Contract breach under Swiss law triggers precise legal mechanisms, governed primarily by arts. 102 to 109 of the Code of Obligations (CO). Whether it concerns a commercial contract, a service provision or a partnership agreement, the consequences of non-performance may be considerable: rescission of the contract, restitution of performance already provided, and above all compensation for the harm suffered. PBM Avocats, a law firm in Geneva and Lausanne, assists its clients both in the prevention of contractual disputes and in their judicial or amicable resolution.
Debtor Default (Art. 102 CO)
Default is the state in which the debtor finds themselves when they fail to perform at maturity while performance is still possible. Under art. 102 CO, the debtor is in default upon maturity if a term has been set, or upon receipt of a formal notice in other cases. Formal notice is a unilateral declaration of receipt: it must reach the debtor and clearly indicate which performance is expected.
From the moment the debtor is in default, they bear the consequences of the delay: default interest accrues at the legal rate of 5% per year (art. 104 para. 1 CO), and they are liable for the additional damage caused by the delay, including force majeure (art. 103 CO) — unless they prove that the damage would have occurred even with timely performance.
The Additional Period and Rescission (Art. 107 CO)
When the debtor is in default with respect to a synallagmatic obligation, the creditor cannot immediately rescind the contract. They must first set a reasonable additional period. This period must be reasonable in view of the nature of the performance and the circumstances; the Federal Supreme Court has held that a period of 10 days may be sufficient for many commercial obligations. Upon the unproductive expiry of this period, the creditor has a choice:
- Maintain the contract and claim performance in kind and damages for delay;
- Renounce performance in kind and claim positive damages (performance interest);
- Rescind the contract and request restitution of performance already provided, with possible negative damages.
The declaration of rescission must be made immediately after the expiry of the additional period for it to be valid (art. 107 para. 2 CO). Excessive delay in this declaration may be interpreted as tacit renunciation of the right of rescission.
Cases Where the Additional Period Is Not Required (Art. 108 CO)
Art. 108 CO provides for three situations in which the creditor may rescind the contract without granting an additional period:
| Case | Legal Basis | Condition |
|---|---|---|
| Fixed deadline (Fixgeschäft) | Art. 108 no. 1 CO | Performance after maturity no longer holds interest for the creditor |
| Manifest refusal to perform | Art. 108 no. 2 CO | The debtor openly declares they will not perform |
| Manifest futility of the period | Art. 108 no. 3 CO | Circumstances make the granting of a period manifestly futile |
Damages in the Event of Contract Breach
Under Swiss law, contractual liability rests on the presumed fault of the debtor (art. 97 CO): it is for the debtor to prove that they committed no fault in order to exonerate themselves. The creditor must for their part establish:
- The existence of patrimonial damage (reduction in assets or loss of profit);
- An adequate causal link between the non-performance and the damage;
- Non-performance or defective performance of the contract.
Positive damages (performance interest) aim to place the creditor in the position they would have been in had the contract been perfectly performed. They may include lost profit, costs incurred in vain, and replacement costs (cover price). Negative damages (negative interest), applicable in the event of rescission, aim to place the creditor in the situation prior to the conclusion of the contract.
Summary Table of Creditor's Remedies
| Situation | Available Remedies | Legal Basis |
|---|---|---|
| Simple default | Default interest (5% per year), delay damages | Art. 103–106 CO |
| After unproductive additional period | Performance + delay damages, or positive damages, or rescission + negative damages | Art. 107 CO |
| Fixed deadline or manifest refusal | Immediate rescission without additional period | Art. 108 CO |
| Partial performance | Total rescission if indivisible interest, otherwise partial | Art. 109 CO |
Rescission of the Contract and Its Effects (Art. 109 CO)
Rescission of the contract under Swiss law in principle produces an ex nunc effect (for the future), with an obligation of restitution of performance already provided according to the rules of unjust enrichment (arts. 62 et seq. CO) or the special rules of the type of contract. The parties are restored to the state prior to the conclusion of the contract. The creditor who rescinds the contract may simultaneously claim negative damages — that is, the costs and expenses incurred with a view to performing the contract which have proved useless.
It is important not to confuse rescission for non-performance with termination, which is the mode of extinction of continuing contracts (lease, employment, mandate) producing its effects only for the future. For questions relating to the limitation of claims arising from a contract breach, the general period is 10 years (art. 127 CO), subject to special shorter periods.
Practical Strategy in the Event of Contract Breach
Faced with a contract breach, several steps are required:
- Immediately document the failures (written exchanges, evidence of non-performance);
- Send a written formal notice specifying the expected performance and the allotted period;
- Preserve evidence of the damage suffered (invoices, replacement offers, estimates);
- Evaluate the opportunity of an amicable resolution or a mediation procedure;
- If necessary, seize the competent civil courts (court of first instance in Geneva, civil district court in Lausanne).
Frequently Asked Questions on Contract Breach in Switzerland
What is the difference between default and definitive non-performance?
Default (art. 102 CO) presupposes that performance is still possible but that the debtor has not performed within the allotted time. Definitive non-performance occurs when performance has become impossible (art. 119 CO) or when the debtor definitively refuses to perform. In the first case, the creditor may grant an additional period and then rescind the contract (art. 107 CO); in the second, they may proceed directly to claim damages without going through the formal notice procedure.
Must formal notice always be given before rescinding a contract?
In principle yes. Art. 107 para. 1 CO requires that the creditor grant the defaulting debtor a reasonable additional period to perform before being able to rescind the contract or claim damages in lieu of performance. However, this period is not required when performance has become impossible, when the debtor has manifestly renounced performance, or when the parties have agreed on a fixed deadline (art. 108 CO).
What damages can be obtained in the event of contract breach?
Under Swiss law, contractual damages aim to place the creditor in the position they would have been in had the contract been correctly performed (positive interest). They comprise actual damage (damnum emergens) and lost profit (lucrum cessans), provided that these losses are proved and in an adequate causal relationship with the non-performance. The claimant has an obligation to mitigate their damage (art. 44 CO).
What happens if the contract contains a complete performance clause (no-breach clause)?
Swiss contract law is largely dispositive, meaning that the parties may contractually adjust the conditions of breach, notice periods, or even provide that a minor breach leads to rescission. These clauses are in principle valid, subject to art. 100 CO (exclusion of liability for fraud or gross negligence) and mandatory provisions of the Code of Obligations. PBM Avocats advises on the drafting of these clauses to guarantee their effectiveness.
Can the court moderate damages in the event of contract breach?
Yes. Art. 43 CO confers on the court the power to fix the manner and extent of compensation according to the circumstances. Art. 44 CO allows for a reduction of damages if the injured party contributed to the creation of the damage or if the debtor is only slightly at fault. However, this moderation is not possible when a penalty clause has been agreed, except for the application of art. 163 para. 3 CO (judicial reduction of an excessive contractual penalty).