General Rule

Brazilian law provides that the laws of the country in which the obligations are created shall apply. However, if the obligations are to be carried out in Brazil and require a specific form, Brazilian law shall apply, while recognising the particular features of the foreign law with respect to the external elements of the act. (Article 9 of Lei de Introdução às Normas do Direito Brasileiro, LINDB).

International Contracts

Doctrine and case law have long established that the principles of “autonomy of will” and pacta sunt servanda, which are embraced by Brazilian contracts law, allow the election of a foreign law to govern a contract where: (i) the obligation is to be carried out abroad; (ii) the contract is of an international nature, involving other jurisdictions; (iii) the choice of foreign law is not random, but rather shows adherence to the nature of the contract; and (iv) the application of the chosen foreign law would not violate Brazilian public law, order, constitutional principles or good morals, in which case it might be disregarded and Brazilian law shall apply instead.

Proposed New Legislation

A Private International Law bill is currently under discussion in the Brazilian Congress and should bring about greater clarity to international contracts issues such as choice of applicable law, by translating into law the guidelines long established by doctrine and case law.

General Rule

The general rule in Brazilian contracts law is the freedom of form provided for in Article 107 of the Brazilian Civil Code (BCC). The will of the parties can be expressed through any means, including words, writing of any kind (public or private), and even gestures and verbal contracts. Contracts can also be written in any language and be valid among the parties; however, to be enforceable in court, a sworn translation into Portuguese is required. To be enforceable against third parties (or if the parties wish to grant publicity to the contract and its terms) it must be sworn translated into Portuguese and registered before the competent deeds and covenants registry office of the place of domicile of the parties.

Solemn Contracts

Formal or solemn contracts are an exception to the general rule and are expressly provided by law. Any disregard for the required specific form or formalities will render the contract null and void. Examples of solemn contracts:

• real estate purchase and sale contracts;
• real estate donations;
• marriage contracts;
• wills;
• insurance;
• franchise;
• pledge (penhor);
• guarantee (fiança); and
• mortgages.

The main differences between the rules of the Vienna Convention on the International Sale of Goods (CISG) and the Brazilian contracts law are as follows.

Scope of Application

CISG

Applies to contracts for the sale of movable property between parties in different countries, provided these countries are signatories to the CISG. The CISG was designed to unify and harmonise international commercial law, overcoming legal and cultural barriers. Its provisions may be applied in whole or in part (or not at all) by the parties.

Brazilian contracts law

Governs sales contracts of both movable and immovable property executed in Brazil. It is the applicable law by default for domestic transactions and its provisions cannot (in full or in part) be opted out by the parties, as these are matters of public order and binding force.

Applicable Law

CISG

Embraces the concept of autonomy of will and allows for the free choice of applicable law and jurisdiction.

Brazilian contracts law

Is much more restrictive and provides for several rules that must be observed regarding the choice of applicable law (the general rule is the jurisdiction where the contractual obligations will be carried out) and jurisdiction.

Offer and Acceptance and Contract Formation

CISG

Offers and acceptance are more flexible. The CISG does not require a specific form for the contract (it can be verbal), and the contract is considered concluded when acceptance of the offer becomes effective, provided it has not been timely withdrawn or revoked. Offers may not be revoked if a deadline is set for acceptance or if it is otherwise indicated that it is irrevocable, and if, despite the revocability not being expressed, it would be reasonable for the recipient to conclude this and act in accordance with their confidence in the offer received.

Brazilian contracts law

The irrevocability of the offer is the general rule, whilst revocability is the exception, and the proponent may even be liable for losses and damages if there is a change or unreasonable withdrawal of the offer. In some cases, the law requires specific form.

Offers to the Public

CISG

Offers addressed to uncertain persons will be considered only mere invitations to present offers, without being binding.

Brazilian contracts law

An offer to the public will be considered binding when it contains the essential requirements of the contract (description of the object/product, price and payment terms).

Transfer of Ownership

CISG

The CISG does not address the transfer of ownership, which depends on the choice of applicable law. It focuses on the obligations of the parties (seller and buyer) regarding the delivery and payment for the goods.

Brazilian contracts law

The transfer of ownership of goods occurs by effective delivery, while that of real property occurs by registration at the Real Estate Registry Office.

Party’s Obligations

CISG

Details the obligations of the seller (delivery of the goods, required documentation and ownership transfer, if required by the applicable choice of law) and the buyer (payment of the price and receipt of goods). It also regulates the proceedings to be pursued in case of non-conforming goods.

Brazilian contracts law

Addresses the obligations of the parties more generally and provides for the right of eviction (guarantee against loss of the subject matter by court order), and hidden defects that render the goods unfit for the proposed use or diminishes its value.

Price Reduction

CISG

Allows for a price reduction when the goods do not conform to the contract, are unsuitable for use or are defective.

Brazilian contracts law

Allows for a price reduction when the goods do not conform to the contract, are unsuitable for use and are defective (latent or not).

Default and Contract Termination

CISG

Allows for the suspension of the contract or its termination (called annulment) in the event of a fundamental breach. The breach is considered fundamental if it causes such harm that the other party is substantially deprived of what they were entitled to expect from the contract should it have been performed. The CISG provides for the existence of three basic rights for the buyer in the event of the seller’s failure to comply with any obligations: the right to request specific performance of the contract (Article 46 of the BCC), to terminate it (based on Article 49 of the BCC), or to request a reduction in the price (Article 50 of the BCC). Specific performance from the buyer’s perspective means a request for delivery of replacement goods and a request for repair in case of defects.

Brazilian contracts law

Adopts the concepts of mora (delay in fulfilling the obligation) and absolute non-performance (impossibility of fulfilling the obligation). The concept of contract suspension is absent. Brazilian law also recognises the possibility of termination, repairing of goods in case of defaults, claiming for damages and specific execution in the event of breach of contract. Brazilian law also recognises the concepts of injury, occurring when a person, out of necessity or inexperience, enters into a contract with an imbalance, and of excessive burden, in case of subsequent imbalance caused by an extraordinary and unforeseeable event, making the contract excessively burdensome. Injury occurs at the time of contract execution, with the imbalance between the parties present from the outset, while excessive burden manifests itself after the contract is signed, requiring its review or termination.

Brazilian Civil Code (BCC)

As a general rule, Brazilian contracts law is governed by the following principles as provided for in the BCC:

• freedom of will;
• good faith;
• law binding the parties – pacta sunt servanda;
• social purpose of contracts;
• economic balance among the parties (proportionality);
• relativity of contracts (effects are restricted to the parties); and
• legal security.

Specific Contracts

Further, some types of contracts are subject to specific requirements as expressly provided by law. This is the case, for instance, for the following type of contracts:

• franchise;
• commercial representation;
• labour;
• leasing;
• chattel mortgage;
• insurance;
• lease (real estate);
• consortium;
• public contracts (to which the State or government entity is a party); and
• maritime contracts.

Brazilian case law, in particular that of the Superior Court of Justice (STJ), has addressed the following topics, in order of relevance.

Application of the Brazilian Consumer Protection Code (BCPC) to Legal Entities

The issue is whether a legal entity also qualifies as a “consumer” under the BCPC and therefore benefits from its protection in commercial contracts. This discussion is fundamental to determine which law should apply (whether the general contracts law or the BCPC) to a commercial contract, directly impacting the validity of certain provisions, the shifting of the burden of proof in case of losses and the liability of the parties.

The STJ case law provides that a legal entity will only be considered a consumer, and therefore be protected under the BCPC, when it is the final recipient of the product or service and, furthermore, its technical, economic or legal vulnerability in the face of the supplier is shown. Without showing such vulnerability, the general rule on contracts law shall apply.

Theory of Unpredictability of Events (Teoria da Imprevisão) and Contractual Review

The review of contract provisions due to excessive onerousness, based on the theory of unpredictability, is a relevant topic, in particular in periods of economic instability. The STJ case law, however, is cautious and considers review exceptional, requiring proof of supervening and unforeseeable events that drastically alter the initial terms of the contract, thus unbalancing it. Simple market fluctuations, for instance, are expected and usually insufficient to justify judicial review. Events such as variations in price of commodities, pest attack on crops and major exchange rate devaluation have been found NOT to fulfil the requirements of the theory. Even the COVID-19 pandemic has not been included in the roll of unpredictable events which might give rise to a contractual review.

In addition, in contracts that are highly risky by their nature, such as in financial derivative contracts between a legal entity and banks, the theory does not apply, as unequal exposure to losses is a foreseeable risk knowingly undertaken by the parties beforehand.

In short, current case law on commercial contracts seeks a delicate balance between the protection of the parties, the autonomy of their free will and legal security. It shows concern in clearly setting the boundaries between consumer law and business (civil) law, emphasising the specialisation of commercial law to ensure that contracts between legal entities are interpreted in a way that encourages economic development and the fulfilment of obligations.

Interpretation and Validity of Contractual Clauses

The principle of pacta sunt servanda still prevails, but modern case law seeks to temper it with objective good faith and the social function of the contract. Notable topics include the following.

Liability limitation clauses

The STJ has validated contractual clauses that limit compensation for damages, establishing a cap for damages, provided there is no intent or bad faith and the limitation has been clearly and consciously agreed upon by the parties. Judicial control over possible abusive clauses in commercial contracts is more restricted than in other sectors of private law, as negotiations are usually conducted between business professionals.

Non-compete clauses

The validity of these clauses is analysed from the perspective of reasonableness. Case law requires that such clauses must be limited in time and space, and that there be fair compensation for the party obligated not to compete, so as not to undermine the right to freely practise their profession. Clauses without a time limit are voidable.

Arbitration in banking and adhesion contracts

The STJ has already ruled in favour of the validity of arbitration clauses in banking contracts, provided that the consumer has expressly agreed to it or initiates the arbitration. Case law seeks to ensure that the choice of arbitration is free and clearly informed, especially in adhesion contracts.

Social Function of the Contract

The social function of the contract imposes limits on the parties’ autonomy of will, requiring that contractual freedom be exercised in a way that does not harm third parties’ interests, but rather promotes the common good and human dignity. Case law prioritises contractual balance and justice, even if it implies the prevalence of social interest over private interest.

A typical example is health plan insurance contracts where the STJ has ordered insurance companies to cover/reimburse expenses not contractually provided for in demonstrating the priority of the right to life and good health.

General Rule

A commercial contract entered into in Brazil, by Brazilian parties and to be performed in Brazil shall be governed by Brazilian law.

Foreign Element

If there is a foreign element (either a foreign party or execution abroad) and the object of the commercial contract allows, a particular set of rules such as Incoterms or the CISG, to which Brazil is a signatory, can be selected.

No Provision

If the agreement is silent as to choice of law, the general rule is that the laws of the place where the obligation is undertaken (agreement is executed) shall apply, except if the contractual obligation is to be carried out in Brazil, in which case Brazilian law shall apply.

Real Estate Located Abroad

If the contract, even though executed in Brazil, concerns real estate located in a foreign jurisdiction, the laws of such country shall apply. For example: a sale contract regarding a property located abroad, entered into by two Brazilians, shall be governed by the laws of the place of the location of such real estate (Article 8 of the LINDB).

Succession of Foreigners in Brazil

Another exception to general rule is foreigner succession with regard to assets located in Brazil, where the most favourable law shall apply.

Arbitration Law

The Brazilian Arbitration Law (Law No 9/307/1996) provides in its Article 2, §1, that the parties may freely choose the rules of law that will apply to the arbitration procedure, provided that there is no violation of good customs or public policy and order. Therefore, an arbitration can be carried out in Brazil, but governed by a foreign law.

The following is a sample list of commercial contracts in which the choice of Brazilian law is mandatory:

• consumer relations, noticeably in adhesion contracts, in which the choice of foreign law may undermine consumers’ rights;
• labour relations for Brazilian employees working abroad for Brazilian companies, except if the foreign law is proven to be more favourable to the employee;
• when the choice of law shows to be disruptive or in violation of public law and local order; and
• when the foreign choice of law aims to evade a mandatory Brazilian rules (this might include tax reasons).

Foreign Jurisdiction Clause

This was once a controversial topic, but since 2016, the right to elect a foreign jurisdiction in contract has been fully incorporated into the Brazilian legal system, as per Articles 25 and 63 of the Brazilian Civil Process Code (BCPC), regardless of the nationality of the contracting parties. However, the choice of foreign jurisdiction is only upheld when the following criteria are met:

• the foreign jurisdiction must be stated in a written instrument (hence excluding verbal agreements);
• the instrument must expressly refer to a specific legal transaction (it has to be determined); and
• the choice of jurisdiction must be connected to the location of one of the parties or the place where the obligation will be carried out.

If one of these conditions is not met, the foreign jurisdiction clause may be deemed abusive or invalid. In this case, general rules of jurisdiction under Brazilian law will apply instead, which are mainly detailed in the BCPC.

Exceptions

The foreign jurisdiction clause will also be null and void in the following cases, in which the Brazilian judicial authority has exclusive jurisdiction, due to the principle of national sovereignty provided for in the Brazilian Constitution and the wording of Article 23 of the BCPC:

• real estate located in Brazil;
• will probate and succession regarding assets (movables and immovables) located in Brazil (in succession matters), even if the testator or deceased is of foreign nationality or had domicile abroad; and
• division of assets (movables and immovables) located in Brazil in case of divorce, separation or dissolution of a stable union, even if the parties are of foreign nationality or are domiciled abroad.

Case Law

For years, Brazilian jurisprudence has firmly accepted the adoption of the foreign jurisdiction clause in international contracts as a rule, such as with a case ruled by the Superior Court of Justice (STJ, REsp No 2422383/SP), in which the ruling judge affirmed:

“(...) there is no prohibition against including the clause of choice of jurisdiction in international contracts, even because, the moment we restrict the possibility of the international jurisdiction, we will be limiting the country’s negotiating capacity in a world that, today, quickly processes contracts in supranational terms.”

In another case, which involved the existence of a foreign jurisdiction election clause in a contract executed between a freight forwarder and a carrier, the international jurisdiction clause was fully endorsed by the São Paulo State Court (TJSP - Civil Appeal: 1121511-70.2022.8.26.0100), thus rendering the Brazilian court incompetent to hear the case. The matter had to be submitted to the international arbitration elected by the parties.

Consumer Law

In consumer contracts, even of international nature, the international jurisdiction clause may be considered null and void if it compromises the consumer’s access to justice, in which case the Brazilian courts will be considered competent to hear the case. The consumer is considered the weaker party of the commercial relationship, and therefore, should the consumer be in Brazil, Brazilian jurisdiction might apply, if the geographical distance, language barrier and prohibitive costs hinder the pursuit of justice in foreign courts. This is the case in particular in adhesion contracts, where the consumer has no bargaining power and is subject to the contract as is.

General Rule

Arbitration is a legal and valid choice of jurisdiction in any type of contract and supersedes court jurisdiction if duly elected by the parties.

Local and superior courts have been consistent in affirming the validity of the arbitration provision if the requirements prescribed by law are met. Attempts to submit the case to local courts, despite the choice of the arbitration clause, will result in the prompt dismissal of the lawsuit.

Exceptions

Arbitration clauses may be annulled and disregarded in some cases.

Brazilian Consumer Protection Code (CDC)

The choice of arbitration in consumer agreements is null and void. In consumer contracts, the arbitration clause will only prevail if the consumer, after the dispute arises, expressly agrees to resolve the dispute through arbitration or initiates it.

Lack of clarity

If the arbitration clause is vague, ambiguous or contradictory it will be disregarded.

In adhesion contracts

When the clause is inconspicuous (not highlighted in italics, bold, underlined, coloured or other) and there is no proper acknowledgment of the particular provision through a sign or symbol right above the clause.

Private, negotiable matters

Arbitration can only address private matters. Criminal, labour, tax or family matters, among others, are considered public matters and cannot be subject to arbitration.

United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards

Brazil is a party to the Convention, which was adopted by the Brazilian legal system in 2002. Therefore, Articles II 3 and V 2 of the Convention are already part of the Brazilian legal system and shall be observed. Such provisions are in accordance with the Brazilian Arbitration Law, No 9.307/96.

There are no laws protective of a national over a foreigner. Protective special legislation (such as consumer, commercial representation, labour, among others) will only attach because of the subject matter of the legal proceeding, but regardless of the nationality of the parties. A foreign consumer or commercial representative in Brazil will be protected by the same legal system as a national would, without distinction.

General Rule – Freedom of Contracts

Generally, contracts may be freely stipulated and are not subject to strict formalities; even verbal contracts are allowed. The broad principles of contracts law, such as the autonomy of will of the parties, good faith and legal security will govern these relationships. The same principles apply to atypical contracts.

Solemn Contracts

The law expressly prescribes the requirements for some specific types of contracts, such as real estate, wills, franchise and others as mentioned in 1.4 Mandatory Rules for Specific Contracts.

Concept

The Brazilian law welcomes the culpa in contrahendo concept by means of Article 422 of the BCC. The concept refers to the civil liability which may arise during the preliminary negotiations of a contract. In essence, it is the obligation to compensate for losses caused to the other party due to actions or omissions that violate objective good faith during the contractual negotiations, even if the contract is not executed.

Case Law

It is well established by the courts that a breach of a pre-contract implies presumed fault due to non-performance (culpa in contrahendo), in particular when one of the parties induces the other one to believe in the seriousness of the negotiations, and, nevertheless, withdraws unjustifiably from the negotiations, causing harm to the other. The faulty party shall compensate the other party for proven losses arising from this failed negotiation, due to violation of the principle of objective good faith.

Example in a Franchise Agreement

In a specific case of a franchise agreement under negotiation, the franchisor was ordered to compensate the investment made by the potential franchisee for the opening of a new store, after having encouraged the investment and then unreasonably withdrawn from the deal. Please note that consequential damages and loss of profit are not allowed in these situations.

General Rule

Brazilian contracts law does not provide for a specific form to render a contract valid, except for some specific types of contracts already mentioned in 1.4 Mandatory Rules for Specific Contracts. Therefore, the parties will have freedom of will and form to include the desired terms and conditions to govern a contract, as long as it does not violate the law, public policy or order.

Adhesion Contracts

In case of adhesion contracts, there is no or very little negotiation of terms and conditions, and the adhering party has no bargaining power. For those situations, the Brazilian and case law provide for some express rules aimed at the protection of the weaker party from abuse of economic power, such as a ban on liability limitation clauses.

General Rule

The battle of the forms will decide which set of standard terms will apply, unless it is an adhesion contract in terms of which the negotiation phase is non-existent. Examples where the local law’s standard terms and conditions will apply include contracts for public services (water, power, telephone), insurance, health plans, websites, app subscriptions and banking contracts.

All consumer contracts are regulated by the BCPC and subsidiarily by the BCC, which will protect the adhering party from economic power abuse, unfairness, unreasonableness of preset terms and conditions of a contract.

Invalidation of Standard Terms

Abusive provisions that put a party in an excessive disadvantageous position might be considered null and void and the parties might have to agree on a substitute provision considered fair, ensuring a balanced relationship among the parties to the contract whilst taking into consideration the initial intention of the parties when entering into it.

Unfair Provisions

Unfairness is the main reason for invalidation of a provision, and it shall render the provision null and void if it:

• exempts or mitigates, in any way, the supplier’s liability for the product’s defects of any nature;
• imposes unfair obligations, places the consumer at an unreasonable disadvantage, or is incompatible with good faith, the law, public policy or order; or
• forces the consumer to submit to an arbitration clause instead of a judicial court.

Brazilian contracts law does not accept incorporation of terms and conditions after the contract is formed, except if agreed by the parties (and this would count as a change to the initial terms and conditions). Partial acceptance of terms and conditions counts as a counteroffer; never as full acceptance. According to Article 431 of the BCC: “Acceptance after the deadline, with additions, restrictions, or modifications, will constitute a new offer.” Thus, the contract will only be formed when the most recent terms and conditions sent by either party are fully accepted, with no further modifications.

Terms and conditions shall be negotiated and expressly agreed upon prior to formation of the contract to be enforceable against any party.

General Rule

Electronic signature is widely accepted. In 2022, Brazilian law expressly recognised the validity of electronic signatures through regular platforms such as DocuSign, including with regard to contracts law. However, in particular regarding high-value assets such as real estate deeds, an official digital signature system known as “ICP-Brasil” might be required.

Case Law on Electronic Signature

The Brazilian courts have consistently validated electronic signatures, including signatures outside the scope of the ICP-Brasil system, if authenticity can be demonstrated in any other way. Presumption of good faith also applies. It is the plaintiff’s duty to prove that the challenged signature is false or invalid.

Notarial Deeds

As a general rule, a public notarial deed is essential to the validity of legal transactions aimed at the creation, transfer, modification or waiver of certain rights (real rights as opposed to personal rights) over real estate with value greater than 30 times the highest minimum wage in force in the country.

The following are the types of contracts that require a notarial deed to be valid:

• real estate sale and purchase agreement;
• real estate donation;
• mortgages;
• usufruct and use of real estate;
• accord and satisfaction (dação em pagamento);
• prenuptial agreements;
• definition of a real estate property as the “family asset”; a concept referring to the law protecting a family single real estate property;
• partition of assets (when out of court);
• amicable divorces and dissolution of stable unions (when out of court);
• the incorporation of certain types of companies;
• assignment of hereditary rights;
• creation of foundations;
• creation of residential condominiums; and
• income-creation contracts (contrato de constituição de renda).

Any type of contract can be registered before the relevant deeds and covenants registry in order to ensure its publicity and therefore enforceability against third parties. Some especial types of contracts, however, to be valid shall be registered in a deeds and covenants registry, real estate registry and/or civil registry, as per the Public Records Law (Law No 6,015/65):

• real estate sale and purchase agreement;
• real estate donation, if the value of the property is above 30 times minimum wages;
• mortgage;
• pledge of machinery or industrial equipment;
• rural pledge agreements;
• usufruct and use of real estate;
• fiduciary alienation of real estate as a security;
• accord and satisfaction (dação em pagamento);
• prenuptial agreements;
• agricultural or livestock partnership agreement;
• letters of guarantee in general (cartas de fiança); and
• assignment of rights and credits, the reservation of ownership and the fiduciary alienation of movable property.

For valid contractual formation, Brazilian law requires that the parties be legally capable of entering into contracts, that the subject matter of the contract be lawful and specific, and that the form used be permitted by law. Furthermore, the contract shall observe the contracts law principles, such as of objective good faith, the social function of the contract, and the autonomy of will of the parties.

B2B

The general rule is that B2B contracts shall be governed by the BCC in the absence of a more specific law, placing both contracting parties in a similar standing from an economic point of view, thus implying that the parties have had equal opportunity to negotiate the terms and conditions which are mutually acceptable.

In these types of contracts, the principle of minimal state intervention applies, whereby the state intervention is exceptional and justified only when there are illegalities and abuse, defects in form, excessive onerousness, substantial imbalance between the parties, or when the contract violates its social function and/or public policy and order. According to Article 421 of the BCC: “Contractual freedom shall be exercised within the limits of the social function of the contract. Sole paragraph. In private contractual relationships, the principle of minimal intervention and the exceptional nature of contractual review shall prevail.”

In 2019, Law No 13,874/19 (Economic Freedom Law) reinforced the binding nature of contracts (pacta sunt servanda). Greater government intervention in business dealings can compromise the predictability of contracts, leading to legal uncertainty and economic instability. Such law introduced the following provision in the BCC, which reads:

“Article 421-A. Civil and business contracts are presumed to be equal and symmetrical until concrete elements are present that justify the departure from this presumption, except for the legal regimes provided for in special laws, also ensuring that:

I – the negotiating parties may establish objective parameters for the interpretation of the negotiating clauses and their preconditions for review or termination;

II – the allocation of risks defined by the parties must be respected and observed; and

III – contractual review will only occur in exceptional and limited circumstances.”

B2C

B2C contracts, on the other hand, can be of a civil nature but are often regarded as a consumer relationship, to which BCPC shall apply. This is a protective code of law, favourable to the consumer and prevailing over the provisions of the BCC, the application of which is only subsidiary.

Consumer protection rights in B2C contracts, under Brazilian legislation, are mainly the following:

• clear and proper information regarding the product or service provided, including price, characteristics, use conditions, expiration date, risks;
• protection of life, health and safety. Potential hazards must be informed in detail, as well as (in case of food products) the presence of high amounts of sugar, salt, saturated fat;
• prohibition of misleading and/or abusive advertisement;
• retraction, under some conditions;
• guarantee of products and services, including right to exchange, repair or reimbursement in case of defects;
• prohibition of tied-in sales;
• unenforceability and/or annulment of unfair or abusive clauses;
• prevalence of the interpretation most favourable to the consumer, in case of doubt;
• prohibition of clauses establishing a foreign governing law and/or foreign jurisdiction, unless the consumer has clearly stated its acceptance; and
• litigation in the jurisdiction of the consumer’s place of residence, regardless of the location of the service or goods provider.

General Rule

In Brazil, civil liability is the legal duty to compensate third parties for damages (material or not) caused by a wrongful act, breach of contract or due to an activity risk. The objective is to restore the parties to the same conditions prior to the damage through indemnification.

Nature

The nature of liability can be subjective, when it requires proof of the fault and the agent’s intent, or objective (strict), when proof of fault is waived and compensation is based exclusively on the harm caused.

Core Elements

For civil liability to be established, the following core elements are necessary.

Damage

The violation of a right that causes harm or damage, whether pecuniary (patrimonial damages) or immaterial (pain and suffering or emotional distress). If there is no real damage (material or immaterial) caused, there is no civil liability and therefore no reparation.

Unlawful act

This requires the existence of an unlawful action or omission of a party that causes harm to another party, whether with intent or through negligence, recklessness or incompetence. However, in some cases even lawful acts could be subject to reparation. For illustration:

• the expropriation of a real estate property by public authorities is a lawful act, but it causes harm to the owner due to the loss of the property and requires adequate compensation; and
• the construction of a dam, even though strictly following all rules and legislation, can still cause harm to wildlife, the environment, and fishermen who depended on the waters for their livelihood. In such cases, compensation may be required for the fishermen’s lost income, for example.

Connection

This refers to the direct link between the unlawful act or omission and the harm suffered, that is, the harm must be caused by the perpetrator’s conduct. For illustration, if someone dies in surgery and the surgeon is accused of malpractice, but it is proven that the patient has died for natural causes, such as natural responses of the body, unrelated to any of the surgeon’s actions, there will be no connection – and no unlawful act to be repaired.

Punitive Damages

The Brazilian legal system does not provide for the concept of “punitive damages” – ie, that compensation should not only repair the damage done, but also act as punishment for the illegal practice. Some scholars state that this concept, which is originated in common law, is incompatible with the civil law of the Brazilian legal system, which aims at compensating pecuniary or pain and suffering damages, reverting the parties to the status quo prior to the occurrence of the damage.

Indemnification Cap

Brazilian law does not establish any indemnification cap. The general principle of civil liability is that compensation shall be measured by the extent of the damage done. The core concept, therefore, is reparatory; the objective is to return the party to the status quo prior to the occurrence of the damage.

Unjust Enrichment

Pursuant to Article 884 of the BCC, Brazilian law forbids unjust enrichment at the expense of another, unless there is a legal reason to justify such gain.

Amount of Indemnification

In light of the unjust enrichment prohibition, reparations in Brazil tend to be insignificant if compared to foreign jurisdictions.

Indirect, Remote or Consequential Loss or Damage

In case of indirect damages, such as remote or future damages, the matter is subjective and will have to be proven in court. The amount of indemnification, if any, is incumbent on the judge, who will observe previous similar cases in order to set a reparatory amount. Case law works as a guideline for future similar cases.

General Rule

Brazilian law provides for the concept of strict liability, where the obligation to compensate for damages arises regardless of proof of the agent’s fault or intent to cause harm.

Examples of strict liability include the following.

• The Brazilian Consumer Protection Code: The supplier of goods or services is liable for defects in its products or services, regardless of whether they acted with fault or intent.
• State liability: The state is liable for damages caused by its agents, regardless of proof of fault. State liability is established in the Brazilian Constitution (in Article 37, §6º) and is based on the administrative risk theory.
• Risky activities and labour accidents: Companies that carry out dangerous activities, which present exposure to special risk, may be held liable for damages caused, regardless of having acted with fault or not. Examples include companies providing basic services such as water or power, heavy machinery operating, transportation of flammable products, truck driving, mining, and bank security guards exposed to potential situations of violence.
• Environmental: Also under the administrative risk theory, damages caused to the environment, such as oil leaks at sea, dam ruptures and others, fall under the strict liability provisions.
• Pet owners: Pet owners are liable for harm and damages caused by their pets, regardless of intent.
• Damages caused by objects thrown from buildings.

Major exceptions to strict liability are the following.

• Exclusive fault of the victim: When the victim is solely responsible for the damage, their own conduct excludes the liability of the causative agent. For instance, the consumer is exclusively liable when ingesting a hazardous product that contains clear warnings against consumption.
• Act of God or force majeure: These are unpredictable, unforeseeable and unavoidable events that break the connection between the action and the damage. An act of God can be a natural event (eg, earthquake), while force majeure can be an event caused by human actions (eg, war).
• Third-party act: When the damage is caused entirely by a third party unrelated to the original agent. For instance, if a driver causes an accident and crashes into another car, which in turn runs over a pedestrian, the driver that caused the accident is the one liable to the pedestrian.
• Concurrent fault: There are degrees of fault that must be analysed on a case-by-case basis. If, in the above scenario, the second car contributed to the accident (by reckless driving, maintenance negligence, cell phone use etc), it may be held liable alongside the driver of the first car.

This is a controversial issue in Brazilian legal doctrine, as the general rule is that the damage suffered should be repaired in its entirety, returning the parties to the previous status quo. Some scholars understand that a limiting liability provision violates the BCC.

Nevertheless, such provision is fairly common in contracts and has been deemed valid by the Brazilian Superior Court of Justice (STJ), as long as it is clear, non-abusive, and does not exempt liability for wilful misconduct or gross negligence.

Some specific types of damages may also be excluded by agreement among the parties, such as loss of profit, indirect, remote and consequential – in practice limiting the liability to proven pecuniary damages, which can also be subject to a cap or a basket (a minimal value, below which no compensation is feasible), or a combination of both.

Major exceptions include the following.

• Fraudulent intent or gross fault: Limitation clauses cannot exclude liability for intentional (fraudulent), wilful misconduct or gross negligence breaches.
• Pain and suffering damages: Limitations generally apply to pecuniary damages only. The courts might not uphold limitation clauses regarding pain and suffering damages to which the principle of full compensation must be upheld.
• Consumer relations: Under consumer law, limitations are only valid in justifiable situations and may be considered abusive if they violate the consumer’s basic rights or if the consumer is not properly previously informed.
• Public matters: Public liability matters such as criminal, tax and environmental, are not subjected to limitation (or transferring to third parties) according to the private will of the contracting parties. The law will apply regardless of contractual clauses stating differently.

Brazilian law adopts the concept of force majeure, regardless of a corresponding clause in the contract. Article 393 of the BCC provides that the following criteria must be met in order to characterise a force majeure.

• Necessary event: The occurrence of the event was indispensable for the damage to occur.
• Irremediable or preventable effects: The effects of the event could not be avoided or mitigated, even with reasonable prudence and diligence.
• External and unforeseeable: The event is independent of the will or conduct of the agent causing the damage and is impossible to foresee by ordinary means.

Force majeure examples include natural disasters such as earthquakes, floods, hurricanes and tsunamis, wars and revolutions. The courts were divided in upholding the COVID-19 pandemic, as a cause of force majeure.

It is standard practice to have a force majeure/act of God provision in every contract. However, the absence of such clause will not prevent the granting of the protection of the relief, which is prescribed by law, unless the party has expressly waived such protection.

Brazilian contracts law provides for legal principles allowing a party to diminish its hardship in the following cases.

• Injury: The injury theory applies when a contract is concluded with an evident disproportionate value, by taking advantage of the pressing need or inexperience of one of the parties at the time of contracting. Therefore, injury is considered a type of defect in consent. If proven, the contract may be voided or modified to restore balance.
• Excessive burden: Excessive burden applies when a subsequent imbalance resulting from extraordinary and unforeseeable events renders the contractual performance utterly disproportionate to one of the parties, giving rise to the right to review or terminate the contract.
• State of danger: A state of danger is established when someone, pressed by the need to save themselves, or a member of their family, from serious harm known to the other party, undertakes an excessively onerous obligation.

It is standard practice to include hardship clauses in commercial contracts. The lack of such clauses, however, will not prevent any of the parties from invoking the applicable legal provisions. However, these theories generally allocate the burden of proof to the party alleging the hardship.

In the event of contractual breach, guarantees can be invoked to secure the performance of the obligation, if agreed upon beforehand, such as surety bonds, bank guarantees and fines, among others. In addition, there may be specific clauses, such as resolutory and penalty clauses, which establish sanctions or the termination of the contract due to late fulfilment, default or breach of terms.

Specific Enforcement

The law provides for the specific performance of obligations in case of non-fulfilment, through judicial enforcement, upon prior notification to the debtor.

Cure Period

Contracts typically provide for a cure period to allow the breaching party to correct any problems, but some situations (such as proven cases of corruption, company bankruptcy, etc) will usually result in contract termination.

In general, pursuant to the principles of autonomy of will and minimal state intervention, a contract is law among its parties and a contractual provision shall not be observed only if illegal. Laws regarding commercial, civil, contractual and consumer matters are of federal reach and applicability and shall be observed as such.