Facts
The defendant sold several plots of land (including a residential building, a barn and meadows) in the agricultural zone to the claimants by means of a publicly notarised purchase agreement dated 15 October 2019. Ownership was to be transferred by the end of March 2020. On 3 February 2020, the defendant informed the claimants by SMS that it wished to 'cancel' the sale, and on 21 February 2020 justified this with a fundamental error pursuant to Art. 24 para. 1 no. 4 CO. It stated that at the time of concluding the contract, it had assumed that conversion of the barn (e.g. installation of an apartment with a lift) was ruled out under the then applicable building and zoning regulations. However, a municipal development concept was already in the planning stage, which envisaged the creation of a hamlet core zone allowing conversions.
The claimants filed an action with the District Court of Hinwil on 17 July 2020, seeking transfer of ownership and damages of CHF 37,566.-- for consequential costs. The District Court ordered the defendant to transfer ownership in its judgment of 27 April 2021, but dismissed the claim for damages due to insufficient substantiation. The defendant appealed, which the Higher Court of the Canton of Zurich dismissed in its judgment of 3 December 2021. The Higher Court held that the appeal based on fundamental error was contrary to good faith in commercial dealings, as the defendant had negligently failed to make current enquiries regarding conversion possibilities.
The defendant then filed an appeal in civil matters with the Federal Supreme Court and sought to have the higher court’s judgment set aside and the claim dismissed. It particularly alleged a violation of Art. 24 para. 1 no. 4 CO and argued that its error was not due to negligence, but rather to a binding statement from the competent authority in 2016.
Considerations
The Federal Supreme Court first examined the procedural requirements for the appeal and admitted it. The central issue was whether the defendant was justified in relying on a fundamental error pursuant to Art. 24 para. 1 no. 4 CO. Such an error requires that the error relates to a specific fact which, according to good faith in commercial dealings, was considered a necessary basis of the contract. Moreover, the error must objectively appear as an essential basis of the contract. Case law emphasises that an error regarding future facts is only relevant if, at the time of contracting, those facts could objectively be regarded as certain and the other party could have recognised the occurrence of the event as a contractual prerequisite (see FSCA 118 II 297 para. 2b).
The lower court found that although the defendant had subjectively assumed that conversion of the barn was impossible, this assumption was based on information that was three years old. As a diligent contracting party, the defendant should have made current enquiries, particularly since the municipal development concept was publicly discussed and a simple enquiry with the municipal administration could have revealed the error. The lower court regarded the failure to make such enquiries as negligent conduct pursuant to Art. 26 CO. While negligent error does not in principle preclude reliance on fundamental error, in combination with other circumstances it may lead to a finding of bad faith (see FSCA 117 II 218 para. 3b).
The defendant argued that it had been entitled to rely on the binding statement from the authority in 2016 and was not obliged to re-examine the legal situation. The Federal Supreme Court rejected this argument and confirmed that the lower court had correctly assessed the specific circumstances. As a long-standing resident of the municipality, the defendant should have been aware…