Markus Dörig November 18 2002 Supreme Court Offers Guidance on Interpretation of Contracts Badertscher Attorneys at Law | Corporate & Commercial - Switzerland Markus Dörig Corporate & Commercial The Swiss courts have developed a number of rules on the validity of contracts and agreements. In general, the interpretation of contracts/agreements follows the so-called 'principle of confidence'. This means that contracts and agreements are not understood in the sense of what the declaring party may have had in mind, and neither is the wording alone decisive. Rather, the court seeks to establish the good-faith intent of both parties when entering into the contract or agreement. This rule is applicable to the form as well as the content of the contract or agreement. According to Article 18 of the Swiss Code of Obligations, an incorrect statement or manner of expression used by the parties - whether due to error or with the intention of concealing the true nature of the contract - will be discharged by the court. Instead of this incorrect statement or manner of expression, the court will consider all the circumstances surrounding the individual case. Therefore, features such as the parties' behaviour, earlier drafts, different stages of the negotiations and customary practices in the relevant field can help the court to decide the true meaning behind the contract. In a recent case (BGE 127 III 444) the Swiss Supreme Court had to interpret a balance receipt. To decide whether this balance receipt was an agreement or not, the court sought to discover what the parties had in fact intended to agree upon. The Supreme Court stated that the judge has a duty to look beyond the simple facts to determine the parties' real intent. It confirmed that to this end, the judge can employ interpretative methods even where the wording of the contract or agreement appears to be crystal clear. For further information on this topic please contact Markus Doerig or Désirée Pongratz at Badertscher Doerig Poledna by telephone (+41 1 266 20 66) or by fax (+41 1 266 60 70) or by email ([email protected] or [email protected]). The Badertscher Doerig Poledna website can be accessed at www.bdp.ch.