I wrote this chapter because people kept asking me for model contracts for all kinds of relationships, and my answer was always the same: model contracts exist, but every contract is unique and cannot simply be copied. So I listed the clauses that appear in almost every contract and explained what they do. With AI, you will rarely write these clauses yourself, but you will read them every day, in the drafts your chatbot produces and in the contracts your suppliers, customers and platforms send you. To validate a draft (Chapter 01.02) and to negotiate a contract (Chapter 03.07), you must know what each clause does. The list is not exhaustive.
Introduction (preamble)
The introduction in a contract is like the introduction in a book: it makes it easier for the readers to get started. After the conclusion of the contract, people who were not present during the negotiations will often deal with it. An introduction should briefly describe the parties (neutral, no advertising!), their motivation for concluding the contract and the object of the contract (see below). An introduction is also often called a «preamble», a Latin term which, in my opinion, is outdated and should no longer be used; «introduction» says the same in plain language.
Definitions
Define the terms that are not self-evident or have a special meaning in the contract, but only those. The long lists of definitions in many US-style contracts, down to «day means a calendar day», do not add clarity; they add pages and, worse, contradictions between the definition and the way the term is actually used (see Chapter 03.06).
Object of the contract
A description of the contractual project as detailed as possible is of utmost importance. After all, if the ultimate aim is to check whether the contract has been fulfilled correctly and in full, this clause forms the basis. In the case of very complex objects, especially in technical matters, but also, for example, in the case of a design, the description is regularly moved at least in part to an annex, as otherwise the contract would become too confusing.
Warranties and guarantees
Legal laypersons often speak of a «guarantee» when they actually mean a warranty of title or a warranty for defects. A warranty for defects means that a party is liable for a contractual object without physical or functional defects (e.g. software whose functions defined in the contract do not exist or are defective). In the case of a warranty of title, the obligor guarantees that he only transfers those rights by contract that he actually holds. The warranty is based on the usual or typical characteristics of the contractual object and, in principle, does not have to be mentioned in the contract. A party can also assume a warranty that goes beyond this; this is then referred to as a guarantee and must be explicitly noted in the contract. One also speaks of a guarantee if a bank guarantees a customer’s obligation to a third party for a certain amount and receives a fee from its customer. As with liability (see below), parties want to limit or even exclude the warranty from time to time; this must be explicitly mentioned in the contract. The exclusion of a warranty is basically possible under Swiss law, but limited for consumers depending on the type of contract (for the purchase contract Art. 210 para. 4 CO, for the contract for work Art. 371 para. 3 CO). More on liability in Chapter 07.
Place and time of performance, other conditions of performance
If the parties do not agree in this respect, Swiss law governs the place and time of performance (so-called dispositive law). Monetary debts are payable at the place where the creditor is domiciled (Art. 74 para. 2 no. 1 CO); a particular item (e.g. a second-hand vehicle) is to be handed over where it was at the time the contract was concluded (Art. 74 para. 2 no. 2 CO); other obligations (generic goods, e.g. a new car, but also services) are to be fulfilled at the debtor’s residence or registered office (Art. 74 para. 2 no. 3 CO). If the time of performance is determined neither by contract nor by the nature of the legal relationship, performance may be effected and demanded immediately (Art. 75 CO). The opinion of many people that there is a legal 30-day payment period is therefore wrong; if nothing is agreed, payment would have to be made immediately, and a 30, 20 or 10-day period granted by the biller is legally a deferment of payment. To avoid any discussion, the parties should explicitly agree on the time and place of performance and on the other conditions of performance. This is even more important in international contracts, where another law may lead to different results; for the delivery of goods, the Incoterms of the International Chamber of Commerce are the standard for place of delivery, transport costs and risk.
Transfer of benefit and risk
Unless the parties agree otherwise, the benefit and risk of a purchased item under Swiss law pass to the buyer at the conclusion of the contract, not at delivery (Art. 185 para. 1 CO); the parties should therefore agree that benefit and risk pass at delivery, which in international sales is done with the Incoterms.
Price and terms of payment
Like the object of the contract, the price is an essential element of the contract, and the payment modalities should be regulated under the same title. The price must be clearly defined, and it must be clear what price is paid for which service or good. For consumers, Swiss law stipulates that the price must include all public levies and non-optional surcharges (Price Indication Ordinance); there are no such rules for B2B contracts. It is therefore important to define which taxes are included, in particular VAT, which in international contracts could otherwise be paid twice, and who bears the delivery costs. For goods, the price is usually fixed per unit; for services and works, there is the time and material basis (in Switzerland «Regie»), the fixed price, which must then effectively be fixed, and the maximum price, where the customer profits from a cheaper execution but never pays more; in the last case, the customer should be entitled to check the expenses. Finally, the worst case: the customer does not pay, or not in time. Swiss law then provides for a statutory default interest of 5 % per annum without further agreement (Art. 104 CO); the parties may agree on a different rate, for consumers within the limits of the Consumer Credit Act. For subscriptions, see also Chapter 03.05.
Term and renewal
State clearly whether the contract runs for a fixed period or for an indefinite period, from when, with what notice period and whether it renews automatically. The legally correct wording for an automatically renewing contract is explained in Chapter 03.05.
Confidentiality
Confidentiality means that the parties do not disclose to third parties information which they receive from the other party within the contractual relationship and which is not generally known. In some cases, corresponding obligations arise from the law, at least for the duration of the contract (e.g. the employee’s duty of confidentiality, Art. 321a para. 4 CO). It is nevertheless advisable to agree a contractual obligation, which regularly extends beyond the contractual relationship as long as a legitimate interest exists. An example of such a clause:
The parties to the contract, as well as their employees and auxiliary persons called in, mutually undertake to maintain confidentiality with regard to all information not generally known, which relates to the business sphere of the other party to the contract and which becomes accessible to them during the preparation and execution of this contract. This obligation shall remain in force as long as a legitimate interest of the affected contractual party exists, even after the termination of this contract.
The confidentiality clause is often combined with a contractual penalty (see below); see also Chapter 03.10 on non-disclosure and non-use agreements.
Intellectual property rights
Intellectual property rights include trademarks, patents, copyrights and designs (details in Chapter 10). A regulation of the rights that arise during the contractual relationship is often forgotten, which regularly leads to disputes on breach and termination. Three points should be regulated: who owns the intellectual property created before the contract and used for it; who owns the intellectual property created during the contract; who owns its further development. Licences and compensation may also need to be regulated.
Data protection
Contrary to a widespread belief, data protection is not a matter for the contract: it is a duty imposed by law on anyone who processes personal data, and the privacy notice is unilateral information, not an agreement (see my blog post «Patientenformulare – muss man die unterschreiben?», in German; use the translation function). A clause stating that «the parties comply with data protection law» adds nothing. There is one exception: where a supplier processes personal data on behalf of the customer, as a cloud provider does with the customer’s data, the law itself requires that this processing be entrusted by contract (data processing agreement, Art. 9 FADP). Details in Chapter 08 Data Protection.
Liability, exclusion of liability, indemnity and insurance
A liability clause regulates how the parties are liable within the contractual relationship, insofar as there are no mandatory legal rules. Contracts also often stipulate that the parties must «keep each other free» (indemnity clause) if one of them is held liable by a third party with regard to the contract: one party may have to enter into the proceedings on behalf of the other, or at least bear the financial consequences. Indemnity clauses are standard in common law contracts and appear in many AI drafts; under Swiss law they are often unnecessary and, if unlimited, dangerous.
Our clients regularly want to exclude their liability completely. In Chapter 07.09 I explain why an exclusion of liability is only partially or not at all possible under Swiss law. Nevertheless, it is advisable to include an exclusion of liability according to the principle «if it does not help, it does not hurt», provided the other party accepts it; but be aware that it may not be enforceable in a dispute.
Since liability can rarely be excluded, it is advisable to take out appropriate liability insurance and to check whether the contract-related risks and the possible amount of damage are effectively covered.
Termination of the contract
Details in Chapter 03.05 Termination of contracts.
Force majeure
Force majeure is an event which affects the contract from outside and which is outside the sphere of influence of the parties: natural disasters, riots, blockades, boycotts, fires, wars, revolutions, sabotage, strikes, terrorism, epidemics and pandemics, and, in the latest Swiss ICT model contracts, under certain conditions cyberattacks. It may be agreed that in such an event the contract is suspended temporarily or permanently and the parties no longer have to perform. The parties are free to decide how to deal with it; as a rule, the contract is rescinded and advance payments are refunded (a travel agency may, in its general terms and conditions, retain part of the amount for previous expenses). If nothing is agreed, Swiss law applies the rule on objective impossibility (Art. 119 CO): the claim lapses, and what has already been received must be returned.
Assignment and subcontracting
A contract may not be transferred to third parties without the consent of the other party (change of party). «Third parties» are all legally independent entities, including companies within the same group. The parties may agree that a transfer is permissible under certain circumstances, for example within a group of companies; then «group company» should be defined. As to subcontracting, a debtor is only obliged to perform personally if his personality is important for the performance (Art. 68 CO); a company may therefore not call in freelancers or outsourcing partners if the customer counts on competencies or a personal relationship within the company itself, or if the contract prohibits it. Whoever wants to use freelancers or outsourcing partners should explicitly agree on this.
Securities for the performance of the contract
«Pacta sunt servanda», but contracts are often broken; the question is whether there are ways to «encourage» performance. A claim can be secured by a real security (money or a good serves as collateral, e.g. a deposit or a lien) or a personal security (a person is liable if the party actually liable fails to perform, e.g. a bank guarantee or a surety). The most popular security in practice is the contractual penalty (Art. 160 ff. CO): high enough to «motivate», but a judge may reduce it if disproportionate (Art. 163 CO). From the creditor’s point of view, it should be agreed that the creditor can still demand performance and any damage exceeding the penalty. See Chapter 03.10 on contractual penalties and liquidated damages.
Entire agreement
As unwanted partial or ancillary agreements may arise during negotiations, or previous agreements are to be cancelled, an entire agreement clause states that the present contract covers all agreements of the parties on the subject matter and replaces all previous agreements.
Change management and escalation procedures
In long-term relationships it is important to determine in advance how the parties will proceed if the situation changes (change management) and how they find each other again in case of differences (escalation procedure). Both aim to prevent the legal worst case, going to a state court (see Chapter 03.06 and Chapter 05).
Applicable law, jurisdiction, dispute resolution and contract language
In a contract between parties from the same country without international connection, the applicable law does not have to be agreed, because the parties’ common national law applies automatically; the agreement of the competent court (jurisdiction) makes sense even then. Internationally, applicable law and jurisdiction should always be agreed: the court at the place of one’s own seat, and the applicable law corresponding to the court, because judges know their own law best. Instead of a state court, the parties may agree on mediation or arbitration (Chapter 05.05). In international contracts, also agree on the contract language and, for bilingual contracts, on the version that prevails (see Chapter 03.06). Details in Chapter 05.03.