Pre-Contractual Civil Liability: Unjustified Termination of Business Negotiations

This article addresses civil liability arising during the pre-contractual phase of business relationships, with emphasis on the unjustified termination of negotiations after the emergence of a legitimate expectation that the contract would be concluded. Based on the principle of objective good faith and the duty of loyalty during preliminary dealings, the article examines the grounds for compensation under the doctrine of culpa in contrahendo. It analyzes relevant Brazilian legal scholarship, recent case law, and the criteria for establishing compensable damage, as well as the limits of contractual freedom. The topic is increasingly relevant due to the growing formalization of memoranda, letters of intent, and pre-contracts in the corporate context.

Contemporary contract law, grounded in the social function of contracts and objective good faith, recognizes that liability between parties may arise even during preliminary negotiations. In business contexts, negotiations are often long, complex, and involve significant preliminary investments, including the exchange of documents, preliminary agreements, confidentiality terms, and due diligence processes.

It is in this context that pre-contractual civil liability—also referred to as culpa in contrahendo—becomes particularly important. This applies when one party unjustifiably breaks off negotiations after creating in the other party a legitimate expectation of contract formation, thereby causing harm.

This study examines the legal elements that characterize such liability, its doctrinal foundations, and the case law that outlines the duty to compensate when business negotiations are terminated arbitrarily.

2. Pre-Contractual Phase and Applicable Principles

The Brazilian Civil Code adopts the modern conception of contracts as a process comprising three phases:

1. Pre-contractual (negotiation phase);

2. Contractual (performance phase);

3. Post-contractual (residual obligations).

   
   

During the pre-contractual phase, even in the absence of a formal binding obligation, certain duties of conduct apply, derived from the principles of objective good faith (Art. 422 of the Civil Code) and the social function of the contract (Art. 421 of the Civil Code).

"Art. 422. The contracting parties are required to observe the principles of honesty and good faith both during the conclusion and performance of the contract."

The unjustified termination of negotiations, when it violates these duties, may give rise to civil liability for actual damages and lost profits, based on the abuse of the freedom to contract (Art. 187 of the Civil Code).

3. Culpa in Contrahendo and Legitimate Contractual Expectation

Culpa in contrahendo is a doctrine widely accepted in Brazilian case law and refers to the breach of duties of fairness, loyalty, and disclosure during the negotiation phase.

According to Nelson Rosenvald:

"A party that arbitrarily breaks off negotiations after creating a legitimate expectation of contract formation and causing the counterparty to incur expenses is civilly liable for the damages caused, even if the final contract was not executed." (Civil Code Commentary, 2025, p. 458)

The issue is not about compelling contract formation, but rather compensating for harm caused by frustrated trust, especially when the termination is abrupt, disloyal, or follows significant advances or financial commitments.

4. Criteria for Establishing Pre-Contractual Liability

To establish pre-contractual liability, the following cumulative elements are generally required:

1. Commencement of relevant and extended negotiations;

2. Acts or statements that create a legitimate expectation of contract formation;

3. Investments made or losses incurred in reliance on the anticipated contract;

4. Unjustified termination or abuse of negotiating power;

5. Quantifiable material or moral damage.

   
   

The analysis must consider the degree of advancement in the negotiations and the nature of the parties’ conduct, including omissions of essential information or sudden changes to terms already agreed upon.

5. Relevant Case Law

Brazilian courts have recognized the possibility of civil compensation even in the absence of a signed contract, based on the breach of good faith:

"Abrupt and unjustified termination of advanced negotiations, after generating a legitimate expectation, gives rise to civil liability for actual damages."(Court of Appeals of São Paulo, Civil Appeal No. 1008378-98.2021.8.26.0100, ruled on 08/12/2023)

"Even without a formal contract, negotiation acts that create legitimate trust in its execution bind the party to compensate for damages resulting from contradictory or disloyal behavior." (STJ, REsp 1.658.149/SP, Justice Paulo de Tarso Sanseverino, ruled on 10/14/2020)

6. Limits of Liability and Negotiation Risk

It is important to highlight that the mere decision not to contract, by itself, does not constitute an unlawful act.

The freedom to contract is guaranteed by Article 421-A of the Civil Code:

"In business contracts, parity and symmetry between the parties are presumed, unless proven otherwise."

Thus, liability does not arise from the failure to conclude a deal, but from how the negotiations were conducted and broken off. If no legitimate expectation was created, or if the parties maintained a cautious stance, no compensation is due.

7. Best Business Practices to Avoid Litigation

To mitigate the risk of pre-contractual liability, the following practices are recommended:

Formalize confidentiality agreements, memoranda of understanding, or letters of intent with non-binding clauses;

Keep records of communications and negotiation stages;

Specify that the negotiation does not constitute a firm offer, unless expressly stated otherwise;

Avoid premature approval or commitment to terms;

End negotiations with clear, reasoned, and timely communication.

Final Considerations

Pre-contractual civil liability is an important mechanism for promoting fairness in business relations. While freedom of contract is a fundamental principle, it does not justify disloyal, contradictory, or negligent conduct during negotiations—especially when the other party has invested time, trust, and resources.

The careful application of objective good faith and the social function of contracts allows for holding parties accountable for abusive terminations of negotiations, while also safeguarding legitimate contractual autonomy. It is the role of legal counsel to advise clients on the boundaries, risks, and ethical duties associated with the pre-contractual phase, with the aim of fostering solid and legally secure business relationships.