03 Contract Law PDF

03 Contract Law 03.01 Conclusion of a contract 03 Contract Law The Swiss Code of Obligations (CO) already regulates the contract in its first article. CO 1 states that the conclusion of a contract requires the mutual consent of the parties. This may be express or tacit. «Mutual» means that at leas...

03 Contract Law 03.01 Conclusion of a contract 03 Contract Law The Swiss Code of Obligations (CO) already regulates the contract in its first article. CO 1 states that the conclusion of a contract requires the mutual consent of the parties. This may be express or tacit. «Mutual» means that at least two parties are required for the conclusion of a contract. However, there are also multilateral contracts concluded by three or more parties. When concluding a contract, the parties express their will to enter into rights and obligations, the so- called «expression of will». These rights and obligations must also be «consistent», i.e. congruent. In simple terms, the parties must agree on the rights and obligations («Nothing is agreed, until everything is agreed»). Offer and acceptance In fact, the contract is concluded in which one party makes an offer of services or goods and the other party accepts it (acceptance). The duration of the validity of an offer depends on how long the other party objectively needs time to examine the offer and respond to it. The more complex the subject of the contract, the longer this period should be. From a legal point of view, however, it is highly advisable to set a time limit on offers. This makes it clear by when the other party has to accept the offer, which regularly leads to discussions in the case of offers with an indefinite deadline (CO 4 ff.). However, a limited offer cannot be revoked in principle until the expiry of the time limit (CO 3). This could possibly pose a problem for the supplier if, for example, conditions change (e.g. own purchase prices), especially in the case of long periods. This problem can be countered with the reservation of withdrawal. For example, a clause could read as follows: «This offer is valid until [date]. We expressly reserve the right of revocation». Then there is no discussion on this point. It is also possible to submit a non-binding offer. «Consideration» in the Anglo-American legal area In the Anglo-American legal area, jurisdiction requires a so-called «consideration» in addition to an offer and acceptance for the conclusion of a contract. Only with a consideration does a contract become enforceable. The consideration is the requirement of a return when concluding contracts. For example, in a contract of sale the seller hands over the goods, while the return consists of the payment of the purchase price by the buyer. I have the impression, however, that the consideration is of little practical significance. Use of terms «contract», «agreement» The terms «contract» and «agreement» are synonymous. This means that both the term «contract» and the term «agreement» can be used to describe a contract. I myself use the term «contract» rather for formal, comprehensive agreements and the term «agreement» rather for simpler, shorter contracts. For intergovernmental contracts, i.e. contracts between governments or countries, the terms «treaty» or «convention» are also used. However, these terms are never used in private law relationships. 03.02 Title, Parties and Signatory Powers 03 Contract Law Title of a contract With a contract, it is not legally important what is written on it, but what is in it. This means, in particular, which title a contract bears is not really 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. For this reason, I usually only use the title «contract» or «agreement» for contracts, without any further typification. For this purpose, 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. 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 ten companies with the name «Novartis», of which all but one have their headquarters at the same address 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 name (in Switzerland the name of the company) should be researched and used in the official central company index, zefix.ch. 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 CO 38 f. 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 kinds. 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 the link 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 powers are 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 signatur authority at 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, in Switzerland so- called procura, a joint agent signature. The procura is often associated with an increase in the hierarchy in companies. In effect, it is a limited signing authority pursuant to CO 458 ff.. Also the procura can be granted either as single signatory authority or as joint signatur authority. 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. In my opinion, this is a very rare case and 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 CO 462, which generally covers a specific trade or business. In practice, there is also the so-called apparent power. With this type of power, companies tolerate that employees enter into contracts without explicit authorization, 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!;-)). If an employee commits his 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 (!; CO 39). 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. 03.03 Form of contracts 03 Contract Law According to CO 11, contracts only require a special form for their validity if the law prescribes such a form. In other words, the principle of freedom of form applies in Swiss contract law. And effectively, all contracts that are important for the digital world can be concluded informally, in particular the purchase contract, service contract, contract for work and license agreement. But beware! If the law requires a form, the contract is (under Swiss law) void (!) if the form is not observed. The forms provided by law are simple written form, qualified written form and notarisation. Simple written form means that a contract is printed on paper and signed by hand. The latter is possible by means of a qualified digital signature (see Chapter 03.04 Qualified digital signature), e.g. also in PDF format. In the case of qualified written form, for example, individual elements of the contract must be completed by hand, as is the case with a guarantee. Finally, a contract where the law provides for the form of notarisation must be concluded with a notary public, which is the case, for example, with the purchase of land. Although the law only rarely requires the written form for contracts, in practice the written form is preferable to oral agreements or agreements by implied conduct*, even if such a document is not even signed but only exchanged by e-mail. In the latter case, the e-mail correspondence containing the agreement should always be kept. Of course, digital written agreements can also be signed digitally (see Chapter 04 Qualified digital signature). Written form facilitates proof, prevents misunderstandings and thus prevents legal or even judicial disputes. In written contracts, the parties often reserve the right that any changes to the contract must also be made in writing (reservation of the written form). This contributes, among other things, to an orderly and documented further development of the contractual relationship. *The so-called «implied conduct» (germ. «konkludentes Verhalten»)” is a (Swiss) legal term. Through implied behaviour, agreements or contracts are concluded without the parties explicitly expressing their will to conclude a contract. They behave in such a way that, according to the principle of good faith (Art. 2 of the Civil Code, CC), it must be assumed that they intend to enter into an agreement to this effect. The conclusion of a purchase contract for a newspaper at a kiosk is usually the result of implied conduct by the parties. The kiosk displays a newspaper with a price attached, the customer takes it and puts it on the counter. The salesperson then bills the newspaper and asks the customer for the price. This is all done without the customer explicitly saying «I would like this newspaper at this price» and without the salesperson explicitly answering «we would be happy to sell you this newspaper at this price». 03.04 Qualified digital signature 03 Contract Law According to CO 14, the qualified electronic signature associated with a qualified time stamp is equivalent to a handwritten signature under the Federal Act on Electronic Signatures (ZertES). Important: this signature is not simply a scanned signature, but a purely electronic signature that functions de facto like a login, e.g. in e-banking. Such a digital signature usually consists of a hardware part (usually a card with chip or a USB stick with chip) and a password. To obtain a qualified digital signature, one must contact one of the certified providers (list of certification service providers recognised under ZertES). In my case this was the post office, which subsequently issued me a «SuisseID». For this I had to identify myself at a post office counter with my national identity card. I was then given a USB stick with a chip and a pin code. I had to plug the stick into the PC. I also had to download a corresponding software. Now I can sign a PDF document very easily. This is done by inserting a signature via the appropriate programme and entering the corresponding pin code. If I now send this qualified digitally signed PDF document to an addressee, he or she can click on the signature. Subsequently, a Swiss Post server or the partner of Swiss Post confirms to the addressee that the document has effectively been digitally signed by me. The application possibilities of a qualified digital signature are currently not particularly large. As attorneys at law, we can, for example, submit submissions to the courts digitally or by online mail using an additional Swiss Post infrastructure (IncaMail). Or we can digitally sign expense receipts, for example. This could also be used to conclude contracts, but we have not yet done this in practice. 03.05 Termination of contracts 03 Contract Law Many people assume that contracts can be cancelled simply by telquel or that purchased products can be returned. This is a mistake, especially in Switzerland. In general the Latin proverb applies: pacta sunt servanda, i.e. contracts must be fulfilled. Even though the Federal Supreme Court has ruled that there are no «perpetual contracts» (BGE 114 II 159 «Beer supply agreement»), contracts can in principle only be terminated if they contain a termination clause. The idea that contracts can be terminated telquel probably stems from the fact that especially in e-commerce most dealers now provide a «money-back guarantee«», i.e. the possibility to return products without reason. In addition, the EU Consumer Rights Directive provides for a general fortnightly right of revocation of digitally concluded contracts in the business-to-consumer area (B2C, consumer contracts) for the EU area. Such a general right of withdrawal, especially for digitally concluded contracts, does not exist in Switzerland. Contracts for a fixed period of time, on the other hand, expire at the end of that period. In practice, there is a need for contracts for a fixed period to be automatically renewed under certain conditions. Such clauses are often wrongly formulated by mixing contracts for an indefinite period with contracts for a fixed period. The legally correct wording is as follows: This agreement is concluded for an indefinite period. It may be terminated by giving notice of [number of days or months] at [date], for the first time at [date at the end of the minimum period provided for, de facto the specified period]. 03.06 Editing of contracts 03 Contract Law Editing a contract is basically not difficult and you don’t need to be a lawyer to do it; they simply have more practice. The «be-all and end-all» of contract drafting is whether the text is clear and understandable to all. A «worst case (scenario) approach» («Anything that can go wrong will go wrong») must also be a guiding principle. Contracts are not only concluded for sunshine, but especially for rain. It must be remembered that the contract must be clear not only to the parties, but also to third parties, as often it is not those who negotiate and draft the contract who will later apply it. In the worst case, lawyers and judges will also be involved in the contract. Finally, from a purely editorial point of view, I find it important in practice that points that belong together thematically (e.g. on payment methods) are found under the same title or in the same clause. Since the initial situation for the conclusion of a contract, especially in long-term relationships, can change and this can lead to legal disputes, this circumstance must be taken into account in contracts with the agreement of a legal change management and an escalation procedure (s. chapter […] Dispute resolution and law enforcement). Whether a contract is good or not is particularly evident when things go wrong. Therefore, when drafting a contract, one must ask oneself whether all worst cases and their consequences have been taken into account. For this reason, lawyers are perhaps also better at editing contracts, because they are confronted with worst cases on a daily basis and it is easier for them, as legal laymen, to imagine what could go wrong … 03.07 Model Contracts and Drafting Contracts with AI 03 Contract Law Model Contracts Even lawyers do not always start from scratch when drafting contracts. They also regularly use their own or third-party model contracts; or use artificial intelligence (AI) to draft contracts (s. below). However, we strongly advise against a complete «copy and paste». Model contracts should rather serve as an inspiration for contract drafting. One can see what contractual considerations others have made in similar (probably never exactly the same!) legal relationships. If model contracts or individual clauses are nevertheless adopted in their entirety, they must be adapted to the specific legal relationship. Sources for model contracts are many and varied. I am familiar with the fee-based model contracts of Swico and WEKA. Swico is the association of the Swiss ICT and online industry. Its model contracts have been developed for the ICT and online industries and can be found at the following link: https://www.swico-modellvertraege.ch/en/shop.htm. WEKA is a Swiss publishing house and has been publishing numerous model contracts for various legal transactions for a long time. The model contracts of WEKA cannot be purchased individually but only as a subscription and can be found under the following link: https://www.weka.ch/recht/auftrag-und-werkvertrag/weka- mustervertraege.html. The Federal (Switzerland) model IT agreements are free of charge. These can be found under the following link: https://www.beschaffung.admin.ch/bpl/de/home/auftraege- bund/mustervertraege.html. The counterpart are the IT model contracts of the administration of the Federal Republic of Germany. These can be found under the following link: https://www.cio.bund.de/Web/DE/IT-Beschaffung/EVB-IT-und-BVB/evb-it_bvb_node.html. It should be noted that both model contracts of the Federal Administration of Switzerland and Germany have been edited from the point of view of the respective administrations. This means that the contracts are certainly fair, but also definitely «tuned» in favour of the respective administrations. Drafting contracts with AI Recently, for example, we have been recommending to our students in legal coachings in the startup support programme to draft contracts with the support of artificial intelligence (AI), specifically chatbots such as ChatGPT from OpenAI or Gemini from Google. The comments made above on dealing with model contracts apply analogously to the corresponding results. We even offer specialised courses for lawyers on this topic. As an example, we will develop a software licence agreement below with the support of a chatbot based on the following facts and in the primary interest of a software company (licensor). Important: Never post details of the parties! Anonymise the parties and, if necessary, distort the facts. Attention! Adapt the draft of the chatbot later to the specific facts of the case. X AG (licensor), CH-Zug, licences software to the customer (licensee) for its customer management. The Licensor is the owner of all rights to the software and also acquires ownership rights to any changes or extensions to the software without compensation. The software has the following functions: Recording of customer data; allocation of documents, in particular correspondence from Microsoft 365, to the recorded customers; management of contracts with customers and suppliers; invoicing. The software is made available to the licensee by the licensor as Software as a Service (SaaS) on its cloud. The licensee is responsible for its own hardware and software and for internet access. Data traffic between the licensee and the licensor’s cloud is encrypted by the latter. The Licensee receives a simple, worldwide licence. The licence is granted for an indefinite period. It may be terminated by either party with 3 months’ notice to the end of a calendar year, for the first time to the end of the second calendar year after conclusion of the licence agreement. The licence fee consists of an annual flat rate of CHF 3,000 incl. VAT and an annual fee of CHF 75 incl. VAT per customer. The number of customers is calculated annually on the basis of the number of customers as at 1 June; in the case of a first-time licence, according to the licensee’s estimate. The licensor either requests the corresponding number of customers from the licensee or the licensee reports this to the licensor. If the licensor has any doubts in this regard, it has the option of having the number of customers verified by a Swiss trust company at its own expense. The licence fees invoiced by the licensor must be paid within 30 days of receipt of the invoice, and from the second licence fee onwards in any case by the end of August of the year preceding the licence at the latest. If the licence agreement comes into force in a current year, the licence fee is calculated pro rata temporis. The licensee must accept patches and updates for the duration of the licence. The Licensor limits its liability to a one-off payment of a maximum of CHF 30,000 including VAT. The parties agree to maintain confidentiality with regard to information exchanged between the parties that is not generally known. This confidentiality shall continue beyond the end of the contract insofar as the parties have an objective interest in it. The GTC for software licences and the associated services of the licensor form an integral part of the licence agreement. The licence agreement is subject to Swiss law. The exclusive place of jurisdiction is the city of Zug, Canton of Zug, Switzerland. To get an overview of the relevant contract type and its possible content in advance, you can ask the chatbot to produce a checklist or a sample contract. «Please make me a checklist for a software licence agreement as SaaS». «Please make me a sample contract for a software licence agreement as SaaS. Fill in the contract with your own facts». Now we give the chatbot the comprehensive facts listed above and ask it to create a draft for a comprehensive licence agreement based on them. «Please create a draft for a comprehensive licence agreement based on the following facts, which I will give you in a separate post. Copy the facts very carefully. Supplement the facts with any additional, necessary and/or recommendable provisions. Please do not use paragraph signs, but numbers. The parties’ signatures must include the place and date of signature.» Facts as prompt: «[Facts of the case].» Check the proposal and ask the chatbot to adapt the draft contract to your requirements if necessary. Now we check the contract produced by a chatbot, e.g. ChatGPT, with another chatbot, e.g. Google Gemini. «Please check the following draft contract for a SaaS licence for me, which I will give you in a separate prompt. Please make suggestions for corrections, changes and/or additions that are necessary and/or useful. Please take into account the following facts underlying the contract, which I will give you in the next prompt». «Facts of the case: […]. Draft contract: […]» In a further step, we ask the chatbot to incorporate the proposed points into the draft contract if we think they are also good and ask the chatbot to create a new draft. «Very good suggestions! Please incorporate these into the existing draft and create a new, amended draft of the SaaS licence agreement. Please take the facts underlying the contract into account again». 03.08 Often used contract clauses 03 Contract Law 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. Introduction (Preamble) 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). Confidentiality 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. Force Majeure 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). Subcontracting 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. Entire agreement 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 […]. 03.09 Coordination of contracts 03 Contract Law Parties regularly consider their agreements in isolation. However, it is also important that they are coordinated with agreements on the same contractual objects or areas. In relation to these, the agreements must not contain any contradictions and must be coordinated with them in terms of timing, especially with regard to their termination. For example, individual contracts must be compared with the corresponding general terms and conditions. These may not contradict these. But e.g. a software development contract must also be coordinated with a software maintenance contract. In this context, in particular the elimination of defects within the scope of the development contract must be distinguished from the elimination of faults within the scope of the maintenance contract. Defects are rectified free of charge, faults are rectified against payment. Currently, I have a case in my law practice in which a software licence agreement was not coordinated with a cloud contract. The client terminated the software licence agreement in the middle of the year, but still has to pay licence fees for a cloud in which the licenced software was installed until the end of the year, although he no longer needs the cloud without a licence. In large companies or organisations, the company-wide or organisation-wide coordination of contracts is a «mission impossible». This will probably only become really possible with the use of artificial intelligence. 03.10 Letter of Intent, Non-Disclosure and Non-Use Agreement 03 Contract Law So-called Letters of Intent are often concluded in the course of contract negotiations. These also included non-disclosure agreements. The latter can of course also be agreed separately. In my opinion, however, a non-disclosure agreement is not sufficient in many cases. In addition, a non- use agreement is also required. Letter of Intent The term «Letter of Intent» (short «LoI») is not defined anywhere in Swiss law. In legal practice, a LoI is usually concluded with a view to the conclusion of a main contract. A.i., the conditions for the contract negotiations will be regulated, in particular who bears the costs incurred, nota bene if the main contract is not concluded. Typically, a LoI does not oblige to conclude the main contract (!), but regulates, a.i., the consequences of the failure to conclude the main contract. A simple example is the case in which prospective buyers of a house, which still requires extensive preparatory work on the part of the seller or the estate agent, undertake to pay a certain amount for the corresponding expenses and a new tender if the purchase is not concluded (legally also called «forfeit money»). Non-Disclosure Agreement A Non-Disclosure Agreement (short «NDA») is a confidentiality agreement. The agreement contains the promise not to disclose information to third parties, that is not known to them. Thus, part of an NDA can only be what is not already known to third parties. In addition, it is important that a confidentiality agreement is combined with a contractual penalty (CO 160 ff.), which must also be high enough to «motivate» the obligated party to comply with it. A disproportionately high contractual penalty can, however, be reduced to an acceptable level by the judge in a dispute (CO 163). An NDA without penalty is like a tiger without teeth. Non-Use Agreement Especially with regard to innovations, practice shows that an NDA is not enough. In addition, a Non- Use Agreement (short «NUA») is required, which not only prohibits the obligated party from disclosing secret information to third parties, but also from using this information itself and unauthorised by the owner, or from supporting third parties in their use. This agreement must also be combined with a contractual penalty (see above). 03.11 General Terms and Conditions 03 Contract Law General Terms and Conditions, short GTC, also just «General Terms» are contractual clauses that a party formulates and applies generally to all its business relationships or at least to a specific business area. Thus GTCs serve on the one hand to rationalise, but for smaller companies GTCs can also serve as a checklist. This means that once you formulate your General Terms, you may even consult a lawyer for this purpose, and then you no longer have to ask yourself what you should agree on every time you conclude a business transaction. However, GTCs also have an important function in negotiations. If you enter into contract negotiations with your own ready-made contract clauses, you have a good chance of enforcing them in the negotiations (contract dominance), if only because many people think that GTCs cannot be changed. The latter is of course not true. GTCs can always be changed by individual agreements. From a legal point of view, it is even assumed that the other party to the contract does not read or read but does not understand the GTC at all. For this reason, two special rules are applied to GTC. The ambiguity rule is based on the principle of good faith (Swiss Civil Code, CC 2) and is generally applied in contract law. The rule states that ambiguous clauses, in this case in the GTC, are interpreted in favour of the party who must adopt the GTC and to the disadvantage of the party who uses them (latin also: in dubio contra stipulatorem). There is also the rule of unusualness. According to this rule, provisions in the GTC are non-binding for the obligated contractual partner if this contractual partner did not have to expect a provision that is unusual for the respective transaction. Logically, GTC must be presented to the other contracting party before the conclusion of a contract (CO 1). It is best to attach the GTC to the offer. The presentation of the GTC together with the invoice would be clearly too late. Nowadays, it often happens that both or more parties to an agreement have their own GTCs which they want to apply in the contractual relationship. However, this is not advisable. The so- called «Battle of the Forms» can occur if the GTC are contradictory. The solution is to take one set of GTC and adapt it in an individual contract to the acceptable wishes of the other party/ies. 03.12 Licence agreement 03 Contract Law Definition A licence is a contract on the use of intellectual property rights (trade mark, patent, copyright, design –> Chapter 10 Intellectual Property Law). However, it is also possible to license know- how that does not constitute an intellectual property right. Both are often combined in licence agreements. The word «licence» comes from the Latin «licet», which means «it is permitted». In Switzerland in particular, a licence is a so-called innominate contract, i.e. a contract that is not regulated in Swiss law; surprisingly, it is not yet, since the licence contract is one of the most frequently concluded contracts today. According to the system (I have never counted them …), there are currently 160 apps on my iPhone alone, i.e. software applications whose right of use is covered by at least one licence each. Difference between licence and purchase agreement The licence and the purchase agreement differ in the scope of the transfer of rights. While a licence merely transfers a right of use to the licensee, a purchase agreement transfers ownership to the buyer. Parties to a licence agreement With a licence agreement, the licensor transfers to the licensee the right to use an intellectual property right or know-how (s. above). Ideally, the contracting parties are named in this way at the beginning of the contract so that their names or companies do not have to be written out repeatedly in the rest of the licence. Scope of the licence In a licence agreement, the scope of the transfer of the rights of use must also be regulated factually (e.g. software for use in insurance industry [but e.g. not financial industry]), temporally (e.g. licence for one year) and geographically (part of a country, country, world). If there is no corresponding contractual rule with regard to copyrights or if it is unclear, in Switzerland the so-called purpose transfer theory applies. Benefits for licensors and licensees With a licence, the licensor can exploit his intellectual property right or know-how several times, whereas this is not possible with a sales contract, for example. This gives the software developer a decisive economic advantage over the baker, who can only sell a croissant once. This circumstance made Bill Gates a.o. a billionaire! The licensee, on the other hand, benefits from the reputation or technology or know-how of the licensor. He can thus save costs in development and/or marketing. Types of licences In practice, the parties to licence agreements are often unaware of the type of licence they have and even designate it incorrectly. The following is an overview of the most important types of licences. In the case of a simple licence, which is probably the most commonly used type, the licensor reserves the right to use the licensed intellectual property right or know-how itself and to license it to an open number of other interested parties. In the case of a sole licence, the licensor reserves the right to use the licensed intellectual property right or know-how himself, but undertakes not to license it to any other third parties than the single licensee. In the case of an exclusive licence, the licensor grants a licence for an intellectual property right or know-how only to a single licensee and also refrains from using the right himself. The licensor thus runs the risk that the licensee either does not commercialise his rights or does not commercialise them sufficiently, while the licensor himself is not allowed to operate in the corresponding market. For this reason, a minimum licence fee is regularly agreed for exclusive licences to compensate for this risk a priori. Finally, the right to sublicense should be mentioned. A licensee may only sublicense licensed intellectual property rights or know-how to third parties if he has explicitly received this right from the licensor. Creative Commons Licences In the context of the license agreement, reference is also made to Chapter 10 Intellectual Property Law – Creative Commons Licenses.