How to Avoid Liability for Breach of Contract

The growth and complexity of business relationships make situations of contractual frustration inevitable. Even well-organized and reputable companies are subject to operational failures, occasional nonperformance, or disputes over contractual interpretation. The problem arises when such situations escalate into lawsuits with the risk of a judgment for breach of contract.

In this article, we analyze the main causes of such judgments and present effective strategies to prevent litigation, protect the company, and demonstrate good faith and diligence in contract performance.

1. What Constitutes a Breach of Contract That Can Lead to Liability

Not every contractual breach automatically results in a court ruling against the breaching party. Case law generally requires intent (dolo), negligence (culpa), absence of legal justification, or disregard for the principle of objective good faith. Minor delays or partial performance may be resolved through negotiation or contractual rebalancing.

Judgments typically arise from:

·         Absolute breach, causing total frustration of the obligation;

·         Material breach (a clause essential to the contract);

·         Unjustified refusal to perform;

·         Failure to communicate or attempt prior resolution;

·         Proven harm to the injured party, with direct financial loss.

2. Common Causes of Court Judgments for Breach of Contract

·         Poorly drafted or incomplete contracts, lacking clear definition of obligations, deadlines, and consequences;

·         Lack of documentation for negotiations and performance (payments, deliveries, extensions);

·         Internal disorganization: operational failures, ineffective communication, lack of familiarity with contractual clauses;

·         Negligence in formalizing amendments or notices of contractual changes;

·         Absence of criteria for termination, tolerance clauses, or rebalancing provisions;

·         Abusive clauses that violate the social function of the contract and lead to partial nullity.

3. Practical Measures to Avoid Court Judgments

1. Draft contracts with clarity and predictability

·         Set out obligations, deadlines, contractual milestones, penalties, and dispute resolution mechanisms;

·         Avoid generic clauses, ambiguous terms, and critical omissions.

2. Maintain documentation and traceability

·         Keep records of deliveries, payments, meetings, emails, and notices;

·         Formalize any amendments, renegotiations, or deadline changes in writing.

3. Monitor deadlines and obligations internally

·         Use systems or controls to track due dates and responsibilities;

·         Train those responsible for contract performance on their duties.

4. Include exclusion clauses and tolerance provisions

·         Add force majeure, unforeseeable event, and tolerance clauses;

·         Allow adjustments or contractual rebalancing in case of unforeseen events.

5. Notify and propose solutions before resorting to litigation

·         Demonstrate good faith and willingness to resolve the dispute out of court;

·         Failing to attempt settlement may be negatively viewed by the courts.

6. Avoid silence or inaction in the face of issues

·         Not responding or ignoring questions may be interpreted as contractual disregard;

·         Always formally communicate the company’s position when problems are raised.

4. Case Law on Corporate Contractual Liability

“A company that, in the face of nonperformance, fails to prove an attempt at resolution or legal justification is liable for losses and damages.” (STJ – REsp 1.729.325/SP) “Objective good faith requires the parties not only to comply literally with the contract but also to act cooperatively and transparently in its performance.” (TJSP – Civil Appeal 1007653-89.2021.8.26.0100)“The absence of clear clauses and proof of an attempt at renegotiation undermines the defense and leads to liability for breach.” (TJMG – Civil Appeal 1.0024.14.325743-6/001)

5. When Breach Is Unavoidable: How to Minimize Impact

If a company foresees that it will be unable to fulfill a contractual obligation, certain actions can minimize or avoid liability:

·         Notify the other party immediately, stating the reasons for the breach and proposing alternatives (e.g., extension, substitution, reduction);

·         Negotiate a contract amendment or alternative performance, with formal signatures;

·         Show that the failure resulted from external or unforeseen factors, with supporting documentation;

·         Keep records of all attempts to restore contractual balance.

These actions do not erase the breach but may remove the element of fault, preventing contractual penalties or disproportionate judgments.

6. Final Considerations

Avoiding judgments for breach of contract requires more than good intentions: it demands legal prevention, internal organization, and responsible contract execution. Even in times of crisis, a company that communicates, justifies, and attempts out-of-court resolution is more likely to receive favorable consideration from the courts.

More than seeking a court victory, the goal should be to preserve commercial credibility, avoid losses, and shield the company from indemnity claims. Ongoing work by specialized legal counsel is essential to review contracts, structure strategic clauses, and train teams in contract compliance and risk management.