Basically, different contracts are different both in structure and content, as they also reflect different legal relationships. There are, however, contractual clauses which appear in a similar form again and again in the most diverse contracts. Some of these frequently used clauses are explained below. However, this is a non-exhaustive list.
The introduction in a contract is like an introduction in a book. It is about making it easier for the readers of the contract to get started. It can be assumed that after the conclusion of the contract, people who were not present during the contract negotiations or the conclusion of the contract will often deal with it. An introduction should briefly describe the contracting parties (neural, no advertising!), their motivation for concluding the contract and the object of the contract (s. below). An «introduction» is also often referred to as a «preamble». This is a Latin term which, in my opinion, is outdated today.
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 contractual objects, especially in technical matters, but also, for example, in the case of a design, the description of the contractual object is regularly moved at least in part to the annex of the contract (s. below), 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 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 in relation to the contractual object. The warranty is based on the usual or typical characteristics of the contractual object. In principle, this warranty does not have to be mentioned in the contract. However, a contractual party can also assume a warranty that goes beyond this. This is then referred to as a guarantee. This must be explicitly noted in the contract. One also speaks of a guarantee, for example, if a bank guarantees a customer to a third party for a certain amount (not necessarily a surety [CH «Bürgschaft»]) and receives a corresponding fee from its customer. Just as with liability (s. below), parties to a contract want to limit or even exclude the warranty from time to time. If one wants to limit or exclude the warranty, this must be explicitly mentioned in the contract. The exclusion of a warranty is basically possible under Swiss law. On the other hand, a limitation of the warranty is excluded under Swiss law, especially in the B2C (Business to Consumer) relationship, depending on the type of contract. (s. for the purchase contract CO 210 IV, for the contract for work CO 371 III i.c.w. CO 210 IV).
Place and time of performance of a contract, other conditions of performance
If the parties do not agree in this respect, Swiss law shall govern the place and time of performance of a contract (so-called dispositive law). The place of performance of monetary debts is no longer relevant in times of online banking. Nevertheless, monetary debts are payable at the place where the creditor is domiciled at the time of performance (CO 74 II/1). If a particular item (so-called special goods; e.g. a second-hand vehicle) is owed, it is to be handed over where it was at the time the contract was concluded (CO 74 II/2). Other liabilities (so-called generic goods; e.g. a new car; but also services) are to be fulfilled at the place where the debtor had his residence or registered office at the time of their creation (CO 74 II/3). 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 (CO 75). The opinion of many people that there is a legal 30-day payment period is therefore wrong. If nothing is agreed, payment would even have to be made immediately. If a biller grants a 30, 20 or even 10-day payment period, it is legally speaking a deferment of payment. However, to avoid any discussion about the time and place of fulfilment, it is highly recommended that the parties explicitly agree on the time and place of fulfilment in the contract. This also applies to other conditions concerning the performance of the contract which are not regulated by law. This is even more important in international contracts, as the application of other laws may lead to different places and times of performance or other conditions of performance.
Transfer of benefit and risk
Unless the parties have agreed otherwise, the benefit and risk of a purchased item under Swiss law generally passes to the purchaser on the time of conclusion of the contract (CO 185 I). If, for example, the seller of a race horse still takes part in a horse race with the horse after the contract has been signed and wins a prize, this prize goes to the buyer. The situation is less favourable for the buyer if the horse has an accident during the race and is injured or even dies. In this case the buyer would still have to pay the full price if the seller cannot be proved to be at fault. In order to avoid this separation of goods and benefit and risk, the parties should explicitly regulate the transfer of benefit and risk in such a way that benefit and risk are in any case transferred to the buyer when the goods are handed over. Then benefit and risk are for the party who has effective influence on it. The transfer of risk and benefit should also be explicitly regulated in international contracts, so that this is fixed independently of the applicable law to the contract.
Price and terms of payment
Like the contractual object (s. above), the price for the contractually agreed service or good is an essential element of the contract. Linked to this are the payment modalities, which should therefore also be regulated under the same title. As with the contractual object, it is also important that the price is clearly defined. It should also be clear what price is paid for which service or good. For the B2C relationship, Swiss law stipulates that the detailed price must include passed-on public levies, copyright fees, prepaid disposal fees and other surcharges of any kind that cannot be freely chosen (Price Announcement Regulation, PBV 4 I i.c.w. 2). There are no such rules for B2B contracts. For this reason, and more generally, it is important to clearly define which taxes are included in the price, in particular Value Added Tax (VAT). The latter is particularly important in international contracts, as otherwise there could at worst be a double payment of VAT. Since tax obligations as a mandatory law cannot be waived by contract, it must be clarified in advance which party is taxable in which country. It should also be determined who is liable for any delivery costs or costs in connection with the delivery. In the case of goods, the price is usually fixed per unit. For orders and contracts for work, however, there are various ways of defining the price. Firstly, an in Switzerland so-called «Regie Preis» can be set on a direct labour basis. This means that the compensation is calculated according to the effective expenditure of hours, machines and material. However, there is also the possibility of agreeing a fixed price. Here it is important that a fixed price is effectively fixed (!), i.e. the customer does not owe more or less. As a contractor you have to calculate very well whether you can effectively deliver a service at a fixed price. If you as a customer also want to profit from a possibly cheaper execution and still want to fix a maximum price, you can agree with the contractor that you as a customer also profit from a price reduction in case of a cheaper execution, but in any case not pay more than the fixed maximum price. In this last case of the agreed price, there is naturally the risk that the contractor is inclined to reach the maximum price after all. For this reason, in this case, the possibility of having the expenses controlled by the customer or a trustee appointed by the customer and independent of the parties should be agreed. Finally, it should be borne in mind that in the best case a customer will pay the agreed price, but in the worst case he will not pay it at all or not in time. In this case, Swiss law provides for a statutory default interest of 5 % per annum (p.a.) without further agreement (CO 104). However, the parties may also agree on a lower or higher default interest rate. In the B2C relationship, however, this interest rate may not exceed the maximum interest rate regulated in the Consumer Credit Act (KKG) (KKG 14).
In contract law, «»confidentiality» is understood to mean that the parties to the contract do not disclose to third parties information which they receive from the other party to the contract within the scope of 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. employee’s duty of confidentiality in Swiss Law, CO 321a IV). However, it is advisable to additionally agree a contractual obligation to confidentiality in cases of statutory confidentiality, which regularly extends beyond the contractual relationship as long as a corresponding legitimate interest of the affected party to the contract exists. An example of such a clause would be the following:
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.
In this context, reference can also be made to the advisable combination of the confidentiality clause with a penalty for non-disclosure (see below) as well as to the issue of «Letter of Intent, Non-Disclosure and Non-Use Agreement».
Intellectual property rights
Intellectual property rights include trademarks, patents, copyrights and designs. Details can be found in Chapter […]. A regulation of the corresponding rights that arise during the contractual relationship as a result of actions of the parties to the contract with regard to the contract is often forgotten, which regularly leads to corresponding legal disputes in the event of breach of contract and termination of contract. In order to prevent this from happening, the parties should include a clause on intellectual property rights in the contract. In particular, the following three points should be regulated. 1. Who owns the intellectual property rights which have arisen before the conclusion of the contract and which play a certain role in the execution of the contract 2. Who owns the intellectual property rights created during the contractual relationship in relation to the contract 3. Who owns the further development of intellectual property rights which have arisen during the contractual relationship in relation to the contract. In this context, licenses and compensation for intellectual property rights may also need to be regulated.
Liability, exclusion of liability and insurance
A contractual clause on liability can, among other things, regulate how the parties are liable within the contractual relationship, insofar as there are no mandatory legal rules in this regard (see also below). Contracts also often stipulate that the parties must «keep each other free» (indemnity clause) if one of the parties is held liable by a third party with regard to the contractual relationship. On the one hand, this can mean that one party must enter into liability proceedings on behalf of the other party, if this is possible at all under procedural law. If process entry is not possible, but also in general, the bearing of financial consequences of liability cases can be regulated.
Our clients regularly want to exclude their liability in contracts completely. In chapter […] I have explained in detail why an exclusion of liability is only partially or not at all possible due to corresponding legal regulations in Swiss law. Nevertheless, it is advisable to include an exclusion of liability in a contract according to the principle «if it does not help, it does not hurt», provided, of course, that the other party accepts such an exclusion. However, it is important to be aware that this exclusion of liability may not be enforceable or may not be fully enforceable in the event of a legal dispute.
Since liability cannot be excluded regularly, but also in general, it is advisable to take out appropriate liability insurance. In the case of both a special liability insurance policy taken out for the project in question and a general (already existing) (business) liability insurance policy, it must be checked in particular whether the contract-related risks are effectively covered in themselves and also in terms of the possible amount of damage.
Termination of the contract
The details concerning the termination of the contract can be found in Chapter 03.05 Termination of contracts.
In contract law, «Force Majeure» is understood to be an event which affects the contract from outside, but which is outside the sphere of influence of the parties and therefore cannot be averted by them. Such events are, for example, natural disasters of any kind, in particular earthquakes, floods, storms, volcanic eruptions, but also riots, blockades, boycotts, fires, civil wars, embargoes, hostage-taking, wars, revolutions, sabotage, strikes, terrorism, epidemics and pandemics. In such cases, it may be agreed that, in the event of an event of this nature, the contract will be suspended temporarily or permanently and that in this case the parties will no longer have to perform or can no longer demand anything. In principle, the parties are free to decide how to deal with such a situation. As a rule, in such cases, the contracts are rescinded. For example, a trip was booked with a travel agency. However, because there is a ban on entry into the country of the travel destination due to a pandemic, the travel agency can objectively no longer fulfil the contract. Any advance payments made by the customer will be refunded to the customer. In this case, however, it could also be the case that a travel agency stipulates in its General Terms and Conditions that part of the amount paid by the customer will be retained for previous expenses. In the event of Force Majeure, if the parties have not agreed on anything, in Swiss Law CO 119 regarding objective impossibility of performance shall apply. The corresponding rule states that a contractually agreed claim lapses if circumstances beyond the debtor’s control make performance impossible. In the case of bilateral contracts, the debtor who has become free in this way is liable for the consideration already received for unjust enrichment and loses the counterclaim that has not yet been fulfilled.
Transfer of the contract to third parties
A contract may not be transferred to third parties without the consent of the other contracting party/parties (change of party). «Third parties» are all legally independent entities, including legally independent companies within a group. However, it is of course possible that the parties agree that a transfer is permissible under certain circumstances. For example, this could be the transfer of a contract within a group of companies. In this case, it may also be necessary to define what is meant by «group company» (economic interdependence to a certain extent).
According to CO 68, a debtor is only obliged to fulfil personally if his/her personality is important for the performance. In relation to a company, this means that the company may not call in freelancers or outsourcing partners to fulfil an order if the customer counts on certain competencies that are available within the company itself or on a personal relationship with the company itself or its employees. Subcontracting is also not permitted if the contract explicitly prohibits this. If one wants to have the possibility of using freelancers and/or outsourcing partners, it is advisable to explicitly agree on this possibility in a contract.
Guarantees to ensure the fulfilment of the contract
«Pacta sunt servanda» or «contracts must be fulfilled» is a Latin legal principle. This is the ideal case, so to speak. But contracts are often broken. The question therefore arises whether there are ways to «encourage» the fulfilment of contracts. And effectively there are. A claim under a contract can be secured either by the additional agreement of a real security or a personnel security. In the case of real security, money or a good serves as collateral. In the case of a personal security, a natural or legal person is liable for a claim if the party actually liable fails to perform. Real security includes, among others, a security deposit or real property lien. Personal securities include, among others, the guarantee, e.g. a bank guarantee, the surety, the detention/repentance money as well as the contractual penalty (CO 160 ff.). The latter is particularly popular in practice as security. On the one hand, the contractual penalty must be high enough to ensure that the obligated party is sufficiently «motivated» to comply with the contract, but can also be reduced by the judge if it is disproportionately high (CO 163). From the creditor’s point of view, it should be agreed that even if the contractual penalty is paid, the creditor can demand enforcement of the claim secured by the contractual penalty and also the damage exceeding the contractual penalty.
As may now unwanted partial or ancillary agreements arise during contract negotiations or if previous agreements are to be cancelled by the current agreement, an Entire Agreement Clause is appropriate, stating that the present contract covers all agreements of the parties with regard to the subject matter of the contract and replaces all previous agreements of the parties with regard to the subject matter of the contract.
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 and the contract needs to be adapted. This is called legal change management. It also includes an escalation procedure that helps parties to find each other again in case of differences of opinion and/or to manoeuvre itself out of disputes (escalation). Both instruments ultimately aim to prevent the legal worst case, i.e. going to a state court. Court proceedings are lengthy and expensive. In this respect, reference is made to Chapter […].
Applicable law and Court of jurisdiction
In the case of contracts between parties from the same country and a contractual object with no international connection, the applicable law does not usually have to be agreed upon because the law automatically applies the parties’ common national law. On the other hand, the agreement of a court of jurisdiction (court responsible for deciding the case) makes sense in this case as well. Internationally, the applicable law and the court of jurisdiction should always be agreed. With regard to the court of jurisdiction, it should be ensured that it is located at the place of the parties’ own registered office or residence. In addition, the applicable law should correspond to the court of jurisdiction, because judges know their own law best. For the applicable law and court of jurisdiction in international relationships, please also cp. Chapter […].