The validity of a contract under Swiss law rests on the free and informed consent of the parties. When consent has been vitiated by an error, deception or duress, the law offers the injured party the possibility of invalidating the contract. The Code of Obligations (CO) distinguishes three main categories of defects of consent: error (arts. 23–27 CO), fraud (art. 28 CO) and founded fear/duress (arts. 29–31 CO). PBM Avocats, a firm in Geneva and Lausanne, advises and represents parties confronted with these situations in both preventive counsel and litigation.
Essential Error (arts. 23–24 CO)
Art. 23 CO provides that a party who contracts under the influence of an essential error is not bound. Art. 24 CO enumerates the cases of essential error:
- Error as to the nature of the contract: a party believes they are concluding a loan when it is in fact a gift;
- Error as to the object: error as to the identity or essential qualities of the thing, e.g. buying a painting believing it to be an original when it is a copy;
- Error as to quantity: calculation or measurement error exceeding the limits of reasonable approximation;
- Error as to the identity or qualities of the other party: where the person of the other contracting party is decisive (intuitu personae);
- Error as to a fact that good faith in business dealings permitted to be regarded as a necessary element of the contract.
A calculation error (art. 24 para. 3 CO) does not give rise to invalidation of the contract but only to its rectification. Art. 25 CO also imposes an important limitation: the party invoking the error is bound to compensate the loss caused to the other contracting party if the error is attributable to them (reliance theory).
Fraud (art. 28 CO)
Fraud is the most serious defect of consent. It consists of intentionally inducing the other party into error by false assertions or by concealing facts that good faith required to be disclosed. Art. 28 CO sets out three cumulative conditions:
- The existence of fraudulent manoeuvres (false assertions, fraudulent silence);
- Intent to deceive (fraud requires bad faith, not mere negligence);
- A causal link between the manoeuvres and the conclusion of the contract.
Fraudulent silence deserves particular attention: there is fraud by omission when a party deliberately conceals a fact that it had a duty to disclose in accordance with good faith (art. 2 CC). Case law recognises such a duty notably in the sale of real estate (hidden defects known to the seller), business transfers (actual financial situation) or insurance contracts (risk declaration).
| Defect | Legal Basis | Main Condition | Effect |
|---|---|---|---|
| Essential error | Arts. 23–24 CO | Error as to an objectively essential element | Invalidation, damages owed to good-faith counterparty |
| Fraud | Art. 28 CO | Intentional manoeuvres, even if error non-essential | Invalidation + tortious liability (art. 41 CO) |
| Founded fear | Art. 29 CO | Serious and imminent threat, justified fear | Invalidation + tortious liability |
Founded Fear / Duress (arts. 29–30 CO)
Art. 29 CO provides that a party who contracts under the influence of founded fear caused without right by the other party or by a third party is not bound. Fear is founded when a reasonable person would have been induced to contract in the same circumstances. It must relate to:
- Life or physical integrity;
- Honour or reputation;
- Property of significant value;
- The same threats directed at persons close to the party concerned (art. 29 para. 2 CO).
Art. 30 CO specifies that the threat of exercising a right may constitute founded fear if it is such as to paralyse the victim's freedom of decision. This may be the case when one threatens to exercise a legal right for an illegitimate purpose or by claiming advantages unrelated to the right invoked.
The One-Year Time Limit and Invalidation Procedure (art. 31 CO)
The party wishing to invalidate the contract for a defect of consent must do so within a one-year period from the discovery of the defect (art. 31 para. 2 CO). This period is a forfeiture, not a limitation: it is absolute and cannot be suspended or interrupted. Invalidation is effected by a declaration to the other party (art. 31 para. 1 CO); it is not automatic. After this period, the contract is deemed ratified and can no longer be challenged on this ground.
The declaration of invalidation must be clear and unequivocal. It may be made in writing or orally, but for evidentiary reasons, a registered letter with acknowledgement of receipt is strongly recommended. In the event of a defect arising from fraudulent silence, the period begins to run from the moment the victim becomes aware of the concealed fact.
Consequences of Invalidation
Invalidation of the contract entails its nullity with retroactive effect (ex tunc). Performances already rendered must be returned under the rules of unjust enrichment (arts. 62 et seq. CO). If performances cannot be returned in kind, monetary compensation is due. In the event of fraud or founded fear, the injured party may additionally claim damages based on art. 41 CO (tortious liability) or on pre-contractual liability.
Frequently Asked Questions about Defects of Consent
What is the time limit for invoking a defect of consent under Swiss law?
The time limit to invalidate a contract for defect of consent is one year from the day the defect was discovered (art. 31 para. 2 CO). This is a forfeiture period (not a limitation period), meaning it cannot be interrupted or suspended. After this period, the party who knew of the defect is deemed to have ratified the contract. It is therefore imperative to consult a lawyer without delay upon discovering the defect.
Is the distinction between an essential error and a non-essential error important?
Yes, it is decisive. Only an essential error (arts. 23–24 CO) allows the contract to be invalidated: this is an error relating to the nature of the contract, the identity or qualities of the party, or facts that were to be considered as determining elements of the contract. An error as to the reasons (e.g. an incorrect calculation of the cost price) does not in principle constitute an essential error unless it was recognisable by the other contracting party. A non-essential error only gives rise to a reduction of counter-performance in certain cases.
What is the practical consequence of invalidating a contract for fraud?
In the event of fraud (art. 28 CO), the deceived party may invalidate the contract even if the error is not essential within the meaning of art. 24 CO. It has the right to restitution of its performance under the rules of unjust enrichment (arts. 62 et seq. CO). In addition, the perpetrator of the fraud incurs tortious liability (art. 41 CO) and the victim may claim damages, in particular for the loss suffered as a result of concluding the contract (negative interest).
Is founded fear (art. 29 CO) easy to invoke in practice?
No, Federal Supreme Court case law is strict. Founded fear requires: (1) a serious and imminent threat; (2) relating to life, health, honour or property; (3) as perceived by a reasonable person placed in the same circumstances. Ordinary economic pressure (take-it-or-leave-it offers, commercial ultimatums) does not constitute founded fear. However, threats of unjustified criminal prosecution or pressure exerted in a context of particular economic dependency may do so.
Can the contract be maintained while claiming damages for fraud?
Yes. The party who is a victim of fraud may choose to maintain the contract (express or tacit ratification) and claim damages on the basis of tortious liability (art. 41 CO) or pre-contractual liability (culpa in contrahendo, art. 26 CO by analogy). It may also request a reduction of the counter-performance if the fraud influenced the price. This strategic choice depends on the circumstances and merits in-depth analysis with a lawyer.