Corporate Liability for Breach of Contract with Suppliers or Clients: Theory of Unforeseeability, Good Faith, and Compensation

This article analyzes a company’s civil liability for breach of contract in commercial relationships under the lens of the Brazilian Civil Code. Drawing from the theory of unforeseeability (teoria da imprevisão) and the principle of objective good faith, it examines the admissibility of contract revision or termination, the effects of non-performance, and the criteria for potential compensation for damages. The article also addresses contractual limitation of liability clauses, force majeure events, and current case law on the social function of contracts during times of crisis. Its goal is to provide solid legal parameters for analyzing contractual risks in business activities.

In an increasingly unstable and globalized economic environment, it is common for companies to encounter difficulties in fulfilling contracts with suppliers, distributors, and clients. Breach of such obligations can have significant economic impacts and raise questions regarding corporate liability, particularly when the breach arises from external or unforeseeable factors.

This article examines, from a legal standpoint, the circumstances under which a company may or may not be held liable for breach of contract, the legal grounds for contract revision or termination, and the principles that guide the interpretation of contract clauses in scenarios of crisis or non-performance.

2. Contract Breach and Its Legal Consequences

Contractual breach in the business context may occur through total omission (failure to perform), partial performance, or delayed performance. Depending on the nature of the obligation, it may result in:

Contract termination for cause;

Imposition of fines, losses and damages;

Reputational damage in the market;

Claims for damages or rescission.

The Civil Code, in Articles 389 and 475, establishes the general effects of breach, including the possibility of termination and the duty to compensate:

“Art. 475. The party harmed by breach may request termination of the contract, unless they prefer to demand specific performance, being entitled in either case to compensation for losses and damages.”

3. Theory of Unforeseeability and Contract Revision

In certain circumstances, contractual performance may become excessively burdensome for one party due to extraordinary and unforeseeable events—such as sudden economic crises, pandemics, wars, currency fluctuations, or supply chain disruptions.

In such cases, the theory of unforeseeability applies, as provided in Articles 478 to 480 of the Civil Code:

“Art. 478. In contracts of continuous or deferred performance, if the obligation of one party becomes excessively onerous with extreme advantage to the other party due to extraordinary and unforeseeable events, the debtor may request termination of the contract.”

Brazilian case law has recognized contract revision as a mechanism for rebalancing and preserving contractual relationships, particularly in times of crisis.

“The theory of unforeseeability authorizes judicial revision of a contract when a supervening, extraordinary, and unforeseeable event severely disrupts one party’s performance.” (STJ, REsp 1.409.853/SP, Justice Luis Felipe Salomão, ruled on 09/12/2016)

4. Objective Good Faith and the Social Function of the Contract

Beyond economic imbalance, the interpretation of business contracts must adhere to the principles of objective good faith (Art. 422 of the Civil Code) and the social function of contracts (Art. 421).

Objective good faith imposes:

Duties of loyalty, cooperation, and transparency;

An obligation to renegotiate in the face of unforeseen events, before unilaterally terminating the contract;

A prohibition against contradictory conduct (venire contra factum proprium).

“Unilateral termination of a contract, without attempting negotiation and without objective justification, violates the principle of good faith and may give rise to liability for damages.” (Court of Appeals of São Paulo, Civil Appeal No. 1008674-98.2021.8.26.0100, ruled on 08/14/2023)

5. Force Majeure, Acts of God, and Hardship Clauses

Article 393 of the Civil Code exempts the debtor from liability when non-performance results from an act of God or force majeure, provided there is no fault:

“The debtor is not liable for losses resulting from acts of God or force majeure unless they have expressly assumed such liability.”

Many commercial contracts include hardship clauses requiring the parties to renegotiate the agreement in the event of substantial changes to the originally agreed conditions.

These clauses help prevent disputes and maintain contractual balance—especially in long-term contracts.

6. Consequences of Breach: Compensation, Limitations, and Litigation

A company that breaches a contract without justification or without observing contractual and legal duties may be required to:

Pay a contractual penalty (if stipulated);

Compensate for lost profits and actual damages;

Refund amounts paid in advance;

Compensate for reputational or moral damages in severe cases.

Nonetheless, case law recognizes the possibility of limiting compensation based on good faith and reasonableness.

“Contractual liability may be modulated, particularly when there is a plausible justification for termination and an attempt to resolve the matter amicably.” (STJ, AgInt in AREsp 1.663.207/MG, ruled on 02/16/2021)

7. Best Practices for Contract Risk Prevention and Management

Draft contracts with revision, renegotiation, and termination clauses;

Clearly define events of force majeure and hardship;

Maintain clear and documented communication with the counterparty in case of performance difficulties;

Attempt renegotiation before unilateral termination;

Keep records of efforts toward amicable resolution;

Include mediation or arbitration clauses for faster dispute resolution.

Final Considerations

Corporate liability for breach of contract must be assessed through the lens of contractual balance, objective good faith, and the social function of contracts. While unilateral termination is legally possible, it requires legitimate justification, negotiation efforts, and adherence to the principles governing commercial relations.

Modern Civil Law recognizes the contract as a dynamic tool, demanding interpretative flexibility in times of crisis—but also technical rigor when apportioning liability and determining compensation. Preventive and strategic legal counsel is essential to mitigate risks, preserve commercial relationships, and reduce litigation.