Markus Dörig February 17 2003 Supreme Court Case Law Update Badertscher Attorneys at Law | Corporate & Commercial - Switzerland Markus Dörig Corporate & Commercial Duty to Disclose Asset Acquisitions Let the Buyer Beware Duty to Disclose Asset AcquisitionsUnder Swiss law a share corporation must have a minimum capital of Sfr100,000, which can be paid in cash or in kind. In general, there are no limitations on what may be contributed in kind. However, the interests of the public, the company's creditors and other shareholders are protected by the following provisions: If a shareholder makes a contribution in kind, the articles of incorporation must indicate the asset and its value, together with the name of the contributor and the shares issued to him (Article 628(1) of the Code Of Obligations); The founders must submit a written report on the asset's valuation, which must be examined by an auditor (Articles 635 and 635a of the Code of Obligations); and The founders are liable to the shareholders and the creditors if they intentionally or negligently make any incorrect or misleading statements as to the kind or valuation of such contributions (Article 753 of the Code of Obligations).In principle, this procedure is the same where the company intends to acquire assets from shareholders or third parties after its incorporation. In such cases the articles of incorporation must indicate the asset, the name of the contributor and the consideration to be given by the company (Article 628(2) of the Code of Obligations).In a decision delivered on March 21 2002(1) the Supreme Court considered whether a company violated this provision by failing to indicate in its articles of incorporation that it intended to acquire a hotel complex shortly after its incorporation. The court ruled that the company was not in breach of the law since the articles of incorporation stated that the company's commercial purpose was the acquisition of real estate to develop hotels and other commercial buildings. The Supreme Court stated that the company's acquisition of the hotel complex was covered by the purpose of its incorporation, and therefore it was not in violation of Article 628(2) of the Code of Obligations. Let the Buyer BewareAn important legal question with regard to the sales contract is at which moment the risk of loss passes from the seller to the buyer of an object. With regard to movable goods, Swiss law follows the Roman-law principle of periculum est emptoris (ie, the risk is with the buyer). According to Article 185(1) of the Code of Obligations, benefit and risk with regard to the object of the purchase pass to the buyer upon conclusion of the contract, unless special circumstances or agreements create an exception. The buyer must thus pay the full price of the object, even if it perishes or deteriorates before delivery. This does not correspond with the transfer of ownership, which occurs only at the moment that the object is physically transferred. The provision has been criticized by legal commentators and is therefore restrictively interpreted.In a recent case three parties - A, B and C - intended to incorporate a share corporation with a capital of Sfr100,000. A third party, D, was willing to finance the share capital and to subscribe to the shares. D agreed with the other three parties that after the company's incorporation, it would sell each of them back one company share a month. One and a half years after its incorporation, the company went bankrupt. On March 12 2002(2) the Supreme Court had to decide whether A, B and C were obliged to buy the remaining shares of the company. The Supreme Court saw no special circumstances in this case which justified making an exception from the principle of periculum est emptoris set out in Article 185. The funds which D provided were considered as a loan against the purchase price. Therefore, even though the company foundered after the conclusion of the contract, the buyers had to pay the price for its remaining shares.As the principle of periculum est emptoris is always applied if no special circumstances or agreements create an exception, it is highly recommended that sales contracts concluded under Swiss law make express provision for the passing of risk from seller to buyer. For further information on this topic please contact Markus Doerig or Istok Egeter at Badertscher Dörig 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. Endnotes(1) BGE 128 III 178 s.(2) BGE 128 III 370 ss.