Clauses That Can Save (or Sink) a Business Contract

In the corporate world, a well-drafted contract is one of the main tools for preventing disputes and protecting the parties’ assets. However, as important as defining the subject matter and obligations is knowing which clauses can ensure the stability of the legal relationship—or, if poorly drafted, expose the company to severe risks.

This article outlines the contractual clauses that most influence the success (or failure) of a business relationship, highlighting their legal effects and essential drafting considerations.

1. The Strategic Role of Contract Clauses

Although contractual freedom is a recognized principle under Brazilian law (Art. 421 of the Civil Code), the enforceability of a contract depends on how rights and obligations are set out and documented. Some clauses operate as true preventive balance points, while others—poorly drafted or absent—may lead to imbalance, litigation, or legal uncertainty.

2. Clauses That Can Save a Business Contract

a) Precise definition of the subject matter

Clearly specify what will be supplied, performed, or provided, with deadlines, quantities, and measurable technical criteria. This prevents ambiguous interpretations and facilitates enforceability.

b) Liability and indemnity limitation clause

Defines the types of damages that can be claimed (direct, indirect, loss of profits) and may set a compensation cap, offering predictability and reducing financial exposure.

c) Force majeure and unforeseen events clause

Protects the parties in exceptional and unforeseeable situations, such as pandemics, war, or natural disasters, preventing liability for events beyond their control.

d) Penalty clause (liquidated damages for breach)

Establishes a penalty in case of breach, acting as a deterrent and facilitating judicial enforcement, in line with

Art. 416 of the Civil Code.

e) Mediation or arbitration clause

Provides in advance that disputes will be resolved through alternative dispute resolution methods, which can ensure speed, confidentiality, and specialized decision-making.

f) Non-compete and exclusivity clause (if applicable)

Protects strategic interests in distribution, franchise, or agency agreements, preventing one party from acting to the detriment of the other.

3. Clauses That Can Sink a Contract (or Its Legal Effectiveness)

a) Generic or poorly drafted clauses

Lack of clarity or the use of vague terms can lead to differing interpretations, undermining the practical effect of the obligation. Example: “payment in a timely manner” without specifying dates or criteria.

b) Abusive or unbalanced clauses

Provisions imposing disproportionate or one-sided obligations may be struck down by courts, especially in consumer relations or adhesion contracts.

c) General waiver of legal rights

Anticipatory waivers of essential rights (e.g., compensation for losses and damages or statutory guarantees) may be deemed null for violating public policy.

d) Unreasonable choice of fórum

Designating an excessively burdensome jurisdiction for one party without justification may be set aside by courts, particularly where it creates contractual imbalance (STJ, Súmula 335; CPC, Art. 63).

e) Absence of a termination clause

Failing to specify how and when the contract may be terminated prevents the injured party from acting with certainty and hinders an amicable end to the relationship.

4. Case Law: What Courts Uphold (or Strike Down)

“Contractual clauses must be interpreted in light of objective good faith and contractual balance. Abusive or contradictory clauses must be disregarded.” (STJ – REsp 1.091.363/SP)“A penalty clause setting a fine proportional to the contract value is valid, provided it observes reasonableness and the nature of the obligation.” (TJSP – Civil Appeal 1003248-62.2020.8.26.0100) “A choice-of-forum clause will only be upheld if there is no abuse and it respects access to justice.” (STF – RE 438.638/PR)

5. Practical Recommendations for Effective Business Contracts

·         Contract customization: avoid generic templates; draft clauses specific to each transaction;

·         Preventive legal review: a well-drafted contract is worth more than a well-argued lawsuit;

·         Periodic updates: review contracts regularly in light of new laws, case law, and business changes;

·         Proper formalization: record signatures, annexes, notices, and amendments with traceability;

·         Supporting documentation: keep records of contractual performance, extensions, and communications between the parties.

6. Final Considerations

The strength of a business contract lies not only in its signature but in the quality of its clauses. In a competitive and complex environment, well-thought-out clauses function as mechanisms of legal stability and protection.

Conversely, omissions or poorly drafted provisions can undermine the business relationship, making disputes inevitable and losses irreparable. Strategic and preventive legal counsel is therefore essential to ensure contracts serve as tools of security, not sources of unwelcome surprises.