Smart contracts: do they have legal value?

“Smart contract” evokes the idea of an agreement that executes itself, with no lawyers or courts. But does a piece of code on a blockchain really bind those who use it? The Swiss answer is more nuanced than the name suggests.

First distinction: code is not contract

A smart contract, technically, is a program that runs on a blockchain and automatically executes instructions when certain conditions occur (“if payment arrives, transfer the token”). It is not a contract in the legal sense: it is a tool of execution.

The contract proper — the meeting of two wills over an object and a cause — remains a concept of the law of obligations. The smart contract may be the means by which that contract is performed, but the two planes do not coincide.

What Swiss law says

The Code of Obligations is, fortunately, technologically neutral. The cardinal principle is freedom of form: save for exceptions provided by law, a contract is valid regardless of how it is concluded. An agreement expressed through code and on-chain transactions can therefore be fully binding, provided there is:

a concurring expression of will by the parties;
a lawful and determinable object;
the capacity to contract.

In this sense, a smart contract can give rise to real obligations. Switzerland has also adapted its legal system with the so-called Distributed Ledger Technology (DLT) Act, which introduced ledger-based securities: tokens that can incorporate claims or membership rights in a legally recognised way, with transfer effects comparable to those of securities.

The limits to know

The fact that code can bind does not mean everything can be automated. Some knots remain:

Qualified forms: certain acts require written form or a public deed (for example certain property transfers, some guarantees). A smart contract alone does not satisfy them.
Defects of will: error, fraud, undue influence remain grounds for invalidity. The code executes, but a judge can still annul the underlying agreement.
Interpretation: when a dispute arises, what counts is the parties’ real will, not just what the code executed. A bug or unexpected behaviour of the program does not rewrite the agreement.
Illegality: content contrary to mandatory rules or public policy is void, however elegantly it was written in Solidity.

The problem of irreversibility

The strength of the smart contract — automatic and immutable execution — is also its risk. If the code transfers funds by mistake, the blockchain does not give them back. Substantive law may recognise a restitution claim (unjust enrichment, rescission), but actually recovering the value depends on being able to identify the counterparty and act against them.

Hence the importance of a contractual framework that accompanies the code: who the parties are, which law applies, which forum decides, what happens if the program behaves unexpectedly.

The recommended approach: the hybrid contract

In practice, the robust solution is not “code instead of contract”, but code plus contract. You draw up a traditional legal agreement that:

defines the parties and their identities;
describes what the smart contract must do and how it behaves in case of malfunction;
establishes the applicable law and the competent forum;
governs the cases the code cannot handle (force majeure, amendments, termination).

The code executes the routine; the contract governs the exceptions and the disputes. It is the setup that holds together efficiency and legal certainty.

The role of structuring

For a company that wants to use smart contracts — conditional payments, tokenisation of rights, automation of flows — the value lies in designing the legal architecture before writing the code. Activities that touch on the custody of others’ assets or regulated financial services also require licensing checks: those go through authorised partners, while we handle structuring and advisory directly.

This content is informational and does not replace legal advice on the specific case.

Are you considering smart contracts or tokenisation for your business and want a solid framework? Let’s talk about it.