjustment.

7. 401 Various legal systems have a general clause for adjusting the contract to changed circumstances, namely the German (Section 313 BGB), the French (Art. 1195 CCF) and the Italian (Art. 1467 CCI) legal systems. English law resolves the influence of changed circumstances on contractual obligations using the doctrine of frustration.Footnote ³⁷⁷

2 Contractual Adjustment Rules

1. 402 Within the scope of their freedom of contract (Art. 19(1) CO; see paras 49–70), the parties can regulate from the outset the consequences of changed circumstances on their contract.

2. 403 The parties can regulate this issue in their contract in the two following ways:

   • Positive adjustment rules: Positive adjustment rules are contractual provisions which (positively) order an adjustment of the contract to changed circumstances for certain cases.Footnote ³⁷⁸ Such rules regularly contain the conditions for adjustment (in the form of a condition within the meaning of Arts 151–157 CO) as well as the adjustment consequences (e.g., index clauses or hardship clauses); and

   • Negative adjustment rules: Negative adjustment rules are contractual provisions which (negatively) exclude an adjustment of the contract to changed circumstances in certain cases.Footnote ³⁷⁹

1. 404 Positive and negative contractual adjustment rules are subject to the general rules on the validity of contracts (see paras 174–273). The envisaged changes in circumstances as well as the scope of adjustment must be contractually determined or at least determinable. Furthermore, adjustment clauses must, of course, comply with the general limits of Article 27 CC (see para. 207). Thus, the complete exclusion of a contractual adjustment, irrespective of a possible fundamental change in circumstances, may in certain cases violate Article 27 CC.Footnote ³⁸⁰

2. 405 If the contract grants a party the right to adapt it by unilateral declaration, this can also be problematic under Article 27 CC (see para. 207). According to the Federal Supreme Court, a unilateral right to adjust the contract is in any case only valid if ‘both the expected event and the scope of the adjustment are determined by contract. An undefined right to unilaterally change contractual performance obligations would contradict the nature and purpose of the contract, which is intended to define the rights and obligations of each contracting party.’Footnote ³⁸¹ However, even in the case of a unilateral adjustment clause that withstands this scrutiny, the general principle applies that the party entitled to adjust must exercise the unilateral contractual right of adjustment in accordance with equitable discretion (Art. 2(2) CC; see paras 73–74).Footnote ³⁸² If such an adjustment clause is contained in GTCs (see paras 305–326), it might be invalid on the basis of the unusualness rule (see para. 321) in the case of mere global incorporation of the GTCs (see para. 317).Footnote ³⁸³

3 Statutory Adjustment Rules

1. 406 In the absence of contractual adjustment clauses, statute may provide for (positive and negative) adjustment rules. Such clauses can refer to a specific ground for adjustment (e.g., Art. 405 CO for the death of one of the parties in the simple mandate contract; see paras 2454–2458) or an extraordinary and unforeseeable change in circumstances (e.g., Art. 373(2) CO with respect to the contract for work and services; see paras 1598–1634).

2. 407 As a consequence of adjustment, positive statutory adjustment rules generally provide for the termination of the contract, with (ex tunc) or without (ex nunc) retroactive effect.Footnote ³⁸⁴ Negative statutory adjustment rules are less common.

4 Judicial Adjustment

1. 408 If the contract does not provide for any (positive or negative) adjustment clause (see paras 403–405) and statute does not contain any such rules either (see paras 406–407), it is ultimately up to the arbitrator or judge to decide whether or not the contract should be adjusted to the changed circumstances.

2. 409 Swiss courts only (judicially) adjust contracts with restraint.Footnote ³⁸⁵

3. 410 The following five strict conditions must be met:

   • Change of circumstances: The basic prerequisite for contract adjustment is a change in the circumstances which influences the interests of the parties between the conclusion and the performance of the contract (see para. 395);

   • Unforeseeability of the change: If the disadvantaged party could have foreseen the change in circumstances at the time of the conclusion of the contract or even actually foresaw it, a judicial adjustment of the contract is excluded. In this case, the disadvantaged party would have been in a position to guard against the risk of a change of circumstances. If such party fails to do so, the realisation of this risk is, in principle, at the latter’s expense (see para. 399);Footnote ³⁸⁶

   • Inevitability of the change: The change in circumstances must also be unavoidable for the party invoking it and asking the arbitrator or judge to adjust the contract.Footnote ³⁸⁷ A fortiori, such party must not have caused or even been at fault with respect to the change in circumstances;Footnote ³⁸⁸

   • Serious disturbance of the contractual equilibrium: An adjustment of the contract is generally only possible if the contractual equilibrium (equivalence relationship) between performance and consideration is seriously disturbed;Footnote ³⁸⁹ and

   • No unconditional performance: If the disadvantaged party performs the contract unconditionally despite the change in circumstances, such party cannot subsequently invoke the change in circumstances in order to have the contract adjusted by the arbitrator or judge.Footnote ³⁹⁰

4. 411 With respect to the method, the arbitrator or judge bases its adjustment of the contract on the hypothetical intent of the parties. It must therefore determine what reasonable and honest (in good faith; Art. 2(1) CC, see paras 71–72) parties in the situation of the contracting parties would have agreed if they had been aware of the specific change in circumstances at the time of the conclusion of the contract.Footnote ³⁹¹

1 Overview

1. 427 In general terms, liability (Haftung, responsabilité, responsabilità) is the obligation of a person to compensate another for the loss caused to the latter.Footnote ³⁹⁸

2. 428 In the Swiss law of obligations, the general provisions on liability can be found in Articles 41–61 CO. However, these rules are primarily concerned with liability in tort or extra-contractual liability (ausservertragliche Haftung; deliktische Haftung; responsabilité civile, responsabilité délictuelle, responsabilité extracontractuelle; responsabilità civile, responsabilità delittuale, responsabilità extra-contrattuale). This regime is, in principle, applicable to the compensation of all losses, including those resulting from a breach of contract (Art. 99(3) CO).

3. 429 Articles 97–101 CO set out some specific rules concerning contractual liability (vertragliche Haftung, responsabilité contractuelle, responsabilità contrattuale).

4. 430 Contractual liability distinguishes itself from liability in tort by the following three main features:Footnote ³⁹⁹

   • Presumption of fault: As in tort, contractual liability presupposes, in principle, fault on the part of the debtor. However, in tort, the burden of proof lies with the creditor (victim) (Art. 41(1) CO), whereas in contractual liability such fault is presumed (Art. 97(1) CO). Therefore, it is up to the debtor to prove that the latter has not committed any fault (see paras 439–443). The creditor still has to prove the other conditions of contractual liability (see paras 431–438);

   • Vicarious liability: As in tort, the debtor may be liable for the behaviour of third parties. However, in tort, the responsible persons have the possibility of freeing themselves from liability (Art. 55(1) CO),Footnote ⁴⁰⁰ whereas in contract, debtors are liable for the acts of all persons whom they have entrusted with the performance, without being able to show that they have not committed any fault in selecting, instructing or supervising them (Art. 101 CO; see paras 444–449); and

   • Statute of limitations: All liability claims are subject to a statute of limitations. However, in tort, the ordinary limitation period expires three years after the knowledge by the victim of the latter’s loss and of the person liable for compensation (Art. 60(1) CO), whereas in contractual liability the ordinary limitation period of ten years applies (Art. 127 CO; see para. 509).

2 Debtor’s Default

3 Creditor’s Default

4 Conventional Modifications of Contractual Liability

1 Overview

1. 484 The problem of subsequent objective impossibility (nachträgliche objektive Unmöglichkeit, impossibilité objective subséquente, impossibilità oggettiva sopravvenuta) arises when, after a valid obligation (respectively contract) has arisen, circumstances occur which are not attributable to the debtor and which prevent (in whole or in part) the debtor’s performance.Footnote ⁴⁵⁹

2. 485 The question is which party bears the risk of the performance (Sachleistungsgefahr, Leistungsgefahr, Sachgefahr; risque de la prestation; rischio della prestazione; that is, does the debtor nevertheless owe performance despite the impossibility of providing the object of the obligation?) and which party bears the risk of the consideration (risk of the price; Preisgefahr, Vergütungsgefahr; risque du prix; rischio legato al prezzo; that is, does the creditor of the obligation which has become impossible to perform nevertheless have to provide the consideration?).Footnote ⁴⁶⁰

3. 486 The problem of subsequent objective impossibility relates to the period between the moment when the obligation arises and the moment when it has to be performed. If the obligation becomes impossible to perform before the moment when it arises (in principle, before the conclusion of the contract), the contract is null and void (initial impossibility pursuant to Art. 20 CO; see paras 208–211).

4. 487 Subsequent objective impossibility is, in general, dealt with in Article 119 CO. The rule in Article 119 CO is non-mandatory law (see paras 69–70). According to the principle of freedom of contract (Arts 19 and 20 CO; see paras 49–70), the parties can therefore derogate from this provision.Footnote ⁴⁶¹

2 Conditions

1. 488 The extinguishment of the obligation is only justified when the following three conditions are met:Footnote ⁴⁶²

   • Objective impossibility: The debtor’s performance must be objectively impossible to perform in the sense that it can no longer be performed either by the debtor or by any third party acting in the debtor’s place. The impossibility must also be permanent. Impossibility must be distinguished from a change of circumstances (see paras 395–411)

   • Subsequent impossibility: The impossibility must arise subsequent to the conclusion of the contract. Subsequent impossibility must be distinguished from initial impossibility which renders the contract null and void (Art. 20(1) CO; see paras 208–211 and 486); and

   • Impossibility not attributable to the debtor: The debtor does not have to answer for the impossibility under any contractual or statutory provision. In other words, the impossibility must not fall within the debtor’s sphere of risk.Footnote ⁴⁶³ This is the case if the debtor is at fault (Art. 97(1) CO; see paras 431–443), if the debtor is liable for the acts of the latter’s auxiliaries (Art. 101 CO; see paras 444–449) or if the debtor is in default (Art. 103(2) CO; see paras 453–464).

3 Consequences

1. 489 When the conditions for impossibility (see para. 488) are met, the impossibility extinguishes the debtor’s obligation (Art. 119(1) CO). The debtor is released from the performance of the obligation that the latter owes. The debtor is not obliged to compensate the creditor for the loss thus caused. It is therefore the creditor who bears the risk of the impossibility. The debtor may, however, be obliged under the conditions of Article 97(1) (see paras 431–443) or Article 101 CO (see paras 444–449) to compensate the creditor for the loss if the debtor breaches an ancillary duty, in particular, that of informing the creditor in good time of the existence of the impossibility.Footnote ⁴⁶⁴

2. 490 In a synallagmatic contract (see para. 345), the debtor’s impossibility to perform as such does not prevent the creditor from performing the obligation. However, as both parties accepted to perform in exchange for the performance by the other party, Article 119(2) and (3) CO provides the following solutions:

   • Extinguishment of the counterclaim: In principle, the creditor ‘loses his counter-claim to the extent it has not been satisfied’ (Art. 119(2) CO). Furthermore, the debtor must return what the latter has already received, according to the rules on unjust enrichment (Arts 62–67 CO; see para. 85). Article 119(2) CO therefore spreads the risk between the two parties: the creditor bears the risk of the performance (Art. 119(1) CO; see para. 489) and the (liberated) debtor bears the risk of the consideration, that is, the risk of the price (Art. 119(2) CO);Footnote ⁴⁶⁵

   • Passing of risk: ‘This does not apply to cases in which, by law or contractual agreement, the risk passes to the creditor prior to performance’ (Art. 119(3) CO). This provision thus reserves statutory (and contractual) provisions which exclude the extinguishment of the creditor’s counterclaim and oblige the creditor to bear the consequences of the impossibility. This is the case, for example, with Article 185(1) CO for the contract of sale (see para. 873), Article 378 CO for the contract for work and services (see paras 1845–1863) and Article 418m CO for the commercial agency contract (see paras 2792–2806). Under these provisions, the debtor (seller, contractor, commercial agent) keeps the counterclaim and does not have to return what the latter has already received from the creditor (buyer, customer, principal).

1 Overview

1. 491 Set-off (Verrechnung, compensation, compensazione) is the extinguishment of a debt by the sacrifice of a counterclaim that the debtor has against the creditor.Footnote ⁴⁶⁶

2. 492 The Code of Obligations deals with set-off in Articles 120–126 CO.

3. 493 Set-off requires the existence of two (or more) claims between two parties:

   • The offsetting claim (Verrechnungsforderung, créance compensante, credito in compensazione) which the offsetting party (Verrechnender, Kompensant; compensant; soggetto che dichiara la compensazione) has against the set-off party (Verrechnungsgegner, Kompensat; compensé; soggetto a cui viene richiesta la compensazione); and

   • The set-off claim (or main claim; Gegenforderung, Hauptforderung; créance compensée; credito da compensare) which the set-off party has against the offsetting party.

1. 494 Under Swiss law, set-off is not automatic (statutory set-off; gesetzliche Verrechnung, compensation légale, compensazione legale), contrary to French law (Art. 1347 CCF, which is, however, restricted by case law). It can only result from the exercise of the offsetting party’s right to set off.

2. 495 Under Swiss law, set-off does not require a court decision (judicial set-off; gerichtliche Verrechnung, compensation judiciaire, compensazione giudiziale), contrary to certain hypotheses of set-off in English lawFootnote ⁴⁶⁷ and to other laws, such as Italian law which has a system of statutory set-off (see para. 494) and must facilitate its implementation by relaxing the conditions for its application (Art. 1243(2) CCI).

2 Conditions

1. 496 The following six conditions must be met for set-off:

   • Reciprocity of claims: The offsetting claim (see para. 493) and the set-off claim (see para. 493) must be reciprocal (Gegenseitigkeit der Forderungen, réciprocité des créances, reciprocità dei crediti). The offsetting claim must be directed against the set-off party and the set-off claim must be directed against the offsetting party.Footnote ⁴⁶⁸ The reciprocity of claims may be problematic in the presence of a triangular relationship or partnerships (Personengesellschaft, société de personnes, società di persone). This is why the Code of Obligations contains specific provisions on the contract of surety (Arts 492–512 CO) in Article 121 CO,Footnote ⁴⁶⁹ on contracts conferring rights on third parties (Art. 112 CO) in Article 122 CO, for the assignment of a claim (Arts 164–174 CO; see paras 544–550) in Article 169(2) CO and for partnerships in Article 573 CO;

   • Identity of the claims: According to Article 120(1) CO, the offsetting claim (see para. 493) and the set-off claim must be identical in kind (Gleichartigkeit der Forderungen, identité des créances, identità dei crediti). This prerequisite is unproblematic if both claims are for money or another interchangeable object of the same kind. Monetary debts (see para. 423) are identical, regardless of the currency,Footnote ⁴⁷⁰ since debts of different currencies can be converted, in principle (Art. 84 CO; see paras 687–689). However, the condition of identity of the claims does not require that the claims are (1) connected,Footnote ⁴⁷¹ that is, that they arise from the same legal ground (such as the same contract); (2) equivalent, that is, of the same amount (see Art. 124(2) CO); or (3) uncontested (Art. 120(2) CO;Footnote ⁴⁷² cf. Art. 1347–1 CCF, which requires that the claims are ‘liquides’);

   • Offsetting claim is due: According to Article 120(1) CO, the offsetting claim (see para. 493) and the set-off claim (see para. 493) must both be due. In reality, only the offsetting claim must be due. For the set-off claim, executability (see para. 391) is sufficient.Footnote ⁴⁷³ Under Article 123(1) CO, the condition that the offsetting claim be due is no longer specifically required when the debtor is in bankruptcy. Indeed, the debtor’s bankruptcy renders all the debtor’s debts due (Art. 208(1) DEBA);

   • Actionability of the offsetting claim: The offsetting claim (see para. 493) must be actionable (Klagbarkeit der Verrechnungsforderung, possibilité de faire valoir la créance compensante en justice, possibilità di far valere il credito di compensazione davanti al giudice). In principle, the offsetting claim must thus not be time-barred (see paras 501–543). However, Article 120(3) CO provides for the following exception: ‘A time-barred claim may be set off provided that it was not time-barred at the time it became eligible for set-off.’ The set-off claim (see para. 493), on the other hand, need not be actionable;

   • No contractual exclusion of set-off: The parties must not have waived the set-off. Indeed, the parties may exclude the right for the debtor to extinguish the debt by set-off.Footnote ⁴⁷⁴ Article 126 CO does not expressly provide for this possibility, but simply confirms the freedom of contract regarding its content of Article 19(1) CO (see paras 55–57). This waiver must be made by agreement (pactum de non compensando) and not by a unilateral act of one of the parties.Footnote ⁴⁷⁵ However, the debtor is, of course, free simply not to exercise the formative right (Gestaltungsrecht, droit formateur, diritto formatore) to set off on his own and voluntarily. Due to the protection that the set-off offers to the debtor, the Code of Obligations prohibits the exclusion of set-off for certain (weaker) parties. This is the case for the tenant’s or lessee’s claims (Arts 265, 294 CO) and the employee’s claims (Art. 323b(2) CO); and

   • No statutory exclusion of set-off: The set-off must not be excluded by statute. Indeed, Article 125 CO excludes the set-off, in particular, for the following obligations: (1) obligations to restore or replace objects that have been deposited, unlawfully removed or retained in bad faith (Art. 125(1) CO);Footnote ⁴⁷⁶ (2) obligations that by their nature require actual performance by the creditor,Footnote ⁴⁷⁷ such as maintenance claims and salary payments that are absolutely necessary for the upkeep of the creditor and the latter’s family (Art. 125(2) CO); and (3) obligations under public law in favour of the State authorities, in particular, tax law claims (Art. 125(3) CO). Article 125 CO only excludes the extinguishment of the claim by set-off against the creditor’s will, but the creditor can always waive the specific protection afforded by this statutory provision. Articles 213 and 214 DEBA provide for further exclusions in case of bankruptcy.

3 Declaration of Set-off

1. 497 If the aforementioned conditions (see para. 496) are fulfilled, the right to set-off exists. This is a formative right (Gestaltungsrecht, droit formateur, diritto formatore).

2. 498 The right to set-off is exercised by means of a unilateral declaration of intent by the offsetting party (Art. 124(1) CO; see para. 103). The declaration is addressed to the set-off party and must thus be received by the latter (see para. 122). The content of the declaration is that the main claim (of the set-off party) will be extinguished by sacrificing their own offsetting claim. The following principle thus applies: No offsetting effects (see paras 499–500) without an offsetting declaration.Footnote ⁴⁷⁸ The declaration of set-off may be an express or an implied (e.g., payment only of the difference between the two claims) declaration.

4 Consequences

1. 499 When the conditions (see para. 496) are fulfilled and the offsetting party has declared the set-off to the set-off party (see paras 497–498), the two claims are extinguished to the extent of the lower one (Art. 124(2) CO). As a result, where the amount of the set-off claim is greater than that of the offsetting claim, the set-off party must be satisfied with a partial payment, in derogation of the principle in Article 69(1) CO.

2. 500 The offsetting effect occurs from the point in time when the claims ‘first became susceptible of set-off’ (Art. 124(2) CO). The claims are therefore not extinguished only at the time of receipt of the declaration of set-off.

1 Overview

1. 501 The statute of limitations (Verjährung, prescription, prescrizione) is the institution which allows the debtor to paralyse the creditor’s right of action as a result of the passage of time.Footnote ⁴⁷⁹

2. 502 In Swiss law, the statute of limitations is an institution of substantive law, and not of procedural law.Footnote ⁴⁸⁰

3. 503 The statute of limitations is dealt with in a general way at Articles 127–142 CO.

4. 504 The statute of limitations has the following two main objectives: (1) protection of legal certainty in the public interest, that is, the creditor shall no longer be entitled to sue the debtor if the creditor has not made efforts to enforce the claim for a long period of time; and (2) preventing litigation in which the evidence has become unreliable.Footnote ⁴⁸¹

5. 505 The statute of limitations must be distinguished from forfeiture (Verwirkung, péremption, perenzione). Forfeiture entails the loss of a substantive right as a result of the expiry of the period within which the holder must exercise it, such as asserting a lack of consent (Art. 31 CO; see para. 244) or complying with the incumbencies of the warranty of conformity (Art. 201 CO for the contract of sale, see paras 749–853; Arts 367 and 370(2) CO for the contract for work and services, see paras 1357–1576). Unlike the statute of limitations, the forfeiture entails the extinguishment of the substantive right as such (and not only the (procedural) right of action attached to the right) and the judge must take it into account ex officio.

6. 506 In principle, all claims are subject to the statute of limitation, with the exception of some claims (e.g., claims secured by a pledge on real estate pursuant to Art. 807 CC).

7. 507 To determine when a claim is time-barred, it is necessary to know:

   • The duration of the limitation period (see paras 508–511);

   • The starting point of the limitation period (see paras 512–516);

   • Possible extension of the limitation period (see paras 517–534); and

   • The point at which the limitation period expires (see paras 535–536).

2 Duration of the Limitation Period

1. 508 The duration of the limitation period is, in principle, fixed by statute, but the parties can partially derogate from it (see paras 542–543).

2. 509 According to Article 127 CO, claims are generally time-barred after an ordinary limitation period of ten years. This ordinary limitation period applies to all claims, ‘unless otherwise provided by Federal civil law’ (Art. 127 CO).

3. 510 Many specific provisions provide for extraordinary limitation periods:

   • Five years: Article 128(1.)-(3.) CO provides for a limitation period of five years in the following three cases: (1) ‘claims for agricultural and commercial rent and other rent, interest on capital and all other period payments’ (Art. 128(1.) CO); (2) ‘claims in connection with the delivery of foodstuffs, payments for board and lodging and hotel expenses’ (Art. 128(2.) CO); and (3) ‘claims in connection with work carried out by tradesmen and craftsmen, purchases of retail goods, medical treatment, professional services provided by advocates, solicitors, legal representatives and notaries, and work performed by employees for their employers’ (Art. 128(3.) CO; see paras 1705–1708, 2376); and

   • Twenty years: Article 128a CO, which came into force on 1 January 2020, provides that ‘[c]laims for damages or satisfaction arising from an injury or death in breach of contract are time-barred three years from the date on which the person suffering damage became aware of the damage, but in any event twenty years after the date on which the harmful conduct took place or ceased’.

1. 511 Statutory law also sets out numerous specific rules which take precedence over both the general rule of Article 127 CO (see para. 509) and the specific rules of Articles 128 (see para. 510) and 128a CO (see para. 510). This is the case, for example, for warranty claims in the contract of sale (Art. 210 CO; see paras 807–813) and the contract of work and services (Art. 371 CO; see paras 1443–1471).

3 Starting Point of the Limitation Period

1. 512 As a rule, the limitation period commences as soon as the claim is (mature respectively) due (Art. 130(1) CO).Footnote ⁴⁸² A claim becomes (mature respectively) due immediately when it arises, unless otherwise provided by statute, contract or the nature of the legal relationship (Art. 75 CO; see paras 389–394). It is only then that the creditor can act against the debtor and that the creditor can be reproached for delaying to act.

2. 513 The time when the creditor becomes aware of the existence or the amount of the claim is not decisive for the beginning of the limitation period.Footnote ⁴⁸³ The limitation period for a contractual claim may therefore start to run even before the creditors are aware of the existence of their claim.

3. 514 In the case of an action for contractual liability (see paras 427–452), the Federal Supreme Court considers that the limitation period already begins to run from the date of the breach of the contract, even if the loss does not appear until later.Footnote ⁴⁸⁴

4. 515 Similarly, it does not matter for the commencement of the limitation period whether the debtor is in default or not (see paras 453–464).

5. 516 Some specific provisions provide for different starting points, for example, for claims becoming due on the issuance of a reminder (Art. 130(2) CO; see para. 457), tort claims (Art. 60(1) CO) and unjust enrichment claims (Art. 76(1) CO).

4 Impediment and Suspension of the Limitation Period

1. 517 The limitation period does not run in the following two situations: (1) impediment (Hinderung, empêchement, impedimento), that is, when the limitation period does not start to run; and (2) suspension (Stillstand, suspension, sospensione), that is, when the limitation period that has already begun to start to run does not continue (Art. 134(1) CO).

2. 518 The grounds for impediment or suspension of the limitation period are listed exhaustively in Article 134(1) CO.Footnote ⁴⁸⁵

3. 519 They can be divided into the following four groups:

   • As long as the creditor is particularly closely connected to the debtor or is dependent on the debtor in a special way (Art. 134(1)(1.)–(4.) CO) or cannot take action against the debtor for legal reasons (Art. 134(1)(5.) CO);

   • As long as the creditor is prevented from asserting the claim before an arbitrator or judge for objective reasons (Art. 134(1)(6.) CO);

   • For the duration of the public inventory procedure, for claims made by or against a testator (Art. 134(1)(7.) CO);

   • For the duration of settlement talks, mediation proceedings or any other extra-judicial dispute resolution procedure, provided the parties agree thereon in writing (Art. 134(1)(8.) CO; see paras 3085–3090).

1. 520 In case of impediment (see para. 517) or suspension (see para. 517), the limitation period does not run (praescriptio dormit). This has the effect that the limitation period is extended by the time during which it does not run (in case of impediment) or no longer runs (in case of suspension). In the case of suspension (see para. 517), therefore, the limitation period that has already expired is not lost (unlike in the case of interruption; see para. 521).

5 Interruption of the Limitation Period

1. 521 There is an interruption (Unterbrechung, interruption, interruzione) of the limitation period when certain qualified events related to the performance of the obligation occur.Footnote ⁴⁸⁶

2. 522 The grounds for interruption are listed in Article 135 CO.

3. 523 They can be divided into the following two groups:

   • Acknowledgement of debt by the debtor: The limitation period is interrupted, ‘if the debtor acknowledges the claim and in particular, if he makes interest payments or part payments, gives an item in pledge or provides surety’ (Art. 135(1.) CO). The debtor’s acknowledgement of the debt interrupts the limitation period without further ado, even if the intention is not (specifically) directed towards interrupting the limitation period.Footnote ⁴⁸⁷ It is sufficient that the creditor may understand the debtor’s explicit or implicit behaviour in good faith (Art. 2(1) CC; see paras 71–72) as confirmation that the debtor’s obligation exists in principle.Footnote ⁴⁸⁸ The fact that the amount actually owed has not yet been determined or is disputed does not prevent a debt from being acknowledged.Footnote ⁴⁸⁹

   • Interruptive acts by the creditor: The limitation period is also interrupted ‘by debt enforcement proceedings, an application for conciliation, submission of a statement of claim or defence to a court or arbitral tribunal, or a petition for bankruptcy’ (Art. 135(2.) CO). It is therefore not sufficient to merely require the debtor to perform. Purely private acts, such as sending a reminder, even by registered letter, or issuing a collection order, are not sufficient. Furthermore, the interruptive effect only occurs for the claim and the amounts that are claimed by the creditor.Footnote ⁴⁹⁰

1. 524 The interruption of the statute of limitation has the effect of starting a new period of time which begins with the interruptive act (Art. 137(1) CO). The new period is of the same duration (see paras 508–511) as the interrupted period. There are various exceptions to this rule (e.g., Arts 137(2), 138(1), 138(3) CO, etc.). Unlike in the case of impediment (see para. 517) or suspension (see para. 517), no account is taken of the time already elapsed. The limitation period that has already expired is disregarded and the limitation period is extended in this sense.

2. 525 Only a running limitation period can be interrupted. Interruptive acts after the expiry of the limitation period do not lead to a new commencement of the limitation period.

3. 526 Periods of forfeiture (Verwirkungsfrist, délai de péremption, termine di perenzione see para. 505) may not be interrupted on the basis of Article 135 CO.

6 Waiver of the Statute of Limitations

1. 527 Waiver of the statute of limitations (Verjährungsverzicht, renonciation à la prescription, rinuncia alla prescrizione) is an (innominate; see paras 2879–2915) contract between the debtor and the creditor by which the debtor undertakes not to avail itself of the limitation period.Footnote ⁴⁹¹ The debtor may also waive the statute of limitation defence in relation to a claim that is already time-barred by simply refraining from raising the defence during the proceedings. Article 142 CO indeed prohibits the arbitrator or judge in such a case from taking the statute of limitations into account ex officio (see para. 538).

2. 528 According to Article 141(1) CO, ‘[t]he debtor may waive the right to invoke the statute of limitation, in each case for a maximum of ten years from the start of the limitation period’ (emphasis added). With respect to the starting point of the limitation period, see paras 512–516. The time limit of Article 141(1) CO applies irrespective of the applicable limitation period, that is, even if the limitation period is shorter than ten years (e.g., five years according to Art. 128 CO (see para. 510) or three years pursuant to Art. 60(1) CO).Footnote ⁴⁹²

3. 529 According to Article 141(1bis) CO, ‘[t]he waiver must be in writing’ (emphasis added). For the written form requirement (Arts 12–15 CO), see paras 183–184.

4. 530 ‘Only the user of general terms and conditions of business may waive the statute of limitations defence in such terms and conditions’ (Art. 141(1bis) CO; emphasis added). With respect to the GTCs, see paras 305–326.

5. 531 The waiver of the statute of limitation extends the limitation period by the time agreed by the parties (to a maximum of ten years; see para. 509).Footnote ⁴⁹³

6. 532 ‘A waiver granted by a joint and several debtor does not bind the other joint and several debtors’ (Art. 141(2) CO; emphasis added).

7. 533 ‘The same applies to co-debtors of an indivisible debt and to the surety in the event of waiver of the principal debtor’ (Art. 141(3) CO; emphasis added).

8. 534 According to Article 141(4) CO, ‘[a] waiver granted by a debtor shall bind the debtor’s insurers and vice versa, provided a direct claim exists against the insurer’ (emphasis added).

7 Expiry of the Limitation Period

1. 535 The expiry of the limitation period is the last day on which the creditor can assert the claim without running the risk of the defence of the statute of limitations being raised by the debtor. The creditor must therefore have brought an action or requested arbitration before that date.

2. 536 ‘When computing limitation periods, the date on which the limitation period commences is not included and the period is not deemed to have expired until the end of the last day’ (Art. 132(1) CO). Otherwise, by virtue of the reference in Article 132(2) CO, the general rules on the computation of time limits apply, that is, Articles 76–77 CO.

8 Consequences of the Statute of Limitations

1. 537 The Code of Obligations deals with the statute of limitations under Title III (‘Extinguishment of Obligations’; see para. 480). However, the statute of limitations only paralyses the creditor’s (procedural) right of action (see para. 501).

2. 538 This means firstly that the (substantive) claim remains. The creditor keeps the right to sue the debtor after the expiry of the limitation period (see paras 535–536). The arbitrator or judge must grant the claim if the debtor does not raise the statute of limitation defence. Indeed, ‘[a] court may not apply the statute of limitation defence ex officio’ (Art. 142 CO). If the debtor performs the obligation, the latter’s performance is valid (cf. Art. 120(3) CO; see para. 496). The debtor will not be entitled to claim restitution based on unjust enrichment (Art. 63(2) CO; see para. 85).

3. 539 This means secondly that the (substantive) claim is subject to the statute of limitation defence (Einrede der Verjährung, Verjährungseinrede; exception de la prescription; eccezione di prescrizione). It is sufficient (but necessary) for the debtor to raise the statute of limitation defence for the right to enforcement to be paralysed. The arbitrator or judge does not have the power to invoke it ex officio.

4. 540 The fact that the main claim is time-barred means that the claim for interest and other ancillary claims are also time-barred (Art. 133 CO).

5. 541 In certain circumstances, the raising of the statute of limitations defence may constitute an abuse of rights (Art. 2(2) CC; see paras 73–74). It is an abuse of rights to invoke the statute of limitations if the debtor cunningly causes the creditor not to act in due time or if the debtor’s conduct, without malicious intent, causes the creditor to refrain from acting within the time limit and the delay appears understandable, according to a reasonable assessment based on objective criteria.Footnote ⁴⁹⁴

9 Contractual Modifications of the Limitation Period

1. 542 Under the principle of freedom of contract (Arts 19–20 CO; see paras 49–70), the parties may partially agree to adopt other rules. They may, in particular, shorten or extend the limitation period or fix a different starting point. However, according to Article 129 CO, ‘[t]he limitation periods laid down under this Title may not be altered by contract’.

2. 543 The Federal Supreme Court has clarified the meaning of this limitation of the parties’ freedom of contract in its landmark case DFSC 132 III 226 as follows:

   • Before the limitation period has begun to run (see para. 512), it cannot be extended (cf. Art. 141(1) CO; see para. 528). This rule applies to all limitation periods of the Code of Obligations, that is, to the ‘ordinary’ limitation periods of the Third Title, that is, of Articles 127 (see para. 509), 128 (see para. 510) and 137(2) CO, as well as to all other limitation periods, for example, Article 60 CO for tort claims, Article 67 CO for unjust enrichment claims, Article 210 CO for lack of conformity claims in the contract for sale (see paras 807–813) or Article 371 CO for lack of conformity claims in the contract for work and services (see paras 1443–1470);

   • Once the limitation period has started to run (see paras 512–516), an extension of the limitation period is allowed. This rule also applies to all limitation periods of the Code of Obligations. For the permissible duration of the extension, see para. 509;

   • The parties are generally prohibited from shortening the ‘ordinary’ limitation periods found in the Third Title, that is, Articles 127 (see para. 509), 128 (see para. 510) and 137(2) CO. This rule should not apply to the ‘extraordinary’ limitation periods which have been recently introduced into the Third Title, that is, Articles 128a (see para. 510) and 139 CO (right of recourse in the event that joint and several liability is time-barred).Footnote ⁴⁹⁵ However, the parties are entitled to shorten limitation periods outside the Third Title, for example, the periods of Articles 60, 67, 210 or 371 CO).