Default interest is owed to the creditor if the debtor is late in fulfilling their obligation. This is outlined in Article 104 para. 1 of the Code of Obligations (CO), which states that "the debtor who is in default for the payment of a sum of money owes default interest at 5% per annum, even if a lower rate had been agreed upon by contract."
Thus, the creditor is entitled to default interest starting from the point of default by the debtor. This assumes that the main claim is due, that the delay in performance is unjustified, and that there has been a formal demand for performance.
The claim must be due: This means that the creditor can demand the performance and the debtor is required to fulfill it. The moment when the performance becomes due is primarily determined by the parties’ agreement. In the absence of an agreement, Article 75 CO presumes that the performance is immediately due at the time of the contract's conclusion.
The delay must be unjustified: This means that the debtor cannot invoke any exceptions or objections (e.g., Art. 82 CO, 83 CO, 127 CO) justifying the non-performance of the otherwise due obligation.
The creditor must formally demand performance from the debtor (Art. 102 para. 1 CO): This involves a declaration by which the creditor clearly indicates that they are demanding the performance of the due obligation without delay (e.g., invoice reminder, payment order, initiating legal action for performance).
Default interest begins to accrue the day after the conditions for default are met. The default ends with the performance of the obligation.
In the case of default, interest is owed automatically, meaning that the creditor does not need to prove the existence of damage or fault on the part of the debtor.
Default interest depends solely on the amount of the debt and the duration of the default. The rate is 5%, unless the contract specifies a higher interest rate (Art. 104 CO). The parties can freely set the rate of default interest as long as they respect the legal limits (Art. 19-20 CO and Art. 105 para. 3 CO).
Article 105 para. 3 CO prohibits compound interest—where new default interest accrues on the existing default interest due.
It should also be noted that Article 106 CO provides that when the damage suffered by the creditor due to the debtor’s delay exceeds the default interest, the debtor is also required to compensate for this additional damage, provided that the default is attributable to the debtor’s fault.
If you wish to obtain more information on this topic, Valentin Legal Consultation will be pleased to assist you at its office located at Rue du Valentin 1, 1004 Lausanne. You can also reach us by phone at 021 351 30 00 or by email at info@cjdv.ch.
Sources: Annotated CC/CO (Braconi/Carron, 2016); Civil Actions (Bohnet, 2014)
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