Law No. 14,010/20, which establishes transitional and emergency rules for the regulation of private law legal relationships in view of the Covid-19 pandemic, the Emergency and Transitional Legal Regime Law – the RJET Law, came into force on June 12, 2020. The purpose of the bill was to mitigate the socioeconomic consequences of the pandemic in order to preserve contracts and guide judicial decisions.
The enacted law does not establish permanent rules or revoke rules in force, but rather suspends rules that are incompatible with the exceptional period of social and economic instability caused by the pandemic. Were it not for the RJET Law, private relationships impacted by the pandemic would have to be analyzed in light of the precepts of the Civil Code, but this new law aims to pacify private conflicts, condensing, into a single legal instrument, the precepts for resolving the settlement of conflicts.
Emergency and Transitional Legal Regime
This emergency law set the date of March 20, 2020, the date of Legislative Decree No. 6 which declared the state of public calamity, as the initial term for the application of the RJET Law.
In Article 3, the statutory limitation and forfeiture periods are barred or suspended from the date of entry into force of the RJET Law until October 30, 2020. This measure aims to safeguard the interests of creditors in general, since the pandemic made it difficult to access notary offices and public departments, gather documents, hire advisory services, and impacted the work routine of the Courts.
And in Article 10, in line with Article 3, it also suspends the acquisition period for real or personal property in the various types of adverse possession (usucapião) from the entry into force of the law until October 30, 2020.
It is important to note that Article 21 provides that the emergency law comes into force on the date of its publication. Therefore, for situations of statutory limitation and forfeiture already completed before the law came into force, there is no possibility of retroactivity of the law.
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Still within the emergency law, there is permission for holding a general meeting by electronic means, even if there is no permission in the bylaws or articles of association. And the participants’ expression of will may take place by any electronic means indicated by the administrator that ensures the identification of the participant and the security of the vote, producing all the legal effects of an in-person signature.
In practical terms, the minutes may be drafted unilaterally by the administrator attesting to what occurred at the meeting, it being advisable that the meeting be recorded, with the minutes stating that all participants were aware that the meeting would be recorded.
However, important provisions for the contractual area were vetoed by the presidential sanction. The articles that were vetoed:
The cancellation, termination and revision of contracts
Art. 6 The consequences arising from the coronavirus pandemic (Covid-19) in the performance of contracts, including those provided for in art. 393 of the Civil Code, shall not have retroactive legal effects.
Art. 7 For the exclusive purposes of arts. 317, 478, 479 and 480 of the Civil Code, the increase in inflation, exchange rate variation, devaluation or substitution of the monetary standard are not considered unforeseeable events.
§ 1 The rules on contractual revision provided for in Law No. 8,078, of September 11, 1990 (Consumer Protection Code) and in Law No. 8,245, of October 18, 1991, are not subject to the provisions of the main section of this article.
§ 2 For the purposes of this Law, consumer protection rules do not apply to contractual relationships subordinate to the Civil Code, including those established exclusively between companies or business owners.
The reasons for the Presidential veto of articles 6 and 7 were that “the legislative proposal contravenes the public interest, since the Brazilian legal system already has appropriate mechanisms for modulating contractual obligations in exceptional situations, such as the institutes of force majeure and fortuitous event and the theories of unforeseeability and excessive onerousness”.
However, the wording of articles 6 and 7 as proposed was in line with the Economic Freedom Act of lesser judicial intervention in private contractual relationships and favors the principle that contracts entered into must be fulfilled by excluding the increase in inflation, exchange rate variation, devaluation or substitution of the monetary standard from the possibility of termination or revision.
In this legal context, with the veto of the articles above, on the argument that the Covid-19 pandemic is an unforeseeable event that altered the basis of the transaction, one of the contracting parties may follow two alternatives: (i) renegotiate the value and the conditions of the contract (article 317 of the Civil Code[1]) or (ii) request the termination of the contract, without the incidence of a contractual penalty (articles 478, 479 and 480 of the Civil Code[2]).
And why may the pandemic be considered an unforeseeable event? Because at the time of the negotiation of the contract the bases of the transaction were freely agreed between the parties and, in the course of the performance of the contract, the pandemic, the declaration of public calamity by the Federal Government and the State Government, and the governmental restrictions on the exercise of business activities impacted the businesses of the parties, leading to a drastic change in the economic-financial situation of one of the parties.
Therefore, one of the parties may request the revision of the contract aiming at the rebalancing of the commercial conditions due to the Covid-19 pandemic in order to readjust the contractual terms to the new reality so as to achieve the economic rebalancing of the parties.
This article is generic and informative in nature, and does not constitute legal opinion for any specific case.
[1] Art. 317. When, for unforeseeable reasons, a manifest disproportion arises between the value of the obligation owed and that at the time of its performance, the judge may correct it, at the request of the party, in such a way as to ensure, as far as possible, the real value of the obligation
[2] Art. 478. In contracts of continued or deferred performance, if the obligation of one of the parties becomes excessively onerous, with extreme advantage for the other, due to extraordinary and unforeseeable events, the debtor may request the termination of the contract. The effects of the judgment that decrees it shall retroact to the date of the summons.
Art. 479. The termination may be avoided by the defendant offering to equitably modify the conditions of the contract.
Art. 480. If in the contract the obligations fall upon only one of the parties, that party may plead that its obligation be reduced, or the manner of performing it altered, in order to avoid excessive onerousness.
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