This article explores the modernisation of Brazilian contract law through the lens of Article 421-A of the Civil Code, introduced by the Economic Freedom Act (Law 13.874/2019). It analyses how legal professionals can proactively manage uncertainty in commercial relations, focusing on risk allocation, asymmetry correction, and good faith principles. Drawing parallels with common law and international practices, including International Federation of Consulting Engineers (Fédération Internationale Des Ingénieurs-Conseils, or FIDIC), National Electrical Code (NEC) and International Institute for the Unification of Private Law (Institut International pour l'Unification du Droit Privé, or UNIDROIT) standards, it presents a forward-looking and practical approach to contractual design in a risk society.
In recent years, businesses have had to confront increasingly unpredictable scenarios: global supply chain breakdowns, remote work reshaping property contracts, and cybersecurity breaches disrupting public services. These events highlight what sociologist Ulrich Beck famously called the "risk society", whereby scientific and technological progress brings not only solutions but also new ‒ often global ‒ threats.
Within this context, Brazilian institutions have struggled to respond effectively. Legislative and executive powers face gridlock, while the judiciary has become overburdened with novel and complex disputes. As a result, the task of identifying, managing and allocating legal and operational risks has increasingly shifted to private actors ‒ especially companies and their legal advisers.
In corporate practice, this shift is most evident in contract law. Contracts are now expected not only to regulate relationships but also to anticipate and manage uncertain, high-impact events. Against this backdrop, Brazil enacted the Economic Freedom Act, which introduced Article 421-A into the Civil Code ‒ a significant development reinforcing the binding nature of contracts while recognising that some review may be necessary, albeit in exceptional and limited cases.
Article 421-A states: "Civil and commercial contracts are presumed to be negotiated between equal and symmetrical parties, unless there is concrete evidence to rebut this presumption. This is without prejudice to the legal regimes established by special laws, and it is also ensured that:
- the contracting parties may establish objective parameters for interpreting the contractual clauses and the assumptions for their revision or termination;
- the allocation of risks defined by the parties must be respected and upheld; and
- contract revision shall occur only in an exceptional and limited manner."
Since its enactment, Brazilian courts ‒ particularly the Superior Court of Justice (Superior Tribunal de Justiça, or STJ) ‒ have progressively applied Article 421-A, reinforcing contractual autonomy and limiting judicial intervention. What follows concerns one such case.
"Civil procedure. Special appeal. Claim for payment. Parity contract. Economic balance. Private autonomy. Specific legislation. Abusive clause. Not established. Good faith. Social function of the contract. Parties’ legitimate expectations.
- This case concerns a claim for payment from which the present special appeal (recurso especial) arises.
- The central issue on appeal is whether a contractual clause exempting one party from remunerating the other for services rendered in the event of termination breaches the principles of good faith and the social function of the contract.
- Law No 13,874/2019, also known as the Economic Freedom Law (Lei da Liberdade Econômica), under Article 3, VIII, establishes that every individual or legal entity is entitled to rights essential to the country’s economic development and growth. In line with the sole paragraph of Article 170 of the Federal Constitution, the law guarantees that parity business transactions shall be freely stipulated by the contracting parties. In such cases, corporate law provisions apply only on a supplementary basis, save for rules of public order.
- Judicial scrutiny over potentially abusive clauses in business contracts is more limited than in other areas of private law, as such agreements are negotiated by professionals accustomed to commercial practices typically followed within the relevant sector of the economy.
- The existence of balance and freedom between the parties at the time of contracting, along with the nature of the agreement and the legitimate expectations of the parties, are crucial factors in assessing any alleged invalidity of a clause based on breach of objective good faith or the contract’s social function.
- In the context of a service agreement entered into between two private parties on an equal footing when determining contractual terms ‒ taking into account the economic activities they perform ‒ there is no specific legislation justifying special protection for either party. In such cases, Article 421 of the Brazilian Civil Code shall prevail."
(Special Appeal No 1,799,039, Third Panel of the Superior Court of Justice, Rapporteur: Justice Nancy Andrighi, judgment rendered on 4 October 2022.)
This approach aligns with broader global movements toward private governance and risk-based contractual design.
What does Article 421-A establish?
Article 421-A of the Civil Code:
- presumes parity and symmetry in civil and commercial contracts, unless concrete evidence proves otherwise;
- reinforces the binding force of contracts, allowing judicial revision only in extraordinary circumstances; and
- allows the parties to set objective parameters for contract interpretation and define conditions for termination or review.
Comparative perspective
Brazil is rooted in the civil law tradition and its current contractual framework reflects a broader trend of convergence between civil and common law systems. Over time, both traditions have incorporated shared principles such as good faith, co-operation, and reasonableness, leading to increasingly similar approaches in contract interpretation and enforcement.
This alignment is particularly evident in the Brazilian legal system, where doctrines such as objective good faith, the social function of contracts, and the duty to mitigate damages resonate with concepts long developed in common law jurisdictions.
The growing influence of international instruments, such as the UNIDROIT Principles of International Commercial Contracts and the Principles of European Contract Law (PECL), has further promoted this harmonisation. These instruments serve as a bridge between legal traditions, fostering a transnational contractual language that emphasises fairness, balance, and legal certainty.
Indeed, international models such as the FIDIC Red Book and NEC3/4 (UK) contracts further influence Brazilian practice. These frameworks encourage proactive risk identification, early warning mechanisms, and compensation events, allowing flexibility within structured contractual obligations. Likewise, Article 6, XXVII of Brazil’s Public Procurement Law (Law 14.133/2021) supports the use of risk matrices ‒ an increasingly global technique.
In this light, Brazil’s contractual regime may be viewed as both civil law in its foundation and cosmopolitan in its evolution ‒ aligning with international standards and embracing a pluralistic, principle-based approach to modern contract law.
How should lawyers approach contracts today?
Lawyers are well advised to take the following guidance into account in respect of contracts.
- Avoid blind reliance on templates ‒ in simple, low-risk deals, standard models may suffice. But in complex or high-value arrangements, contracts should be tailored to the specific risks, dynamics, and goals of the parties.
- Recognise the limits of precedent ‒ even the best legal research reflects past reasoning. As Shakespeare wrote: "What’s past is prologue." Lawyers must write contracts that look forward, often intuitively, into an unknowable future.
- Know the client’s business ‒ inspired by Sun Tzu’s Art of War, understanding both the client and the counterparty is key. Lawyers should analyse whether there is any financial or informational asymmetry and address it through well-structured clauses.
- Asymmetries and risk ‒ lawyers should assess asymmetries and understand risk.
A practical use of Article 421-A lies in demonstrating such asymmetries, especially when one party operates in an unfamiliar market or holds critical information. In these cases, lawyers may:
- require regular project reports;
- introduce "change of control" restrictions;
- define tolerable levels of supply disruption;
- tie contractual penalties to economic metrics (e.g. inflation, exchange rate); and
- set up risk allocation matrices ‒ inspired by public procurement rules and international templates.
Contracts for long-term or indefinite periods should also incorporate revision triggers ‒ such as market volatility or force majeure ‒ avoiding the illusion of stability in inherently unstable contexts.
Multidisciplinary drafting and decision-making
Contractual design must no longer be siloed within the legal department. Teams from commercial, operational and financial areas should contribute, anticipating real-world tensions that may emerge during execution. These insights help define "walk-away clauses", minimum service levels, and acceptable losses, ensuring that default does not automatically result in litigation.
Modern contracts increasingly incorporate ESG-related clauses, data security obligations, and technology risk-sharing provisions ‒ an emerging layer of complexity that requires lawyers to anticipate reputational, regulatory and cyber vulnerabilities beyond traditional financial metrics. European regulations (such as the 2022 proposal for a Corporate Sustainability Due Diligence Directive), as well as UK practices on cybersecurity warranties, provide useful models.
Role of good faith and fairness
Even with the most detailed contracts, unforeseen behaviour ‒ particularly from opportunistic creditors ‒ can still jeopardise the relationship. Here, the principle of good faith becomes essential. Brazilian courts increasingly recognise its function in:
- filling interpretative gaps;
- preventing abusive conduct; and
- requiring damage mitigation by creditors rather than maximising penalty enforcement.
In volatile markets, it may be more profitable for a creditor to enforce penalties than to receive actual performance ‒ something not always foreseeable when the contract was signed. Courts have shown a willingness to intervene where this dynamic undermines the contract’s original purpose.
Internationally, the UNIDROIT Principles of International Commercial Contracts provide strong inspiration for this approach. These principles treat good faith not merely as a moral notion but as a binding legal standard.
Key takeaways
The inclusion of Article 421-A in Brazil’s Civil Code ‒ under the Economic Freedom Act ‒ signals a modern, risk-aware approach to contracting. It recognises that private agents, not public institutions, are now at the front line of managing complexity. For lawyers, it reinforces the need for contracts that are not just legally sound but commercially sensible, ethically grounded, and dynamically adaptable to an increasingly unpredictable world.
Contract lawyers in Brazil must combine legal craftsmanship with business intelligence and risk foresight. The Economic Freedom Act, rather than simplifying, has elevated the sophistication required in contract drafting ‒ calling not only for compliance but also for creativity. Cross-border clients will benefit from this hybrid model that blends civil law rigour with common law pragmatism, evident in the growing application of international contractual standards.
The following key points should be taken into consideration by contract lawyers in Brazil.
- Contracts are strategic tools ‒ they should reflect real operational needs, not just legal formality.
- Customisation over templates ‒ high-value deals require tailored clauses, revision triggers, and risk-sharing terms.
- Certainty with flexibility ‒ contracts remain binding, but can allow predefined review in exceptional scenarios.
- Cross-department input is essential. Legal, finance and operations must align on contract structure.
- ESG and tech clauses are strategic ‒ they reduce exposure to regulatory and reputational risks.
- Good faith is enforceable ‒ courts expect conduct that prevents unnecessary losses or abuse.
Why this matters
Contracts define not only legal obligations, but also how organisations manage change. Article 421-A gives companies the legal backing to structure smarter, more resilient agreements. Strong contracts today mean fewer disputes ‒ and more agility ‒ tomorrow.
This article was first published at the Chambers & Partners Website, on July 15, 2025 - https://practiceguides.chambers.com/practice-guides/doing-business-in-2025/brazil/trends-and-developments