03.02 Title, Parties and Signatory Powers

03 Contract Law

Title of a contract

With a contract, what counts legally is not what is written on it, but what is in it. This means, in particular, that which title a contract bears is, as a rule, legally not relevant. Also, the parties cannot determine the type of contract by choosing a title. For example, contracts often say «service contract» although legally, it is a work contract (in Swiss law, German: Werkvertrag), not a service contract (in Swiss law, German: Auftrag). For this reason, I usually only use the title «contract» or «agreement» for contracts, without any further typification. Instead, I often set a reference (after the parties to the contract), from which the reader who is not yet familiar with the contractual matter can see what the contract is roughly about. The same applies in other legal systems: courts everywhere look at the substance, not the label.

Contracting parties

A precise individualisation of the parties is essential for contracts, especially for companies. If, for example, only «Novartis» is listed as a party in a contract, this is absolutely insufficient. In Switzerland alone, there are 22 companies and foundations with the name «Novartis», of which all but five have their seat in Basel (s. Novartis companies in zefix.ch). This would not determine which of the companies is effectively a party. The contract might then be invalid. So if companies are parties, their exact business name (in Swiss law, German: Firma) should be researched and used in the official Central Business Name Index, zefix.ch. Every country has such a register (e.g. Companies House in the UK). Use the official, state-run register wherever possible, not commercial data providers; the chatbot will tell you where to find the one for your country.

Signatory powers

Particularly when companies are represented by their employees, the right to enter into contracts for the company or to sign contracts, the signing authority, is of great relevance. Because Art. 38 f. CO stipulates that a contract is invalid if it is signed by a company representative who is not authorised to do so, unless the company subsequently approves the contract.

Employees can be authorised to conclude contracts for their companies in various ways. On the one hand, employees are granted signing authority, which is published in the commercial register. This is the most important source for checking whether someone is authorised to sign and can be accessed via www.zefix.ch. Various types of signatory powers are published in the commercial register. There is the single signatory authority. This means that someone is entitled to represent the company alone. This type of signing authority has become very rare and only exists in small companies. In larger companies, single signatory authority is now practically only available to company founders, the so-called patrons (see also the extract from the commercial register of Galliker Transport AG below). Joint signatory authority of two means that someone can only conclude contracts for the company together with another authorised person. In this case, two signatures must therefore be included under a contract. There is also the so-called procura (German: Prokura), a special form of signatory authority under Swiss law. The procura is often associated with an increase in the hierarchy in companies. In effect, it is a limited signing authority pursuant to Art. 458 ff. CO. Note the paradox: in companies, the procura is perceived as a step up in the hierarchy, but legally it is a limited authority. Like the ordinary representatives of the company, the holder of a procura may only perform acts that the purpose of the business may entail; unlike them, he or she may not sell or encumber real estate without express authorisation, and the register entry «procura» tells everyone that this is an employee’s commercial authority, not the full authority of a company organ. Also, the procura can be granted either as single procura or as joint procura. Finally, it is also possible to publish in the commercial register that certain representatives of the company may only sign together with certain other representatives or that they may not sign with certain other representatives. This is, in my experience, a very rare case; it can be found at the transport dynasty Galliker in Altishofen, which I know personally. Their logistics company is run by various families of the dynasty. Obviously, the company does not want one family to be able to commit the company without the consent of at least one other family. The corresponding extract from the commercial register can be found under the following link: Galliker Transport AG. There you can also see the other signatory powers mentioned here and published in the commercial register. In addition to these signatory powers published in the commercial register, there is also the unpublished special power pursuant to Art. 462 CO, which generally covers a specific trade or business. In practice, there is also the so-called apparent authority. With this type of authority, companies tolerate that employees enter into contracts without explicit authorisation, whereby their customers, based on the principle of good faith (Art. 2 of the Swiss Civil Code, CC), may rely on the company to approve such contracts due to special circumstances. For example, I have already experienced that sellers of car garages sign car purchase contracts individually, even though this is not recorded in the commercial register. However, it is obviously a corresponding practice of the garage. This also includes the cashiers of supermarkets such as Coop and Migros. Their authority to sell goods of the company results directly from their position or job description. This power is, by the way, comprehensive. A Migros cashier, for example, can effectively sell the entire shop (without any real estate or infrastructure!;-)). Other legal systems know similar rules on the representation of companies and on the protection of good faith; what is published in the register and what counts as apparent authority differs, so check the register and the rules of the country concerned.

If an employee commits their company to a contract without authorisation, the respective contract is invalid due to lack of authorisation, if it is not subsequently approved by the company (see above), and in this case the employee can be held directly liable by the other party to the contract for any damage resulting from the failure of the contract (Art. 39 CO). For this reason, it is important that employees, in their daily work for their company, pay attention to whether they are authorised to sign either according to the commercial register, according to an explicit special power based on a job description or with the obvious toleration of the company.

03 Contract Law