Business contracts: the genesis of disputes and the technique of preventing them

Few acts in business life project effects as lasting as entering into a contract. An instrument of apparently formal character, it reveals its density only when non-performance arrives, the moment at which every clause, and every silence, acquires financial consequence. It is worth noting that contractual litigation rarely stems from deliberate bad faith: more often it arises from imprecision in the allocation of risk and from the omission of scenarios the parties preferred not to foresee. This article examines the main points of tension in the business contractual relationship and the preventive function that drafting technique exercises over them.

Private autonomy and the contract as an instrument of risk allocation

At bottom, the contract answers a question about the distribution of risk: on whom the burden falls when reality departs from what was agreed. In Brazilian law, that answer is largely entrusted to the will of the parties themselves. Freedom of contract, exercised within the limits of the social function of the contract (article 421 of the Civil Code), admits even the arrangements the law does not typify, the atypical contracts (article 425). In the business sphere this autonomy is reinforced: article 421-A, introduced by the Economic Freedom Act (Law No. 13.874/2019), presumes civil and business contracts to be on an equal footing and symmetrical, casts judicial revision as an exceptional measure, and enshrines minimal intervention, the expression of an attenuated contractual dirigisme in this field. Hence a consequence both practical and doctrinal: the risk allocation actually agreed upon prevails, and a gap will hardly be filled in favor of the party who failed to foresee it.

The recurring sources of dispute

Conflict concentrates in identifiable points, whose technical treatment is uneven in practice:

The determinacy of the object. Article 104 requires a lawful, possible and determined or determinable object; indeterminacy of scope is the most common source of interpretive controversy, because it defers to the litigious phase what should have been defined at the formation of the bond.

Price and its revision. Beyond fixing the amount, it is essential to govern adjustment and recomposition. The Code allows termination or revision for excessive onerousness (articles 478 to 480, the theory of unforeseeability), but subjects it to strict requirements, extraordinary and unforeseeable events, so that a generic allegation of imbalance rarely prevails without a contractual provision to support it.

The extinction of the bond. One should distinguish, with rigor, termination for non-performance (resolução), termination by the parties' will (resilição, bilaterally through the distrato) and rescission for a qualified defect (rescisão). Terminological imprecision in the instrument tends to turn into a dispute over the very manner of ending the contract.

The penalty clause. Provided for in articles 408 to 416, it pre-fixes damages and confers predictability upon non-performance. It is not, however, untouchable: its value may not exceed that of the principal obligation (article 412), and the judge must reduce it equitably where the obligation has been partly performed or where the penalty proves manifestly excessive (article 413). Drafting it without regard to these limits is to invite its judicial revision.

Fortuitous event and force majeure. Article 393 exonerates the debtor from the effects of events he did not cause and whose effects he could not avoid; delimiting them in the contract, and governing their consequences, removes from chance the definition of who bears the unforeseen.

Forum and applicable law. Choice of forum (article 63 of the Code of Civil Procedure) and, in contracts with a foreign element, the definition of the governing law determine the cost and the outcome of any dispute, and are decisive when the parties sit in different jurisdictions.

Objective good faith and the ancillary duties

The instrument, however meticulous, does not exhaust the relationship. Article 422 imposes objective good faith, from which doctrine and case law draw ancillary duties of conduct, information, loyalty, cooperation and protection, operating in the pre-contractual, contractual and post-contractual phases. It is on this terrain that figures such as pre-contractual liability, venire contra factum proprium (the prohibition of contradictory conduct) and supressio (the loss of a right through its prolonged non-exercise) are located. These duties apply independently of any express provision, which is why competent drafting anticipates not only the letter of the contract but the reading a judge will make of it.

Prevention as a technical choice

Adjusting a clause is always less costly than sustaining a legal thesis. Prior review of the instrument, together with verification of the counterparty, is the point of least cost and greatest effect in the whole relationship; once the contract is concluded, each correction comes to depend on the other party's consent or on judicial intervention, the latter exceptional among businesses by force of article 421-A. The very plasticity of these institutes, the penalty that is reduced, the unforeseeability that is conditioned, the ancillary duty that imposes itself without text, shows that reproducing a template, dissociated from analysis of the concrete transaction, is the assumption of a risk that reveals itself only in litigation.

Fitting each instrument to the transaction and to the risk proper to it calls for individualized analysis, which no generic template replaces.

This text is informative in nature and does not constitute legal advice.

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