This blog series gives a short and compact overview on the essential elements of Swiss contract law.
Overview
A contract is an agreement between two or more parties to create one or more mutual obligations between them. To conclude a contract under Swiss Law, three conditions must be met:
- the parties to the contract must be capable of acting;
- the parties must have the intention of entering into a binding contract (the "declaration of intent", i.e., offer and acceptance);
- the parties' declarations of intent must coincide (actually or normatively).
The parties' capacity to act
As a general rule, every person above the age of 18 who does not lack the capacity to act rationally by virtue of a mental disability, intoxication or similar circumstances is capable of acting (Art. 14 and 16 of the Swiss Civil Code ("SCC"). Legal entities are capable of acting once their governing bodies have been appointed (Art. 54 SCC).
In practice, the question of whether a person or legal entity is capable of acting is generally of less importance. Practical problems arise more often from the question of who can legally represent a legal entity vis-à-vis third parties and, therefore, conclude contracts on behalf of the legal entity (so-called "signature authority").
In Switzerland, the signature authority with regard to registered entities is publicly accessible and can be checked free of charge via the internet (see www.zefix.ch and search for the entity). It is important, though, that legal entities can act not only through their formally and duly registered representatives, but also through other appointed representatives (even if not registered). In other words: just because a person who has signed a contract is not shown in the commercial registry does not necessarily mean that the contract is not valid. If there is any doubt, however, it is advisable to stick to the publicly available signature authority to be on the safe side when negotiating contracts with Swiss entities.
The parties' declarations of intent (offer and acceptance)
The declaration of intent consists of the expression of the parties' intent to create, modify or terminate one or more legal obligations. The exchange of the declarations of intent (i.e., the offer and acceptance) is the core of every contract.
A declaration is an offer if it contains all essential elements necessary to form a contract (essentialia negotii; see below). A declaration is an acceptance if it accepts the terms as offered without modification as to the essential elements. A declaration that accepts an offer but only with one or more modifications, is considered a counteroffer that needs the acceptance of the first party to validly conclude a contract.
Swiss contract law distinguishes between express and implied declarations of intent (Art. 1(2) CO). An implied declaration of intent is derived from the conduct of a party. Such conduct may constitute a declaration of intent if there are indications that, in good faith, point to a declaration of intent. Whether or not specific conduct of a party constitutes an implicit declaration of intent is regularly the subject matter of disputes.
In the context of contract formation, Swiss contract law clarifies that the lack of response to an offer by a party may only be considered as an acceptance in exceptional cases, namely "where […] express acceptance cannot reasonably be expected" (Art. 6 CO). Exceptional cases could arise, for example, in the context of an ongoing business relationship between two parties if the non-reacting party has not responded to other offers in the past either and the transaction was nevertheless executed in accordance with the (not explicitly accepted) offer.
The parties' consent
For the exchanged declarations to become a binding contract, they must coincide. Whether they do is, ultimately, a question of interpretation of the exchanged declarations.
If the interpretation reveals that the parties intended the same thing with their declarations, there is a so-called "actual" (or "natural") consent. In contrast, there is a "normative" consent if the parties did not intend the same thing with their declarations, but the recipient of the declaration was allowed – in good faith – to understand the declaration the way it did.
Both, the actual and the normative consent result in a valid formation of a contract. If there is neither actual nor normative consent, no contract is concluded.
The parties have to agree only on the essential elements ("essentialia negotii") of a contract (Art. 2(1) CO). They include all objectively and subjectively important points of a contract. The objective points include all aspects that must be determined to conclude a contract of a certain type. Usually, these points follow from the legal definition of a type of contract in the Code of Obligations or, as the case may be, in the case law. Disagreements and disputes between the parties arise more often with regard to the question whether a point is subjectively essential and thus decisive for the validity of the contract. As a general rule, the following should be noted:
- If the parties negotiate intensively on an objectively non-essential point of the contract, the point is considered as being "subjectively" important and, therefore, essential for the validity of the contract.
- If the parties do not negotiate on an objectively non-essential point during the negotiations and a dispute arises afterwards in relation to that point, it is likely not to be considered as an essential point of the contract and, therefore, not essential for the validity of the contract. In this case, the dispute between the parties has to be resolved by interpretation and, to the extent necessary, gap filling.
Conclusion
If the negotiating parties meet these three requirements, a contract is (usually) concluded between them. For the sake of completeness, however, it should be noted that there may be further requirements for certain types of contract (e.g. a written form requirement).
We have also published a podcast episode on this topic, in which we briefly summarise all the essentials about the formation of contracts.
If you have any questions about contract formation, our litigation and arbitration team is always happy to help.
Other articles in the series:
- The essentials of Swiss contract law: Interpretation of Contracts (no. 2)
- The essentials of Swiss contract law: Limitation of Liability (no. 3)
- The essentials of Swiss contract law: Contractual Penalties (no. 4)
- The essentials of Swiss contract law: Termination for Cause (no. 5)
- The essentials of Swiss contract law: Incorporation of General Terms and Condition (no. 6)
- The essentials of Swiss contract law: Liability for breach of contract (no. 7)
- The essentials of Swiss contract law: Default (no. 8)
- The essentials of Swiss contract law: Rescission of Contracts (no. 9)
Authors: Christian Oetiker, Pascal Burgunder, Selim Keller
