Business Law - Part II Contract Law PDF

Introduction to Business Law
Part II: Contract Law

Laurent Matile, Avocat, LL.M.
Lecturer in Law, University of Applied Sciences, Western Switzerland.
School of Business Administration, International Business Management, Geneva
Table of content
I.
General remarks on the Swiss law of obligations..3
A. Historical background and influence abroad.......

B. Basic elements of contracts
C. Principle of freedom of contract.
D. Contracts as basis for obligations: No Translative Effect
II.
System of the legislation; comparison with foreign law..6
III.
Formation of contracts in general.6

A. Survey of the positive prerequisites of validity..
B. Form-requirements
C. Negative elements making a contract void..
1. Impossibility..
2. Illegality......
IV.
V.
Formation of the contract (consensus; offer and acceptance).................................9

Conclusion of contracts by representatives.10
A. Non-commercial representation (CO Art. 32-40)..
B. Commercial representation (CO 458-465, and special provisions)
VI.
Interpretation; vitiating elements in the consensus..................................................12

A.
B.
C.
D.
E.
F.
VII.
Interpretation in general
Dissensus distinguished from error..
Error (Art. 23-27 CO).
Fraud, Duress (Art. 28-31 CO)
Protection of consumers..
Subsequent impossibility of performance
Breach of contract..13
A. Specific performance
Geneva School of Business Administration

Introduction to Business Law: Part II Contract Law
B. Damages as general remedy for breach.
C. Consequences of delay (Art. 102-106 CO).
D. Discharge by breach (Art. 107-109 CO)
VIII.
Limitations of actions (Art. 127-142 CO) 18
IX.
Special types of contracts................................................................
19
A. General remarks..
B. Sale (Art. 184-236 CO).
1. The content of the contract and passing of title
2. Waranty for defective goods
3. The Vienna Convention of international sale
C. Letting and Hiring (rent; Art. 253-274 g CO)
D. Contract of manufacture (Art. 363-379 CO)
E. Agency (mandate) and similar types of contracts (Art. 394 CO)..
PART II: TORTS
I.
Introduction
24
A. The concept
B. Distinctions
C. Sources
II.
Conditions of civil liability

A.
B.
C.
D.
E.
III.
General conditions
Aquilian Liability
Simple Casual Liability
Liability for Risk (Aggravated Objective Liability)
Indemnity for Pain and Suffering(Tort moral/Genugtuung)
Effects of civil liability

A.
B.
C.
D.
E.
IV
26
37
General principles
Evaluation of Damage
Setting Damages
Particularities of the Indemnity for Pain and Suffering
Concurrent Liabilities
Claim for damages
41
A. The Rules on the Statute of Limitations

B. The Rules of procedure
2

This course material is drawn from the following publications:

Bucher Eugen, The Law of Contracts (Chapter 8), in Dessemontet Franois and Ansay Tugrul
(eds.), Introduction to Swiss Law, 3rd Edition, Kluwer Law International, 2004
Tercier Pierre, Dreyer Daniel, Torts (Chapter 9), in Dessemontet Franois and Ansay Tugrul
(eds.), Introduction to Swiss Law, 3rd Edition, Kluwer Law International, 2004
Huguenin Claire, Purtschert Tina, Introduction to Swiss Law, Part 5 Contract / Company Law,
University of Zrich, 2011
I.
General remarks on the Swiss law of obligations
A. Historical background
The actual text of the Swiss Federal Code of Obligations (CO) relating to contracts and tort
was adopted on March 30, 1911, then presented as a supplementary part of the Civil Code
(Code civil, voted December 10, 1907), both entered in force as per January 1, 1912.
Its text is to a large extent based on its predecessor, the ancient CO as adopted in 1881 and
in force since January 1, 1883 (here "aCO").
The contract law of the CO is, as in all areas of the continental Civil Law, based mainly on the
tradition of Roman Law. The CO in particular is influenced mostly by the German "doctrine of
the Pandects" of the 19th century, therefore the BGB is the next of kin to the Swiss CO.
B. Basic elements of contracts

The law of contract is to a large extent the same worldwide. Certainly the rules governing
contracts in the English-speaking countries differ considerably from those of the Civil Law
countries.
The similarities between Swiss and German contract law are extensive. Both German and
Swiss legislation have their roots in the Roman Law tradition of the 19th Century; in
addition, both are influenced by the French Civil Code ("Code Napolon" of 1804), the Swiss
Code showing this influence more clearly.
The notion of contract in Switzerland is a broad concept embracing situations perhaps
elsewhere not considered contracts.

Not only is donation not a unilateral declaration of the donor but a bilateral act (contract)
between the donor and the done (Art. 239 CO); the assignment of choices in action
presupposes an agreement between the assignor and the assignee (Art. 164 CO), the
transfer of movable property requires the mutual intention of the parties to transfer
property (and, in addition, the physical transfer of the goods, Art. 714 CC) and the remission
of a debt the consent of the debtor (Art. 115 CO).
C. Principle of freedom of contract

Swiss law upholds to the maximum the principle of freedom of contract as developed in the
XXVIIth and XXVIIIth centuries.
The main aspects are:
1. Freedom to conclude or not to conclude a contract.
There is no obligation to enter a contract unless a special legal provision prescribes the
formation of a contract (as may be the case for public transportation and other public
services or in the context of antitrust law).
2. Freedom of choice of the partner.
3. Freedom to establish the content of the contractual provisions.
Either party may at free discretion establish the conditions of the contract. This refers not
only to the possibility of the parties determining their mutual obligations but also to the
consequences of non-performance (e.g. conditions and effects of breach, etc.).
Furthermore, the freedom as granted under Swiss law means that some types of contracts,
perhaps excluded or restricted in other systems, are admissible even without explicit legal
basis.
For example:
-the agreement terminating a previously concluded contract or altering the terms
thereof (Art. 115 CO);
- the contract creating an obligation for one or both of the parties to conclude a
contract in the future (Vorvertrag/prcontrat, promesse de contracter; Art. 22);
- the contract for the benefit of a third party (Art.112);
- the contract substituting a party to a contract by another party (below X D).
4. Freedom to depart from the types of contract as presented in the special part of
4

the Code of Obligations (below XIV A).
Principle of freedom of contract

freedom to conclude or not conclude a contract
freedom to choose the contractual partner
freedom to establish the contracts content
freedom of formality
freedom to terminate and alter the contract
freedom to conclude any kind of contract regardless of whether or not its one of the
individual types of contracts in the second division of the CO.
Freedom to conclude or not conclude a contract
No one has to conclude a contract unless there is a legal provision to conclude. A

legal provision to conclude a contract would e.g. be the obligation of every car owner
to conclude insurance.
Freedom to choose the contractual partner
Everyone has the right to choose his contractual partner unrestricted but there are
cases where one can be forced to conclude a contract with someone else or cases
where its forbidden to conclude contracts with certain people (for example contracts
with minors).
Freedom to establish the contracts content
The content of a contract may be chosen by the parties but it must not have an illegal
content. If the content is forbidden by law the contract is null and void (Art. 20 para. 1
CO).
Freedom of formality, Art. 11 CO
The Swiss Code of Obligations does not demand a special form to conclude a
contract. A contract may therefore be concluded orally or even without using words
but by a consenting behaviour.
There are a few exceptions where a special form is provided by law, examples are:
- A labour contract with an apprentice has to be written (Art. 344a
CO).
- A sales contract of land. It is not only provided, that this contract has to be in written
form, it even requires a notarial deed (Art. 216 CO).

II. System of the legislation; comparison with foreign law

Contract law as described here is contained in the CO, Arts. 1-529.
These provisions are divided into two parts: General Part (Arts.1-183) and Special types of
contracts (Arts.184-551). The division into general and special contract rules reflects the
different historical background of the two sets of legal rules:
- the general rules regulating formation and termination of contract, avoidance of contract,
sanctions in the case of non-performance and transfer of contractual rights (see below III-VII,
X) are based on the legal theory of the seventeenth and eighteenth centuries and the
philosophy of the Enlightenment;
- the special rules (referring to the contract of sale, donation, etc. (see XIV below) follow the
Roman law tradition and deal with problems specific to the legal relationship under
particular circumstances. In addition, the dependence on Roman Law is shown in Restitution
(Arts. 62-67), extralegal quasi-contractual obligations and Compensation (see VIII, IX, XI).
III. Formation of contracts in general

A. Survey of the positive prerequisites of validity
The main requirement of valid contractual relationship is the consent of the parties, their
consensus ad idem.
The problem of formation of consensus is seen on the Continent in the same way as in the
Common Law countries, under the principle of "offer and acceptance" (below IV).
In order to distinguish from non-binding rules of conduct such as gentlemens agreements,
agreements forming a binding contract require that the parties express - even tacitly - the
intention to bind themselves.
Other elements may be mentioned such as the requirement of the capacity of the persons
concluding the contract (as a general rule all persons of the age of 18 years or more; CC Art.
14) and the fact that a contract only exists as from the moment parties have not only agreed
on the terms of their contract but mutually expressed the intention to enter into it and to be
contractually bound (Art. 1 CO).
B. Form-requirements
As a general rule, the formation of a contract does not presuppose formalities of any kind.

With a few specific exceptions, contracts may be concluded orally or even without any
verbal expression of assent, for instance, by actions implying viz. showing the intention to
enter into a contract (Art. 1 CO).
The main exceptions to this rule of absence of formal requirements are:
- an assignment requires a written document, signed by the assignor and delivered to the
assignee (Art. 165 I CO). This refers to assignment as the act transferring the right
(Verfgungsgeschft/Cession de crances); the contract creating an obligation to
assign/transfer is not subject to said form-requirements (Art. 165 II CO);
- the contract for the sale of land (vente dimmeubles), contracts to transfer interest in land,
and preliminary contracts for the sale of land require a notarial deed (Art. 216 CO);
- an executory contract of donation (or promise of donation/ promesse de donner) requires
a written contract signed by the donor (Arts. 243 I and 13 CO);
- the contract of suretyship (guarantee/cautionnement) is submitted to an elaborate system
of formal requirements (CO Arts. 493-494);
If a formal requirement as established by legislation has not been realized, the contract, at
the level of substantive law, is void (i.e. evidence of the oral conclusion of the contract by
the party entering obligation could not validate it; see Art.11 II).
However in the context of sale of land, this rule in its effect is partly excluded: according to
court practice a sale contract not indicating the price really paid by the purchaser and
mentioning a fictitious figure instead is void, but if executed (price paid, transfer of property
entered in the register) either party is 'estopped' by the rule of CC Art.2 ("misuse of a right")
to claim restitution.
The formation of a contract, Art. 1 CO
Art. 1 CO
1 The conclusion of a contract requires a mutual expression of intent.
2 The expression of intent may be express or implied
The formation of a contract

Consensus
The parties must consent in every basic point of the contract. Less important points may be
left open (Art. 2 CO).
Example: Contract of sales, Art. 184 CO:
- Basic points that have to be determined: the price of the good and the good itself
7

- Less important points may be for example: the place or the time of fulfillment of the contract
The formation of a contract.

A
Offer
Acceptance
Interpretation of a contract.
Principle of good faith (non-codified principle):
A declaration of intention is understood the way the other party of the contract could and did
in good faith understand it.
Words that have been used or the actual meaning of the declaration by the declaring party
are therefore not determining.
C. Negative elements making a contract void

1. Impossibility
Impossibility under Article 20 CO follows the old rule of impossibilium nulla obligatio, stating
that a contract is void which subsequently appears to be impossible at all times to be
executed and was so at the time of the conclusion of the contract (e.g. the sale of a machine
with specific technical requirements which the current technical and future developments
cannot guarantee).
A party entering into an agreement knowing that its performance will not be possible may
be liable under the rule culpa in contrahendo (below IX D).
2. Illegality
Illegality is another ground for nullity of a contract under Art. 20; the same rule applies to
contracts with immoral content (against boni mores).
Cases of application of said rules are comparatively rare (e.g. contracts for the sale of illegal
drugs or of obscene publications; contracts implying an element of bribery).
In modern practice there is growing importance of contracts disapproved of by law under
the aspect that the binding effect is too burdensome for one of the parties involved.
Examples are excessive contractual prohibition of competition, agreements in restraint of
trade or the contractual exclusion to dissolve a partnership by giving notice.

Traditionally in the above situations such contracts were null; more recently, however, a
voidability concept, allowing the party excessively bound to seek relief by way of exception,
is gaining ground.
The problem is rather one of application of Article 27 of the Civil Code on the protection of
the personality, than of Article 20 CO.
Reasons for the nullity of a contract
impossibility (Art. 20 para. 1 CO)
illegality (Art. 20 para. 1 CO)
non-respect of the required form (Art. 11 CO)
IV. Formation of contract (consensus; offer and acceptance)

The constituent element of a contract is the consent of the parties to it.
Their agreement may be extensive, including details of the duties of the contracting parties,
or it may be limited, i.e. covering only the most basic points and leaving open all secondary
questions. (Art. 2 CO)
Validity of the contract is reached by a consensus covering a minimum only. This minimum is
defined by the doctrine of the special types of contract.
Beside the rule that contracts are created by mutual assent of the parties the formula exists
as a worldwide commonplace that contracts are formed by an offer and its acceptance.
An offer is deemed to be a declaration of the intention to be bound under a contract with
the content as specified, under condition of acceptance by the addressee. It has to include
all the necessary elements of the intended contract, so that the addressee of the offer may
only say 'yes' or 'agreed'. (art. 3 CO)
Contrary to the Anglo-American system and in accordance with the other Civil Law countries,
under Swiss law an offer, though oral, may be binding.
The intention of being bound by the offer is presumed. If the offeror does not express his
intention to reserve his right to revoke the offer (Art. 7 I), it cannot be withdrawn.
Nevertheless, some circumstances may show that a party does not intend to be bound. The
sending out of price-lists, for example, is deemed to be not an offer but an invitation to
make one (Art.7 III).

The duration of the binding effect may be fixed by the offeror at his free discretion. If no
time limit has been fixed, an offer is open for a reasonable period of time, allowing the
transmission of the acceptance under normal circumstances after a short time of reflection.
An offer made viva voce to a present partner or by phone has no binding effect if the offeror
does not expressly declare his or her intention to be bound for a certain period. (art. 4 CO)
The acceptance must be entirely consistent with the offer; a modification of conditions of
the original offer is not an acceptance but is deemed to constitute a counter-offer.
Under certain circumstances explicit acceptance is not required; in such cases the addressee
of the offer is bound to the contract (Art.6 CO) if he does not expressly reject the offer.
This applies to contracts which are exclusively beneficial to like donations to the donee or
assignments to the assignee. Existing commercial relationship between the parties may also
create a presumption of acceptance therefore requiring an explicit rejection if the party
receiving the offer is not prepared to accept it.
See article 6a CO: delivery of unsolicited objects
Under the provisions of Arts. 8 and 9 an offer to the public in general is possible
(Preisausschreiben und Auslobung/promesse publique Public promise/Reward).
V. Conclusion of contracts by representatives

The rules governing the conclusion of a contract by other than the parties to it, but by an
intermediary acting for one of them (agency, representation) follow one of two concepts,
the first being predominant in non-commercial circumstances (below A), the other ruling in
commerce (below B) and being valid for legal entities as corporations and for partnerships.
A. Non-commercial representation (CO Art. 32-40)

Swiss civil law fully admits the possibility of concluding contracts by an agent.
A contract concluded by a person in the name of another is valid, if the latter has authorized
the acting person to do so.
A subsequent ratification of the conclusion of the contract equals a preliminary
authorization.
In the absence of a preliminary authorization or subsequent ratification the contract is void
and the person wrongly alleging to be authorized is liable in damages to the other
contracting party (Art. 39 CO).
10

The amount of damages is generally restricted to the "negative interest", i.e. the amount of
useless costs caused by negotiating and entering the void contract, but not comprising
"positive interest", i.e. missed profits to be expected from the non existing contract. A claim
in the amount of "positive interest" may exceptionally be granted in case of fault of the nonauthorized representative.
The power of representation given to the agent may be revoked at any moment, and an
obligation not to retract authorization would not be valid (Art. 34, 34 II CO).
The same applies in principle in the commercial context. But third parties not duly informed
of the revocation are, as long as in good faith, not concerned by the revocation.
B. Commercial representation (CO 458-465, and special provisions)

The model of representation in commerce has its origin in the late middle-ages in Northern
Italy, where the institution of procura was created: the alter ego of the principal in another
town being authorized to conclude all contracts entering into the range of businesses of the
principal. This historical background shows clearly the justification of the representing effect.
It is not the intention of the principal to conclude a contract of a given nature, but his being
prepared to be bound by the contracts of whatever content concluded by his procurator.
The traditional model of Procura (fond de procuration / agent with power of procuration) is
laid down in Art. 458-461 CO.
The range of allowed representation is defined by the legal text and is not open to
modifications. All contracts entering in that area are valid whilst the approval by the
principal of the content of the contracts as concluded is immaterial.
The only restrictions allowed are the prerequisite of the consent of one or even more other
persons (i.e. their concurring signature) and a geographical limitation to local branches of
the business (Art. 460).
As a general rule the Procura is established by inscription in the register of commerce. But
contrary to the non-commercial rules (above lit. A), a Procura may come into existence not
only without inscription in the register, but also without an explicit expression by the
principal to confer such power, based on the sole fact that the principal admits the coming
into existence of the appearance to authorize the person acting as an agent and to have the
intention to institute him as a 'fond de pouvoir'.
As in the non-commercial context the power of representation given to the agent may be
revoked at any moment.
If the power of procuration has been entered into the register, its cancellation must equally
be entered.
Was no inscription performed, it nevertheless is possible to enter the cancellation of the
power in order to inform all persons having knowledge of the procuration (Art. 461).
11

Similar rules as established for the procurator apply to the power to represent a partnership
(Art. 563 CO), corporations and other legal entities (see with respect to the Company limited
by shares Art. 718 lit.a CO, for the Cooperative society Art. 899 CO).
VI. Interpretation; vitiating elements in the consensus

A. Interpretation in general
The interpretation of the declaration of a party follows the 'principle of confidence'
(Vertrauensprinzip/principe de la confiance), that is, the declaration is neither understood in
the sense of what the declaring party may have had in mind nor in accordance with the
literal meaning of the wording, but in the meaning the addressee could in good faith
attribute to it.
B. 'Dissensus' distinguished from 'error'

In case of divergence of the real intention of one party from the understanding of its
declaration by the other, two situations must be distinguished.
Dissensus is the absence of contractual consent with the consequence that no contract at
all came into existence even if the parties believed to have concluded it.
Dissensus exists when two parties agree to the same term but understand it in a different
way so that both interpretations are equally admissible in the particular circumstances.
For example, where a Canadian and a U.S. citizen conclude a bargain based on a dollar price
there is dissensus (no contract), if in the particular situation each party is equally entitled to
understand 'dollar' as his own national currency.
If one understanding prevails, the contract exists but the other party may claim relieve
resulting from "error" (see C above).
In case of dissensus the contract is non-existing, i.e. void ab initio.
C. Error (Mistake; Arts. 23-27)

'Error' (Irrtum/erreur) describes the situation where a party is held, based on the 'principle of
confidence', to the apparent meaning of a declaration even if another meaning was
intended.
12

For instance, said Canadian, who understood the agreed price to be in Canadian dollars, is
not entitled to his interpretation if under the given circumstances an objective interpretation
indicates that U.S. dollars were intended.
Consequence of error is the voidability of the contract, i.e. the party succumbing to it has the
possibility to bring the contract to an end by making a private declaration to that effect to
the other party within one year from the date of discovery of the error (Art.31 CO).
The party terminating a contract on the legal ground of error is liable for damages if their
erroneous understanding was due to their own negligence in examining and understanding
the given situation (Art. 26 CO).
The compensation has to cover the 'negative interest' (negatives Interesse / intrt ngatif);
see VII D below), i.e. to put the other party economically in the situation they would be not
having concluded the subsequently annulled contract. In exceptional cases the damages may
comprise further elements ('positive interest', lucrum cessans; Art.26).
D. Fraud, Duress (Arts. 28-31)

Whilst the contractual defects of error as explained above are the result of the given
circumstances and not intentionally caused by the parties, fraud and duress are the result of
machinations of one of them.
Fraud (Dol) consists in causing a mistake by intentionally misinforming the partner with
respect to essential elements of the contract (Art. 28 CO).
Duress (Crainte fonde) means constraining a person to conclude a contract, be it by
coercion, threats or by physical force (Arts. 29 and 30 CO).
Under such circumstances the affected party may terminate the contract by private
declaration to the opposed partner. Such declaration must be given in a one year's term
upon the recognition of the mistake viz. the termination of the coercive situation (Art. 31 I
CO).
The aggrieved party may also choose to maintain the contract by ratification, in that event
still preserving claims for damages (Art.31 CO).
E. Protection of consumers
Articles 6a and 40a to f CO - enacted in 1991 - allow a consumer to terminate a contract
concluded under unusual conditions such as at the consumer's home or at the occasion of an
advertising ride, etc.
Repudiation can be made by written declaration within a week after the conclusion of the
contract (Art. 40 e CO).
13

F. Subsequent impossibility of performance
In cases where performance is possible at the time of the conclusion of contract but
subsequently becomes impossible without fault on either side, the obligation to perform is
extinguished.
The performance promised in exchange does not become due or must, if executed, be
restituted. If the impossibility is not due to 'circumstances for which the debtor is not
responsible' (Art. 119 I CO), i.e. if the debtor is not in the position to prove 'that there is no
fault on his part' (Art. 97 I CO), he is liable under the general rule of liability for nonperformance.
VII. Breach of contract

A. Specific performance
Unlike the Common Law tradition, Swiss law as a general rule enables the creditor to claim
specific performance of the contract.
Said principle has some limited relevance in contracts for the transfer of property and
contracts preventing a party from doing something (e.g. competing in a specified field).
However, specific performance is not available in contracts positively obliging a party to do
something such as to render a service or the like.
The Roman law was intended to convert an obligation to do or to deliver something into
damages when not carried out. Under the influence of German law, the Reform of the Swiss
Code of obligations in 1911 introduced the possibility of specific performance.
This rule is applicable even to the non-execution of pre-contracts (i.e. contracts obliging to
conclude a specified contract in the future; Promesse de contracter, see art. 22 CO/ 216 CO).
The prevailing view accepts an action based on the pre-contract for the conclusion of the
main contract. The latter is deemed to be concluded at the moment of a court decision to
that effect.
B. Damages as general remedy for breach

The general rule is that a party to a contract not performing it correctly must pay damages
(dommages et intrts) compensating the failure of performance or its imperfections.
14

The quantum of damages equals the difference between the actual financial situation of the
aggrieved party and the hypothetical situation in which he or she would have been in case of
a proper performance.
This so-called 'positive interest' comprises also lucrum cessans, that is, the profits lost as a
consequence of the incorrectness of performance (see also D below).
The burden of proof of the amount of the damages lies with the injured party.
The liability of the parties to a contract is a liability under the condition of fault of the party
not performing correctly (Art. 97 CO).
This principle is complemented and qualified by a presumption of fault: the burden of proof
is on the non-performing party causing damage who may show that their non-performance,
or delayed or defective performance, was caused by elements independent of their
responsibility.
In effect, exoneration as a consequence of evidence for absence of fault of the nonperforming debtor is rare.
Therefore in the practical effect the liability under Swiss (and German) law is not far away
from the strict liability of legal systems allowing the excuse of 'force majeure.'
C. Consequences of delay (Arts. 102-106 CO)

"Delay" in performance is understood in a technical meaning, i.e. as default (Verzug /
demeure), presupposing a delay either under the precise stipulation of certain date of
performance in the contract or a subsequent notice by a creditor demanding performance
(Art. 102 CO).
These requirements of default are the basis of damages for delay in performance described
under par. B.
In addition, default has the consequence of transferring the risk to the belated party
(periculum in mora).
Once in default, he is liable for further damages even if the subsequent delay or impossibility
of performance is not caused by his fault.
If the default concerns a payment of money, the debtor has to pay interest on arrears to the
amount of 5% per annum if there is not a higher interest rate stipulated in the contract. In
commercial transactions bank rates may be applied if they are higher (Art. 104 CO).
The above consequences of default are independent of a fault of the non-performing party;
only the consequences of damages presuppose fault.
Interest on arrears is due under Swiss law without respect to fault.
15

The general rule of damages as exposed under par. B applies if the creditor not receiving
payment in due course has suffered injury in excess of the legal or contractual rate. He may
recover the amount of his loss if the debtor is not in the position to exonerate.
D. Discharge by breach / Droit de rsiliation (Arts. 107-109 CO)

Upon the failure of a party to perform, the other party may be released from the contractual
obligations and has a claim for damages.
This solution, in the practical outcome, is granted by Swiss law, but it must be noted that the
'discharge by breach' does not operate automatically as it may do in the Common Law area
and that full damages are not granted under all circumstances.
Discharge from the contract as a consequence of non-performance is subject to the
following two requirements: The party not receiving performance in due course
(1) generally has to grant a grace-period, i.e. an additional time limit for execution and;
(2) must upon failure of performance during the grace-period express the intention not to
accept the delayed performance (renunciation, or rescission of the contract). (Cf. Art. 107
CO)
These two prerequisites are governed by the following rules:
(1) The additional period conceded by the creditor may be short but must be long enough
that a party who has already made appropriate preparations for his performance may have
an additional chance to perform.
The creditor is only exempted from allowing an extension of time for execution if one of the
three situations indicated by Art. 108 CO is fulfilled:
(a) the attitude of the obligor has shown that conceding an additional time is useless
(e.g. the obligor has made no preparations and additional time would not allow
performance, or the obligor has expressed his intention not to perform, he has
repudiated the contract, etc.);
(b) the performance, as a consequence of the delay, has become useless to the
obligee;
(c) the contract is unambiguously stating that performance has to be effected on or
before a certain time and shall subsequently be excluded.
(2) The expiration of the period of time as described under no.1, including the situation that
no additional time must be conceded, does not automatically operate as a discharge of
duties.
Discharge depends on a renunciation by the obligee.
16

Upon expiration of the time limit, the obligee may still insist on contractual performance.
If he prefers the exclusion of the belated performance, he has to give notice of his decision
to rescind immediately.
The obligee may declare renunciation at the moment of fixing a time limit (see A) but is not
obliged to do so.
He may make his declaration upon expiration of the time conceded (but then must act
without delay; Art 107 II CO).
Renunciation may be expressed in two ways, with different consequences as to the amount
of damages:
The traditional concept of the effect of renunciation is that of subsequent dissolution
of the contract, i.e. rescission in the technical sense (Rcktritt/se dpartir du contrat,
i.e. 'withdrawal from the contract'). This possibility puts an end to the execution of
the contract, both parties becoming free. The party who failed to perform must pay
damages, but only on the basis of 'negative interest' (negatives Interesse/intrt
ngatif). The obligee must be put in the situation he would be in, had he never
entered the contract. This quantum is generally smaller than that of 'positive
interest', which is based on the aim to grant to the obligee the hypothetical benefits
of correct performance of the contract.
If the obligee wishes to reserve his right to 'positive interest' (including lucrum
cessans, i.e. indemnification for lost profits, which only in exceptional cases is
comprised by 'negative interest', see B above ), he has to choose another way and
insist on the validity of the contract while renouncing to the performance of the
obligation as stipulated in the contract. Thus, the right to and the duty of contractual
performance is transformed into contractual damages, replacing the original
contractual duties. Both parties are held to perform the contract, but the party not
having performed his or her part must pay damages in place of the performance
originally due.
The system of twofold possibility for renunciation of the obligee is more complicated than
necessary and may be explained only by the historical evolution of legislation in the context
of 'discharge by breach'. In practice, there is a clear tendency to grant full compensation
(positives Interesse) irrespective of the obligee's declarations.
A distinction must be drawn between 'main duties' and 'ancillary duties' of the party
performing incorrectly.
Discharge by breach as shown above operates only if a 'main duty' is not correctly
performed (e.g. in the case the object sold is not delivered) but not if the performance of
'ancillary duties' fails (the object sold is not properly packed, user's instructions due under
the contract are not given, etc.).
17

VIII. Limitations of actions (Verjhrung/prescription; Arts. 127-142)

Actions of claims are limited in time (with the exception of claims secured by pawn or real
estate mortgage and a few others).
The periods of limitation under Swiss law seem short, compared with those of the other Civil
Law countries.
The general time limit for claims not otherwise qualified is ten years (CO Art. 127).
A limit of five years applies to claims resulting from rent or hire or from other periodical
payments, as to claims for food, board, lodging and similar, for professional services such as
legal consulting and for work done by mechanics, etc. (CO Art. 128).
A term of limitation of one year is applicable to claims for damages in tort and claims
resulting from unjust enrichment (CO Arts. 60, 67). The time-limit of one year is more and
more questioned. Claims resulting from tort under the rules of special codes have a longer
limit (e.g. two years under the rules for road accidents), and further extension is under
consideration.
But especially unsatisfactory is the rule of CO Art. 67 which establishes a one year-limit for
claims for restitution of value and which in most cases was transferred under a presumed
contract.
The period commences at the time the obligation becomes due (CO Art. 130).
The one-year term regarding tort and enrichment claims starts only when the claim and the
person of the debtor is known to the creditor (but an 'absolute' limitation becomes effective
ten years after the event causing damage or enrichment, regardless of the knowledge of the
creditor; see CO Arts. 60 and 67).
Under special circumstances the period does not start or is suspended (CO Art. 134),
especially regarding claims between members of the same family, claims of employees
against their employers and actions which cannot be brought before a Swiss court (e.g.
because the debtor has no legal residence in Switzerland).
The term of limitation is interrupted and a new period commences when the creditor brings
an action before a court or arbitral tribunal or when making an application in bankruptcy
proceedings.
The same effect results from an acknowledgement of the debt by the debtor.
By special provision, other acts of the debtor have the effect of interruption, all of them
implying an acknowledgement of the debt, such as payment of interest, installments or
furnishing a pledge or guarantee (CO Art. 135).
18

IX. Special types of contracts

A. General remarks
Swiss law divides the 'Law of Obligations' into a 'general' and a 'special' part.
The general part covers (among other subjects, such as the law of torts and claims arising
from unjust enrichment; CO Art. 41 et seq. and Art. 62 et seq.) the general rules of contract
law as exposed above under pars. III-VII, while the special part is mainly reserved for the
particulars of special types of contracts, i.e. the following:
sale and barter (CO Arts. 184-238);

gifts (CO 239-252);
letting and hire, lease (CO 253-304);
loans (CO 305-318);
contract of employment (CO 319-362);
contracts of manufacture (CO 363-379);
publishing contracts (CO 380-393);
the agency contracts, such as ordinary agency (CO 394-406), letters and orders of
credit (CO 407-411) and brokerage contracts (CO 412-418);
conducting business on behalf of a third party without request (CO 419-424);
commission (425-439);
contracts for transportation (CO 440-457);
procuration and other commercial powers of representation (CO 458-465);
order to pay to third party (CO 466-471);
contracts of deposit (CO 472-491);
contracts of suretyship (guarantee) (CO 492-512); gambling contracts (CO 513-515);
annuity agreements and contracts for lifelong support (CO 516-529) and
simple partnerships (CO 530-551).
The lawyer from an English-speaking country may be startled by the fact that this long list of
specific types is set out and covered with detailed rules by legislation.
In the Common Law areas, the problems related to such contracts are to a great extent
solved by recourse to general principles of the law of contracts while under Civil Law many
aspects of the law of contract are related to the traditions of the specific types of contract.
Their catalogue reflects the Roman Law tradition with its contractus, whereby only contracts
corresponding to a type in the series of the system were valid in every respect. Thus, the
actual contract law of Switzerland is characterized by a double influence:
First, the general rules of contract of any type (described above under pars. III-VII) are
determined by the legal ideas of the seventeenth and eighteenth centuries of the
Enlightenment with its concept of freedom of contract and the pacta sunt servanda rule (all
contracts, regardless of their content and of the possibility of their attribution to one of the
preformed types are equally binding).
19

Secondly, it is influenced by the Roman Law tradition with its list of types of contracts and
the specific rules governing each type; however, not adopting the Roman rule that
agreements are only fully binding if qualified as a contract, i.e. being in conformity with one
of the available types (see I D above ).
This combination of two principles has many advantages, and indeed the rules as presented
in the context of special types of contracts and developed for specific practical problems in a
legal tradition of innumerable centuries are of great help and provide adequate practical
solutions not deducible from general principles of contract.
On the other hand, it may be added that the combination of the two systems of different
historical origin presents an intrinsic contradiction with which jurisprudence and legal
literature did not yet fully cope with.
Regarding contracts which combine elements of different types (mixed-conctracts),
regularly the question is put the way as to whether such a contract is to be qualified as of
type A or type B. In resolving the above problem it would be more appropriate to adopt an
approach which admits the possibility of an intermediate solution, i.e. a contract which is at
the same time partly governed by the provisions of contract type A and partly by those of
contract type B.
Such a concept is the only way to realize the principle of freedom of contract, which means,
inter alia, that parties are free to depart from the types of contracts offered by the Code.
In the following, only a few remarks with respect to a selected number of types of contracts
are made.
B. Sale (CO Arts. 184-236)

l. The content of the contract and passing of title.
The contract for the sale of any goods creates the obligation of the seller to deliver it and of
the purchaser to pay the price agreed, but does not transfer the ownership to the purchaser.
The ownership regarding movable goods passes at the moment of their physical transfer
(under condition the parties intend the simultaneous transfer of dominium), in case of a sale
of land by inscription in the register.
Nevertheless, when an individualized object is sold, the risk of loss passes at the moment of
the conclusion of the contract, i.e. the buyer must pay the price even if the goods perish or
deteriorate before delivery (CO Art. 185).
The contract for the sale of movable goods does not require any specific formalities, i.e. may
be agreed orally or even without explicit declaration.
Special provisions have been introduced in order to prevent misuse in sales payable by
installment and in similar transactions (CO Arts. 226-228).
20

Contracts for the sale of land must be effected by deed, i.e. a notarial instrument (CO Art.
216) to be established at the place of the real estate.
Switzerland has adopted the UN convention for the International Sale of Goodsof 1980
(CISG, par.4 below).
2. Warranty for defective goods
Under practical aspects the most important provisions of a sale contract refer to the
warranty for defects of the delivered goods (CO Art. 197).
The general rules of non-performance (as exposed, VII above) apply exclusively in case the
goods sold are not delivered in due course.
Once delivered, possible defects of the goods are not considered to be a form of nonperformance of contractual obligations, but a situation for which the Code is granting
specific remedies.
In compensation the buyer has choice between the claim to a reduction of the price (actio
quanti minoris, Minderung/action en reduction du prix) and the request to rescission of the
whole transaction (actio redhibitoria, Wandelung/action rdhibitoire), the latter being
possibly combined with a claim for damages (CO Art. 205 I).
If the defects are of minor importance, the judge may against the buyer's decision grant only
reduction of the price (CO Art. 205 II), a rule which is peculiar to the Swiss code and not
existing elsewhere.
The claims of the buyer presuppose that he has upon reception of the goods immediately
inspected them and that he has given notice of the defects to the seller (CO Art. 201).
If the defects are not perceptible in a normal inspection, he may give notice when they have
subsequently become apparent. Defects which do not appear within the period of two years
from the delivery give no cause of action against the seller if he has not stipulated a
contractual warranty of a longer period (CO Art. 210 I).
If the sale is for the delivery of fungible goods the buyer may, instead of rescission or
reduction of price, claim the delivery of goods in conformity with the contract (Art. 206 CO).
If the fungible goods differ substantially from the contract in the sense that they must be
regarded as a thing incompatible with the contract (aliud, another thing), the delivery is
considered as nonperformance (breach) in the sense of par. VII above.
3. The Vienna Convention on international sale
Switzerland adopted the UN Convention on Contracts for the International Sale of Goods of
April 11, 1980 (CISG) as per March 1, 1991.
21

This codification has influenced the understanding of the Sale of Goods contracts in general
insofar as its specific concepts deviate from the tradition of this contract in the codifications
of the continental tradition. Civil law is deeply rooted in the Roman tradition which is
focused on the sale of individualized items, thereby neglecting the sale of goods of a given
genus (mass-products from agricultural or industrial origin).
The former type of contract still exists and finds perfect regulation in the Roman concept of
sale and the thereon based codifications. In modern times such contracts are comparatively
few in number; far more important is the type of contract which in the English tradition is
called, very much to the point, "sale by description" (i.e. the sale of all mass products of
agriculture and industry, crude, coal etc.).
C. Letting and hiring (rent) (CO Arts. 253-274g)

The general rules governing the contract of rent (Miete/bail) apply both to the rent of
movables and immovables.
The actual law is characterized by the reform of 1989, in effect since July 1, 1990, which
extended largely the protection of housing tenants.
Rules allowing control of rentals are established (CO Arts. 269-270e) and the possibility of
the owner to terminate the rent is restricted.
D. Contract of manufacture (Werkvertrag/contrat d'entreprise) (CO Arts. 363379)

This type of contract, which follows the Roman law tradition of locatio conduction operis has
no precise equivalent in the Anglo-American law.
Its main characteristics are the obligation of the contractor (enterpreneur) to produce a
certain effect or result and his strict bearing of risks.
If he is not in the position to produce the result as promised, he has no claim for the price,
even if the failure is not caused by his fault.
The 'result' to be produced by the contractor may vary widely.
The construction of a building or other work may be the kind of result mainly contemplated
by the CO, but according to the Swiss Federal Tribunal even the showing of a film or the
staging of a spectacle may be considered to form the object of this type of contract.
E. Agency (mandate) and similar types of contracts (CO Art. 394)

Agency, which is also known as mandate (Auftrag/mandat) is the type of contract of the CO
influenced by the Roman law tradition more than any other.
22

The main feature of the contract is the rule of loyalty and faithfulness between the parties
(see the Latin origin: mandatum from manum dare, give the hand, sc. in order to affirm the
mutual intention of good faith).
The main duty of the agent is to safeguard the interests of the principal.
He has to follow the instructions of the principal but remains responsible for the effects of
his own acts. He is obliged to oppose if the principal is giving inadequate instructions.
Often the agent is the person with more knowledge or skills than the principal who therefore
merely indicated the desired aim, while it is the agent's duty to determine the appropriate
means to reach it.
The agent should transfer to the principal the result of his activity, whereas the principal
owes compensation for disbursements, etc. (the actio mandati contraria).
In Switzerland, mandate is therefore the traditional type of contract governing the activities
of lawyers, doctors, etc. but applies in addition to all contracts obliging to whatever activity
in favor and interest of the partner.
A basic rule of the Roman mandate, preserved in Switzerland as well as in Germany (BGB
671 I), France (Fr. CC Art. 2003) and most places of the Civil Law area, is the principle of
revocability, i.e. the power of either party to terminate the contract at any time (CO Art. 404
I).
This principle is even maintained when an immediate termination of the mandate causes
damage to the other party; but in that event compensation is still due by the terminating
partner (CO Art. 404 II).
See e.g. ATF 109 II 38, 80 II 34, 70 II 218.
23

PART II: TORTS

I.
Introduction
A. The Concept
In a general sense, civil responsibility, or liability, denotes the obligation imposed on a
person to repair the tort caused to another party in violation of his legal or contractual
obligations.
There is little distinction between tortious and contractual liability. This is also true in the
insurance context, as civil liability insurance may cover all damages caused to others.
In a strict sense, civil liability only relates to obligations resulting from an unlawful act,
excluding those arising from contract violation. In this chapter, civil liability will be used in
this strict sense.
Civil liability is closely related to insurance, whether public or private. The insurer is, in fact,
bound to repair the tort caused to another party based on the contract concluded with the
insured. In spite of the close relations which exist in civil liability, this aspect will not be
treated in this chapter.
B. Distinctions
1. Civil Liability and Criminal Responsibility
In Switzerland, criminal responsibility is regulated by the Federal Penal Code. It is usually
submitted to judicial authorities named by cantonal law. In principle there is complete
independence between criminal responsibility and civil liability: a civil court is consequently
not bound by decisions of the criminal court (Art. 53 CO).
There is, however, a de facto interdependence: the injured party may present a claim for
civil damages in the criminal action (joint action).
The conditions of such a joint action are determined by the criminal and civil procedures
codes. However, in practice, injurers often expect a certain prejudicial effect from penal
decisions when their result is an acquittal.
2. Civil Liability and Public Liability
Swiss law attaches considerable importance to the distinction between public and private
law. Consequently, civil liability can only concern relations between private individuals.
The State (the Confederation or the cantons), the communes and public corporate bodies
are therefore not subject to the rules of private law.
24

These rules of private law apply, however, to industrial activities of state servants and
officials (art. 61 CO). The State is also potentially liable and subject to private law for its
constructions (road and others).
The liability of the State is regulated by various provisions of federal and cantonal law. At the
federal level, the most important text is the Federal Statute of 14 March 1958, regarding the
liability of the Confederation. The liability of the army is dealt with in Article 135 et seq. of
the Federal Law of 3 February 1995 on the Army and the Military Administration.
3. Civil Liability and Contractual Liability
Civil liability, in its strict sense, is different from contractual liability. Similarities between the
two types of liabilities exist, though.
The extent of the awarded damages is based on the same rules (referral in Art. 99 III CO).
Nonetheless, contractual liability is different in some ways, mainly concerning the
conditions, vicarious liability and the statute of limitations.
C. Sources
1. General Sources
The general provisions on civil liability are stated in Articles 41 to 61 CO. They form chapter
Two of Title I of the code, which is devoted to the origin of obligations.
2. Special Rules
An increasing number of special provisions deal with particular cases of liability. These
provisions are found either in the Civil Code (e.g. Arts. 45, 92, 231, 333, 426 CC), in the Code
of Obligations (e.g. Art. 152 et seq., 928, 942 CO), or, most frequently in special laws.
Traditionally these rules merely set forth only the conditions for liability. In contractual
claims, the actual damages awarded are determined by the Code of Obligations (Art. 42 et
seq. CO).
The statute that plays the largest part in practice is unquestionably the Federal Law of 19
December 1958, on Road Traffic; the other relevant statutes will be presented in sections II C
and D hereunder.
Conflict of Law rules with respect to civil liability are now regulated in Articles 129 to 142 of
the Federal Law of 18 December 1987 on Private International Law.
II.Conditions of civil liability

25

A. General Conditions
Civil liability presupposes in all cases three conditions that;
(1) the victim has suffered a tort;
(2) there is a causal link between the loss and the act to which liability is attached,
and finally;
(3) that the elements for a cause of action have been satisfied.
1. Damage
Except for the special cases treated below (section E), in which damages are awarded for
immaterial loss (pain and suffering: tort moral/Genugtuung), every action in tort requires
that the plaintiff suffers financial loss, i.e. damage.
Damage is defined as the reduction of a persons wealth against his will. Thus, it represents
the difference between the state of the patrimony (all assets, liabilities and possible
earnings) as it would be if the tort had not occurred and its actual state.
Distinctions have to be made between different types of damages, for practical and for
classificatory purposes. Such distinctions are e.g. the one between the actual loss (damnum
emergens) and the loss of possible earnings (lucrum cessans) or the one between bodily
damage (resulting from bodily harm), material damage (resulting from damage to property),
and other damages sometimes called pure economic loss.
Damage is only compensated if the following three conditions are given:
the damage must be reasonably certain, which implies that the injured person must
be able to establish its existence or at least its probability (cf. Art. 42 II CO);
the damage must be personally suffered, which excludes third persons claiming
compensation of loss that someone else has experienced (e.g. an association claiming
damages caused to its members);
and finally, it must be direct, that is, it must affect the person who has been the
victim of the injury; persons who are only affected by the consequences of an injury
(e.g. employer) cannot receive damages unless a statute explicitly provides the
contrary (cf. Art. 45 III and 47 CO).
2. Causation
The defendant is only bound to compensate the damage if there is a causal link between the
fact of act, on which the liability is based, and the damage.
This question requires a two-step analysis.
26

First, the factual causation deals with the issue of whether the first event is a necessary
condition of the second (conditio sine qua non); the consequence would not have happened
but for the first event. This is a question of fact. Second, the causation has to be adequate
(proximate cause). It would be inequitable to make all the persons who played a role in the
causal chain bear the damage.
In order to limit liability, it will only be established if it arises from an act which, according to
the ordinary course of events and experience is likely to produce an effect of the kind which
has occurred, so that the act in question appears, in general, to have contributed to the
effect. This is a question of law that the judge must evaluate in relation to the concrete
circumstances and the aim of the liability.
Adequate causation, in particular, is interrupted by any of the following:
(l) force majeure, an unforeseeable, extraordinary event occuring with irresistible force;
(2) the exclusive fault of the person injured;
(3) the exclusive fault of a third party.
These intervening acts, however do not preclude liability unless their seriousness is such that
it renders minor the causation linked to the act giving rise to the liability.
3. Cause of Action
A person is only liable for a damage if the liability can be founded on a cause of action.
According to this condition, liability can be classified into three categories:
- Aquilian liability (liability for fault), derived from the lex aquilia of Roman law, is the
general principle of liability.
This liability is founded on the fact, that the defendant has committed an unlawful act by
fault.
- Simple objective (or simple causal) liability presumes the objective breach of a duty of
diligence.
The defendant can prove that such a violation did not occur in order to escape liability.
This type of liability applies to the employer, the head of a family, the owner of an animal, or
the owner of a building.
- Liability for risk (aggravated objective/causal liability) applies to situations in which
particular risks are created.
27

Such a risk exists e.g. in the case of the owner of a motor-vehicle, the operator of a transport
enterprise, the operator of nuclear installations or the hunter.
B. Aquilian Liability
Article 41 of the Code of Obligations states the following prerequisites for Liability:
Whoever unlawfully causes damage to another, whether willfully or negligently, shall
be liable for damages.
Equally liable for damages is any person who willfully causes damages to another in
violation of bonae mores.
This category of liability applies in an extremely vast field, first, because it is not limited to
certain injuries, second, because a great number of statutory provisions make references to
it, and finally, because the principle is often used in special provisions.
In addition to the damage and the causal link, the plaintiff must prove that the defendant
committed a fault and acted in an unlawful manner.
1. Unlawfulness
According to case law, unlawfulness has two aspects:
first, the violation of a rule protecting individual interests of the victim and
second, the absence of a legitimate cause to do so.
(a) An act is unlawful whenever it breaches a general legal duty in one of the two
following forms.
Either it violates the absolute rights of a person (rights operating against everybody,
e.g. property, personality, physical, mental and moral integrity) or it infringes a rule
which is designed to protect the victim's interest and to prevent the damage that the
victim has suffered. Such a protective rule can be written or unwritten, based on
cantonal or federal public or on private law.
(b) A breach of the general duty thus described in one way or another may be justified
in special circumstances and ceases therefore to be unlawful.
Such a justification occurs when the victim has consented to the act (volenti non fit
injuria: art. 44 I CO), in so far as the consent was valid. Other special circumstances,
justifying even the use of force, are in particular legitimate defense (art. 52 I CO),
cases of necessity (art. 52 II CO, cf. also art. 57 II CO).
28

According to art. 41 II CO, liability does not require unlawfulness as defined above, if
the tortfeasor intentionally causes damage contrary to good morals. As
unlawfulness is interpreted quite broadly, this provision is generally applied
restrictively. Its main role is in the field of interference with a contract.
2. Fault
Fault is defined as the reproach that the defendant failed (intentionally or negligently) to
fulfill a duty of diligence imposed by the law.
In order to address a reproach to a natural person, it is sufficient that the person has the
capacity to make reasonable judgments (art. 16 CC). It is not necessary that the person be
able to exercise his rights (art. 12 CC). For this reason, minors and persons deprived of
exercising rights but able to make reasonable judgments are held responsible for damages
caused by their unlawful acts (art. 19 III CC).
In the case of corporate bodies, fault is determined by the wrong committed by their organs
or agents (art. 55 II CC), i.e. the persons linked to the corporate body who exercise and
activity essential to the functioning of the corporation and who occupy management
positions.
A distinction is made between intentional fault and negligence. In the first case, the
tortfeasor desired the unlawful result. In the second he did not act with sufficient diligence
to have prevented it. This distinction plays only a secondary role, as the tortfeasor must in
principle answer for any fault, including very light fault (cf. Art. 99 I CO for contractual
liability). The standard of diligence imposed by law is set in an objective way, by comparison
to the reasonable person in similar circumstances.
C. Simple Causal Liability (Simple Objective Liability)

The common element of all liabilities grounded in this category is that implying an objective
lack of diligence, liability exists even if the tortfeasor has not committed a fault in the strict
sense. This is why he is also liable for the act of a third party or for the consequence of an
accident.
The law states the following liabilities:
1. Liability of the Employer
Under the terms of Article 55 I CO, the employer shall be liable for damages caused by
his employees or other auxiliary persons during the performance of their work, unless he
proves that he has taken precautions appropriate under the circumstances in order to
29

prevent damages of the kind, or that the damages would have occurred in spite of the
application of such precautions. This provision describes a general standard of liability for
the act of another which applies whenever a person employs an auxiliary to carry on an
activity and damage is caused to a third party by this auxiliary.
In addition to the general conditions of damage and causation, this liability presupposes
that the following four conditions are present:
(a) An employer must have required a subordinate (called an auxiliary) to accomplish a
task. The quality of employer supposes personal subordination of the auxiliary, i.e.
the employer has the duty to supervise the one who acts.
(b) The auxiliary must have committed an unlawful act (as defined above).
(c) This act must have been committed during the performance of the work. There
must consequently exist a direct, functional relation with the accomplishment of the
work.
(d) Finally, the employer must have failed to supply the exculpatory proofs offered by
the law: he is relieved, if he succeeds to prove that he has chosen his auxiliary with
due care (cura in eligendo), that he has trained him adequately (cura in instruendo),
and that he has supervised him adequately (cura in custodiendo).
2. Liability of the Head of the Family

Under the terms of Article 333 I CC, the head of the family is liable for any damage caused
by minors, by persons deprived of exercising rights, and by persons feebleminded or
suffering mental illness who have been placed under his authority, unless he can prove that
he has supervised them in the usual manner and with the attention required by the
circumstances.
This cause of action, inserted in the part of the Civil Code concerning family law, assumes
that the following conditions are met:
(a) A head of the family must exist, i.e. a person who exerts domestic authority over
minors, persons deprived of exercising rights, mentally ill persons and feebleminded
persons living together with him (or her). This may be the father, mother, a third
party or even a legal entity, so long as there is a general obligation to supervise the
minors or others requiring similar care.
(b) the person placed under the domestic authority of the head(s) of the family must
have caused a damage unlawfully.
(c) The head of the family must have failed to establish the exculpatory proof, i.e.
having exercised sufficient supervision.
30

3. Liability of the Keeper of an Animal

Under the terms of Article 56 I CO, the keeper of an animal is liable for the damages caused
by it unless he proves that he has taken all precautions appropriate under the circumstances
as to its custody and supervision, or that the damage would have occurred in spite of the
application of such precautions''
Once again liability is based on insufficient supervision.
In addition to the general conditions, the following conditions must be present:
(a) The person whose animal has caused the injury must be a keeper, the person who
exerts power (by law or de facto) over the animal that put him in a position to take
the necessary steps to prevent the injuries which the animal may have caused.
(b) The injury must have been caused by an instinctive act of the animal, which excludes
the possibility that the animal served as an instrument in the hands of man.
(c) Finally, the keeper must have failed to establish the exculpatory proofs allowed by
the law.
4. Liability of the Owner of a Building

Under the terms of Article 58 I CO, the owner of a building or other constructions shall be
liable for the damage which is caused due to its faulty design or construction, or due to
inadequate maintenance''.
This general standard of liability for the ownership of an object is limited to things
immovable.
In addition to the general conditions, the following conditions must exist:
(a) The defendant is the 'owner' at the moment in which the damage occurs. This notion
must generally be interpreted within the domain of property rights (Art. 641 CC). The
courts admit the liability of the person who has it at his/her disposal only in
exceptional cases (e.g. limited property, public property);
(b) There must be a building, that is, any man-made object or group of object, durably
fastened to the ground. This concept has also been interpreted broadly. It is
sufficient that the object be attached to the ground and that it be created, modified,
placed or arranged by human hands. This includes buildings, roads, dams, canals,
pools, ski trails, and similar.
31

(c) Finally, the building must have a defect, i.e. it is not safe enough for the expected
use. Thus, the owner did not respect, from an objective point of view, his duty of
diligence. The defect may arise from faulty construction or insufficient maintenance.
5. Liability of the Owner of Land

Under the terms of Article 679 CC, where damage is caused or threatened by an owner of
land who exceeds his rights of ownership, the party injured can apply for a court order
providing that the damage shall be made good or for an injunction to restrain the
continuance of the wrong and for damages to be paid as compensation.
This provision has been interpreted as creating a case of objective liability. In addition to the
general conditions, the following conditions must be fulfilled:
(a) The defendant must own the land. According to case law, the claim cannot only be
directed against the owner in the sense of property rights, but also against the
holders of personal rights (tenants farmer, tenant, etc.).
(b) The damage must be caused by an exercise of property rights. As soon as the
property rights are exercised in any way (by human action, but no necessarily by the
owner) over the limits set by law to property of land (Art. 684 et seq. CC), the
damage resulting from it must be repaired. In some cases, the courts have even
awarded damages if the behavior stayed within the legal limits (e.g. construction
works).
6. Liability for Defective Products
The Federal Law on Product Liability of 18 June 1993 (LRFP)1 takes over the regulation of the
European Directive on the same subject.
Therefore, many general principles of Swiss tort law do not apply to this special type of
liability (e.g. statute of limitations).
Liability based on this statute implies the following conditions:
(a) The damage must be caused by a defective product. Only movables (but even
electricity !), are considered as products (Art. 3 LRFP). Products are defective, if they
are not as safe as one could expect according to the circumstances (Art. 4 LRFP). The
nature of the defect does not matter (construction, fabrication, instruction of the
user). If it was impossible, at the moment when the product was sold, to detect the
defect or if the defect simply did not exist at that moment or if the defect is due to a
stature, the defendant is not liable for the damage (Art. 5 LRFP).
R.S. 221.112.994 ; Loi fdrale sur la responsabilit du fait des produits
32

(b) The loss must be due to a personal injury or damage to property. Compensation for
purely economic loss cannot be founded on this statute (Art.1 LRFP). The damage on
the product itself is also not compensated.
(c) The Federal Law on Product Liability establishes the liability of the manufacturer
defined as the person who produces the product, the one who presents himself as
such, the one who imports the product within his commercial activity or, if no such
person can be found, the one who furnished the product (Art.2 LRFP).
The manufacturer can exclude his liability by proving that he has not put the product
on the market or that he did not produce or sell the product within his commercial
activity (Art. 5 LRFP).
7. Liability of Persons Incapable of Making Reasonable Judgments
Where liability is founded on fault, a person can only be held liable if he/she has the capacity
of making a reasonable judgment.
An exception to this principle is stated in Article 54 I of the code of obligations: A judge may
determine in equity that a person who has caused an injury shall be liable for partial or full
damages even if such person is incapable of making a reasonable judgment".
The condition of fault, linked to a moral reproach, is replaced by equity. The courts apply this
provision whenever it appears reasonable to have the tortfeasor bear all or a part of the
loss. This occurs if he has sufficient financial means or if he or she has taken out insurance
covering the damage caused.
D. Liability for Risk (Aggravated Objective Liability)

All aggravated objective (strict) liabilities are characterized by the fact that the legislature
has attached the duty to remedy the injury due to the exercise of a particular activity,
presumably dangerous.
Even if such a dangerous activity is allowed because of its utility, those, who engage in it in
their own interest have to compensate all injuries that the dangerous activity may cause,
whether they exercised due diligence to avoid the damage or not.
The one who creates the danger should bear the risks. The number of these strict liabilities
has been increasing in Swiss law, the legislature responding to the industrial and technical
development.
Under current legislation, liability for risk is limited to the fields covered by a special statute
providing it. In practice, the most important case is the liability of the vehicle owner.
1.
Liability of Vehicle Owners

33

The liability of owners of automobile vehicles is primarily regulated by articles 58 to 89 of
the Federal Law of 19 December 1958, on Road Traffic (LCR) which have been partially
revised by a statute of 29 March 1975.
The general rule on this liability is stated in article 58 I: if, as a consequence of using an
automobile vehicle, a person is killed or injured or material damage is caused, the owner is
liable for damage.
In addition to the general conditions, it is consequently necessary that the following
conditions be fulfilled:
(a) The person liable must be the owner, i.e. the person who exercises effective control
over the vehicle and employs it for his own use and at his own risk.
The law extends this qualification to managers of a business in the automobile field
for the vehicles in their charge (Art.71 I LCR), to organizers of racing events for
damages caused to third parties (Art. 72 LCR), as well as to anyone who has
unlawfully taken possession of a vehicle (Art. 75 I LCR).
(b) The damage must result from bodily harm or material loss. Recovery of purely
economic loss is not possible.
(c) The damage must be caused by the specific risk resulting from the use of the vehicle,
i.e. a machine which moves on earth by its own motor-force (Art. 7 LCR). A vehicle is
used as soon as the mechanical parts of the vehicle (motor, even lights) are in
function.
The owner is liable without fault only if the damage is caused by the risk resulting
from the use of the vehicle, but not for the damage happening 'at the occasion' of
the use (e.g. slamming the door). In the latter case, the owner is only liable if he is at
fault or if the damage is due to a defect of the vehicle (Art. 58 II LCR). The fault or the
driver is imputed to the owner (Art. 58 IV LCR).
This system of liability is supplemented by an obligation to be insured: 'No automotive
vehicle can circulate on public roads before civil liability insurance has been obtained...' (Art.
63 I LCR).
This insurance covers the civil liability of the owner and that of persons for whom he is
responsible. It shows two characteristics:
(a) The injured party maintains a direct action against the insurer, within the limit of the
sums provided for in the insurance policy (Art. 65 I LCR).
34

(b) The insurer may not defend an action of an injured third party with the exceptions he
could assert against the insured (Art. 65 II), which does not prevent him, after he has
paid, from claiming against the insured or the policy owner.
2.
Other Objective (Strict) Liabilities
There are a large number of special provisions establishing a system of objective (strict)
liability for particular risks.
It is only possible to list a few of these here:
The liability of railroad enterprises according to the Federal Law of 28 March 1905, on the
Civil Liability of Railroad and Steamboat Enterprises and of the Postal Service which includes
railroads, boats and other enterprises operating under concessions (cable cars, cable
railways, and other means of transport).
The liability of corporations operating electrical installations, under Articles 27 to 41 of the
Federal Law of 24 June 1902, concerning Electrical Installations of Low and High Voltage.
The liability of airline companies under Articles 64 to 79 of the Federal Law of 21 December
1948, on Air Transport. This liability only concerns damages caused in flight to persons and
property on the ground, which excludes the loss caused to passengers.
The liability of operators of atomic centers is ruled by a Federal Law of 18 March 1983
(LRCN), which presents the surprising characteristic of imposing upon operators an unlimited
liability; obviously, on the other hand, the insurance which completes it is limited, although
the Confederation accepts to cover amounts exceeding this coverage, but only up to a
maximum amount of CHF 1 billion.
The liability of pipeline enterprises according to Article 33 to 40 of the Federal Law of 4
October 1963, on Installations for Transport of Liquid or Gaseous Combustibles or Motor
Fuel through Pipes.
In 1997, the Article 59a of the Federal Law of on the Protection of the Environments of 7
October 1983, as amended on 21 December 1995 (LPE) has replaced previous provisions in
special areas (protection of water).
It generally establishes that the owners of installations and enterprises, which are dangerous
for the environment, are liable for damage caused by the realization of this danger, unless
the damage is caused by a third person or by force majeure.
This provision mainly relates to enterprises that treat dangerous substances, the disposal of
waste and water-pollution liquids.
The law only applies to damages caused by an effect to the environment in the sense of
Article 7 I LPE (noise, vibration, pollution), but not to direct damages.
35

Damages to the environment itself are explicitly excluded, only the Federal Law of 21 June
1991 on Fishing provides an exception.
The LPE reserves all special provisions which are stricter than Article 59a.
The liability for the practice of hunting is ruled by Articles 15 and 16 of the Federal Law of 20
June 1986 on Hunting and on the Protection of Wild Mammals and Birds.
The liability linked to the use of explosives according to Article 27 of the Federal Law of 25
March 1971 on Explosive Substances.
E. Indemnity for Pain and Suffering (Tort moral/Genugtuung)

The law does not limit possible remedies to the damage defined above (II A 1).
It also provides for reparation of moral damages. This expression is to be understood in its
broadest sense and designates all physical or moral sufferings that a person sustains as the
result of an unlawful injury to his personal interests.
This reparation is, in principle, subject to the same conditions as remedies for material
damage, the condition of damage being replaced by the condition of moral damage.
The following distinctions need, however, to be made.
1. In Case of Bodily Injury or Death
A person who is a victim of an injury to his or her bodily integrity may present a claim for a
sum of money as moral compensation for the pain to which he has been subjected, and
particularly, for any which he may still suffer because of his injuries (Art. 47 CO).
The same provision also recognizes that close relatives of a deceased person are entitled to
recover compensation for suffering which they undergo as a result of the death; this right
normally extends to the spouse, parents, children, possibly to brothers and sisters, and on
rare occasions to others.
The courts now admit, thus completing the legal system, that the next of kin of a person who
is severely affected in his physical or mental integrity may also obtain a sum of money as
reparation of moral damage.
2. In Case of Other Personal Injury
Any person who suffers an unlawful injury to his personal interests may demand reparation
of a moral damage (Art. 49 CO).
36

This concerns mainly cases of injury to one's honor, violation of one's privacy and injury to
one's sentiments of affection.
Since the revision of the law on individual inherent rights in 1985 (Art. 28 et seq.CC), such
reparation is subject to the same conditions as the liability for the damage; in any event, it
must be established that the victim has suffered a prejudice severe enough to justify a
compensation.
III. Effects of civil liability

A. General Principles
When the conditions of civil liability are fulfilled, the injured party can claim damages (or
indemnity for pain and suffering) against the person liable.
This action leads to the payment of a sum of money, or, rarely, to reparations in kind.
To determine the damages to be paid by the person liable, the judge starts to establish the
damage that the victim has actually suffered.
He then sets the amount of the damages owed, taking into consideration different
circumstances.
In no case the victim can obtain a sum greater than the damage which he has actually
suffered.
It should be noted that an action for damages or for reparation of a moral tort only tends to
offset the consequences of a past injury.
To prevent or put a stop to a present injury there are other means provided for either in
Article 28 of the Civil Code, dealing with the protection of the personality, or in the
corresponding provisions concerning the protection of property rights (Arts. 641, 679 CC).
Anyone who desires to bring suit to prevent or stop the tortious act has to prove only that
there is an unlawful injury. He has no need to establish fault or another cause of action
against the defendant.
B. Evaluation of Damage
1. In General
According to the definition given, damages are measured by the difference between the two
states of the patrimony which would have existed had the injury not occurred and that
which actually exists.
37

This amount is thus determined, not only by the value of the possession damaged, but also
by the patrimonial interest which it represented to the victim.
Following this reasoning, the victim must allow the amount from which he has benefited by
reason of the injury to be imputed when determining the damage award (compensation
damni cum lucro).
If a person's vehicle has been destroyed, he is entitled to the value of the vehicle less the
value of the wreck. Furthermore, he is entitled to damages for the other losses which he
may suffer while awaiting the replacement of his car.
Similarly, the party sued may deduct from the amount of damages the sums which the
victim receives from insurance (if the insurer can exercise the right of recovery against the
person liable).
The same applies in the field of public insurance (cf. Art.41 LAA) and property insurance (cf.
Art. 72 LCA).
2. Some Special Cases
The Code and court decisions have established a certain number of rules for determining
particular damages.
a. Material Damage
Material damage includes not only the value of the object which has been damaged or
destroyed, but to a certain extent the interest which the victim has in using the object. This
is why liability includes not only reparation or replacement costs, but also, with exception,
other damages linked to the replacement of that object (e.g. costs of renting a replacement).
b. Bodily Injuries
According to Article 46 CO, the victim first has the right to be reimbursed for all medical and
hospital expenses connected with his treatment.
He then is entitled to reimbursement of lost wages or profits.
In case of lengthy invalidity the judge must also award compensation for loss of earning
capacity. Consequently, he must estimate the reduction of future earnings that the victim
will actually suffer by reason of his physical impairment.
The victim should receive this amount allocated in the form of an income. In practice, it is
customary to estimate the income due by applying the tables established by M. Schaetzler
and S. Weber.
c. Death
38

The party who caused the injury in the event of death only has to pay the costs directly
linked to the death, particularly the funeral expenses (Art. 45 I CO).
The law however, permits third parties, who received or who would have received support
payments from the victim to demand payment of the loss from which they suffer (Art. 45 III
CO).
In order to determine the amount owed for loss of support, the judge must again estimate
the portion of the revenue of the victim that would have been paid to the plaintiff and
capitalize the amount on the basis of the Schaetzle/Weber tables.
C. Setting Damages
The maximum amount of the damages awarded by the judge cannot exceed the amount the
victim has suffered and the amount he has claimed.
It is forbidden under Swiss law to charge the person liable with punitive or exemplary
damages.
On the contrary, starting with the actual damage suffered, the judge must set the indemnity
taking into account all circumstances, especially the fault of the tortfeasor (Art. 43 I CO).
In particular, he can reduce the indemnity in consideration of contributory negligence or
other circumstances (Art. 44 CO).
1. Circumstances for which the Victim is Responsible
Under the terms of Article 44 I CO, 'The judge may reduce or completely deny any liability
for damages if the injured party consented to the act causing the damage, or if
circumstances for which he is responsible have caused or aggravated the damage, or have
otherwise adversely affected the position of the person liable.'
The most usual case is that in which the victim himself has committed a fault, i.e.
contributory negligence.
Contributory negligence is evaluated according to the same rules as the fault of the party
causing the injury itself and requires especially the capacity of making reasonable judgment.
When a fault is so serious as to be exclusive, the judge can refuse all compensation by virtue
of the rules of adequate causatlon.
2. Other Factors of Reduction
There are other factors that the judge should consider. He may reduce indemnity if, in the
case of aquilian liability, the tortfeasor committed only a very slight fault (At. 43 I CO), or if
the damage has been caused or aggravated by a fortuitous event.
39

The judge may also take into account economic and social considerations: he may decrease
the amount of the compensation if the victim had a particularly high income (cf. e.g. Art.62 II
LCR), or reduce the amount when the payment will cause financial distress to the debtor
(Art.44 II CO).
D. Particularities of the Indemnity for Pain and Suffering

A person who had suffered a moral tort (see II E above) can claim for a financial indemnity.
To a certain degree, this should permit compensation of the suffering that the plaintiff has
experienced.
In order to determine this indemnity, the courts base their decision on amounts awarded in
comparable cases.
Generally, the amounts awarded for reparation of moral tort are relatively low, even if they
are slowly increasing. In case of death, the indemnity varies usually between CHF 10,000 and
40,000; in case of injury they can be higher, but they rarely exceed CHF 100000.
The law also recognizes other forms of reparation or sanctions (Art. 49 II CO), such as the
publication of the judgment (mainly in case of an attack by the media) or the payment of an
indemnity to a charitable organization. Such forms of reparation are very rare, though, as in
the case of the media other means are available (Art. 28g CC).
E. Concurrent Liabilities
Where several tortfeasors cause the same damage to one plaintiff, they are both liable for
the whole damage. In this respect, the law distinguishes the following two situations.
1. Perfect Solidarity (Joint Liability)
In tort law, perfect solidarity between more than one tortfeasor applies only if the law states so (Art.
143 II CO).
In that case, the plaintiff can act against any of them and require compensation for the entire injury.
The one who has paid the victim can then act against the other persons, who jointly share a part of
the liability. There are two main examples in the field of tortious liability:
(a) By virtue of Article 50 CO, joint liability exists between two persons when they have caused
damage by joint fault. Consequently, it is necessary that they acted in concert or at least that
there was tacit agreement in their behavior (Art. 50 I).
(b) Several other provisions likewise institute liability among several persons even when they
have not acted in concert. This is particularly the case for all persons who have together
caused damage in an accident involving an automobile vehicle (Art. 60 LCR).
2. Conjunction of Actions
40

When two persons have caused an accident without having acted in concert and are liable on
different grounds, the law applies a somewhat different solution, which is called conjunction of
actions or imperfect solidarity (several liabilities Art. 51 CO).
Even if that is not a case of joint liability strictly speaking, the victim has an action against each of the
responsible persons. The statute of limitations runs separately for each liable person. The other
practical differences are very small.
IV. CLAIM FOR DAMAGES

A. The Rules on the Statute of Limitations
In the field of tortious liability the legislature has adopted a few particular rules on the
statute of limitations. The system is not uniform, and distinctions must be made between
general and special rules.
1. The General Rules
They are stated in Article 60 CO, which makes a distinction between three periods:
- The ordinary term is one year running from the date when the damaged person received
knowledge of the damage and of the identity of the person liable for it.
- The subsidiary term of ten years runs from the date when the act causing the damage
occurred.
- The extraordinary term reserved by Article 60 II CO applies when the claim results from an
illegal act which, according to criminal law, is subject to a longer statute of limitations.
2. The Special Rules
There are numerous rules establishing the date at which the statute of limitations will begin
to run, and the length of the term. In this respect, two remarks will be sufficient:
(a) In automobile accident cases, the statute of limitations is not one year but two years
from the date when the damaged person received knowledge of the damage and the
identity of the person liable. It should be noted that this statute of limitations is
applicable to any claim related to an automobile accident even if based on civil
liability.
(b) There are special rules for the statute of limitations in claims for damages caused by
nuclear energy to consider the fact that the damages may not be apparent for some
time longer than in cases of ordinary accidents (Art. 10 LRCN).
B. The Rules of Procedure
41

Neither the Federal Code of Obligations nor the special statutes present a complete set of
procedural rules. These are defined by new Code of Civil Procedure, in force since 1 st January
2011.
The Federal Law on Jurisdiction in Civil Matters of 24 March 2000 replaces several statutory
provisions, and applies Article 30 of the Federal Constitution (adopted in 1998). It establishes
the jurisdiction of the courts of the defendant's domicile, of the victim's domicile or of the
place where the tortious act happened or showed results (Art. 25).
In the case of car- or bicycle- accidents, jurisdiction is limited to the courts of the place
where the accident happened or of the defendant's domicile (Art. 26). Similar rules apply to
international torts (Arts. 129-131 of the Law on Private International Law).
BIBLIOGRAPHY
Dessemontet Franois, Tugrul Ansay (eds.) Introduction to Swiss Law, 3rd Edition. Zrich 2004
Treaties on the Code of Obligations
Engel P., Trait des obligations en droit suisse, Neuchtel 1973, p. 299 et seq.
Honsell H., Schweizerisches Haftplichtrecht, 3rd ed., 2000.
Treaties on Civil Liability

Deschenaux, H. and P. Tercier, La responsabilit civile, 2nd edition, Bern 1982.
Keller, A., Haftpflicht im Privatrecht, 6th edn., Bern 2002.
Oftinger, K. and E. Stark, Schweizerisches Haftpflichtrecht,4 vols., Zurich: Besonderer Teil 1,
4th edn., 1987; Besonderer Teil 2,4th edn., 1989, Besonderer Teil 3, 4th edn., 1991,
Allgemeiner Teil, 5th edn., 1995.
Commentaries on the Code of Obligations
Brehm, R., Die Entstehung durch unerlaubte Handlung, Berner Kommentar, 2nd edn., 1998.
Mnch, P. and Th. Geiser, Schaden-Haftung-Versicherung, als Band V der Handbcher fr
die Anwaltspraxis, 1999.
Honsell, Vogt and Wiegand (eds.), Kommentar zum schweizerischen Privatrecht, Basel 2003.
42

Business Law - Part II Contract Law PDF

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Introduction to Business Law

Part II: Contract Law

General remarks on the Swiss law of obligations..3

A. Historical background and influence abroad.......

System of the legislation; comparison with foreign law..6

Formation of contracts in general.6

Formation of the contract (consensus; offer and acceptance).................................9

Interpretation; vitiating elements in the consensus..................................................12

Geneva School of Business Administration

Limitations of actions (Art. 127-142 CO) 18

Special types of contracts................................................................

Conditions of civil liability

Effects of civil liability

Claim for damages

A. The Rules on the Statute of Limitations

Geneva School of Business Administration

This course material is drawn from the following publications:

General remarks on the Swiss law of obligations

B. Basic elements of contracts

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C. Principle of freedom of contract

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Principle of freedom of contract

Freedom to conclude or not conclude a contract

No one has to conclude a contract unless there is a legal provision to conclude. A

Freedom to choose the contractual partner

Freedom to establish the contracts content

Freedom of formality, Art. 11 CO

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II. System of the legislation; comparison with foreign law

III. Formation of contracts in general

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The formation of a contract

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The formation of a contract.

C. Negative elements making a contract void

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IV. Formation of contract (consensus; offer and acceptance)

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V. Conclusion of contracts by representatives

A. Non-commercial representation (CO Art. 32-40)

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B. Commercial representation (CO 458-465, and special provisions)

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VI. Interpretation; vitiating elements in the consensus

B. 'Dissensus' distinguished from 'error'

C. Error (Mistake; Arts. 23-27)

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D. Fraud, Duress (Arts. 28-31)

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VII. Breach of contract

B. Damages as general remedy for breach

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C. Consequences of delay (Arts. 102-106 CO)

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D. Discharge by breach / Droit de rsiliation (Arts. 107-109 CO)

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VIII. Limitations of actions (Verjhrung/prescription; Arts. 127-142)