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Contract formation

Brazilian law provides that a contract is considered as formed when capable parties freely agree upon a lawful set of their rights and duties, performing legal formalities if any. Before that moment, the parties are allowed to freely negotiate their interests and expectations towards a future, intended contract.

The preliminary negotiation phase is not regulated by the Civil Code, and it usually does not impose on the parties a duty to enter into a final contract; however, the legal principle of good faith, effective in all phases of contract formation, as well as in its future performance, protects the fair expectations created by the parties at this preliminary stage. Pursuant to the principle of good faith, abuses committed by one of the parties during the pre-contractual phase may give rise to indemnification for damages in favour of the innocent party.

The preliminary negotiation stage ends when one of the parties submits an offer to the other party. This offer generally binds the offering party upon its issuance, but the counterparty will only be bound to it upon acceptance. There are few situations in which an offer may become non-binding; for instance, when the acceptance is submitted after the deadline indicated in the original offer by the offering party and in the case of voluntary retraction.

The formation of a contract does not mean that it will become automatically valid and effective as Brazilian law differentiates between the elements of existence, validity and effectiveness. A contract exists when two or more parties manifest a consent in a way that creates obligations for at least one of them (although the creation of reciprocal obligations is more usual).

The courts recognise the validity, and sometimes the enforceability, of documents with digital signatures. A contract that is signed electronically with the ICP-Brasil (a national system of digital certification) will be considered an extrajudicial enforcement instrument that has been privately constituted by the parties.

A contract will only be valid if it meets the legal requirements imposed by law:

  1. the parties must be capable of contracting by themselves or through their duly empowered legal representatives;
  2. the purpose and the object of the contract must be lawful, and its object must be possible to make material and be determined or determinable; and
  3. the contract must comply with the specific formalities required by law, if any.

Brazilian law does not require specific forms for most contracts, and it even accepts oral contracts, which can be proven by testimonial evidence in some cases; however, in certain cases, such as the sale and purchase of real estate and the incorporation of legal entities, the contracts must be entered into in writing to be valid, and proof depends on the presentation of those documents.

Notwithstanding the above, it is highly advisable that any commercial contract of significant importance be made in writing to regulate properly the relationship between the parties and be used as a proper piece of evidence in the course of litigation. A valid contract will generally be effective as of the execution date until a certain or indefinite date, or its effectiveness may be deferred in time, be subject to conditions precedent or subsequent or be up until the occurrence of a fact.

If the parties agree that a contract will be effective during a certain predefined term, and if one of the parties decides to terminate it before that date, the counterparty may demand the specific performance of it or, subsidiarily, may claim an indemnification; however, if the parties set forth that the contract will be effective for an indefinite term, it may be terminated upon prior notice, usually without indemnification, unless the parties define so or there are investments to be recovered.