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Contract formation

The Portuguese legal system comprises several different methods of establishing or forming commercial contracts, which both Portuguese scholars and courts recognise. The basic rules for establishing commercial contracts in Portugal are as follows.

First, the general rule under Portuguese commercial law is that commercial contracts can be entered into informally; no writing or other form is required. However, several specific Portuguese laws impose formal requirements on specific commercial contracts (e.g., bank contracts and lease agreements).

Regardless of the legal requirements in terms of form, the trend in Portugal, in particular regarding commercial contracts between high-level companies, is to voluntarily use the written form. The Portuguese legal system has also adapted formality requirements for e-commerce.4

Second, under Portuguese law, and as a general rule, commercial contracts can be drafted in any language, regardless of the nationality of the contracting parties (except for specific contracts, such as insurance contracts or consumer contracts).

Third, as in many other jurisdictions, commercial contract formation in Portugal is frequently preceded by a period of intense preparation, discussion and negotiation between the contracting parties. In this period – commonly called the pre-contractual stage – the contracting parties usually enter into pre-contractual agreements.

Conversely, there are pre-contractual agreements that simply oblige the parties to make their best efforts to reach an agreement; however, the parties are entitled not to execute the contract. Examples of those agreements include letters of intent, memoranda of understanding, agreements in principle and heads of terms.

Despite the right not to execute the contract, these agreements can give rise to pre-contractual liability5 if one of the parties breaches its obligation to make its best efforts to reach an agreement (e.g., by unjustifiably and unreasonably ending the negotiations). In this case, the non-breaching party can claim compensation.

Moreover, some pre-contractual agreements are binding and create obligations for the parties, such as promissory agreements, pre-emption agreements, option contracts and side agreements (e.g., confidentiality agreements, lock-out agreements and standstill agreements).

Fourth, during the pre-contractual stage, parties are, in general, subject to information duties, particularly in banking, consumer, insurance and financial intermediation contracts (e.g., Article 312 of the Securities Code provides that in intermediation contracts the financial intermediary must provide all the necessary information for a clear and justified decision to be made).

Fifth, after this pre-contractual stage, commercial contracts are formed. Although, traditionally, a commercial contract was formed through the traditional approach of offer and acceptance, currently, commercial contract formation in Portugal generally does not follow that traditional approach; there are several approaches, such as joint contracting (similar offers from the contracting parties that are inserted in a single document executed by both parties) or factual bargain (a contract that is formed exclusively based on the behaviour of the parties).

Sixth, in Portugal, commercial contract formation currently also includes mass contracting and other modern forms of contracting, such as distance contracts ;6 e-commerce;7 automatic contracting (e.g., vending machines); and self-contracting (e.g., markets).

Seventh, a fundamental rule to contract formation is that silence cannot be considered, in general, as acceptance; however, in certain areas of commercial contracts, silence can be considered acceptance (e.g., in relation to confirmation letters). Silence should not be confused with acceptance by conduct (i.e., when the conduct of the parties indicates acceptance and a clear intention to be bound by the contract). Although silence has no value, a particular conduct (e.g., acts towards executing a commercial contract) may be deemed equivalent to tacit acceptance. This also applies under Portuguese law.

Eighth, under Portuguese law, proof of commercial contract formation can be based, in principle, on any means of evidence, except when the law requires a specific form for a particular commercial contract; therefore, according to Portuguese law, a commercial contract can be executed verbally.

Ninth, in general, once created, commercial contracts cannot be modified unless the parties so agree. In this regard, Portuguese law grants the parties the right to request the court to modify or terminate a commercial contract in the event of an atypical change of circumstances.8 This legal mechanism is very demanding and strict; therefore, it is not uncommon for parties to commercial contracts to include force majeure clauses and hardship clauses.

Finally, the trend in Portugal is to consider that, if a company's business is transferred, the commercial contracts regarding the company's business are automatically assigned to the new owner of the company's business, and the consent of the other parties to the contracts is not required.