Alessandra Renata Rasquel Noronha
Lawyer at Marcos Martins Advogados
Substantial performance occurs when the debtor in a contractual relationship defaults on the last installments of the contract and, since the default is insignificant under this theory, it is impossible to terminate the contract, with the creditor only having the right to file a lawsuit to collect the missing installments or claim damages.
In this sense, when the debtor fails to pay the last installments of the contract, the deal cannot be terminated; the creditor can file a lawsuit to collect the last installments and claim damages if, for example, the amount was already earmarked for another legal transaction and has caused financial and moral damage.
In the words of Becker¹ (1993, p.60-61):
Substantial adimplemento, as defined by Prof. Clóvis do Couto e Silva, constitutes “an adimplemento so close to the final result that, in view of the conduct of the parties, the right to terminate is excluded, allowing only the claim for compensation” and/or adimplemento since that first claim would violate the principle of good faith.
This theory originated in English law and is known as “substantial performance” and is widely applied in foreign law. In Brazil, there are no rules regulating it, but its application has been gaining momentum in case law and doctrine, which defends its application as long as the principles governing civil contracts are observed.
Those who defend its application argue that the fact that the debtor has already paid a large part of the obligation already guarantees the good or service, and that the termination of the deal cannot be allowed, but only the creditor’s quest to pay off the remaining amount.
Due to the absence of a legal provision, contemporary contractual principles such as the principle of objective good faith and the social function of the contract are of fundamental importance, as they serve as a basis for recognizing substantial default. In fact, the IV Civil Law Conference approved Statement No. 361 CJF/STJ, which dealt with the existence of the theory:
Substantial performance arises from general contractual principles, in order to make the social function of the contract and the principle of objective good faith prevail, guiding the application of art. 475 of the Civil Code.
According to the above-mentioned statement, in view of the acceptance of this theory, article 475 of the Civil Code² has suffered a slight limitation, but before commenting on this, its content should be noted:
Art. 475. The party harmed by the default may ask for the contract to be terminated, if it does not prefer to demand compliance, and in either case compensation for losses and damages will be due.
It should be noted that this provision deals with the possibility of terminating the contract in the event of default, and is only applied in cases of voluntary or culpable default and when objective good faith and the social function of the contract are not observed.
The observance of certain aspects, such as the good faith of the debtor (Article 422 of the Civil Code) and the guarantee of the social function of the contract (Article 421 CC) are extremely important for this theory to be recognized, since it will be analyzed whether the debtor up until the moment of default sought to act in good faith, fulfilling a large part of the contract in the forms and deadlines set and whether the social function of the contract and its object were achieved.
Although the theory’s main beneficiary is the debtor of the contract, since the contract will not be terminated and the object of the contract will remain in the hands of the debtor, it cannot be applied if the creditor is not also protected, and his interest in the relationship is analyzed, i.e. whether or not the contract was useless to him, while also respecting its social and economic purposes.
The requirements for applying the theory are: 1) the existence of legitimate expectations arising from the behavior of the parties; 2) the missing payment must be minimal considering the total amount of the deal; 3) it must be possible to preserve the effectiveness of the deal without prejudice to the creditor’s right to claim the amount owed by ordinary means (Special Appeal No. 76.362/MT).
Another point that deserves attention is the identification of what can effectively be considered substantial default, in other words, what quantitative parameters will be used.
It is clear that there is still a great deal of debate on the subject. Justice Antônio Carlos Ferreira, in the judgment of Special Appeal No. 1.581.505/SC, dealt with the difficulty of identifying the objective requirement for application, stating as follows:
As can be seen, the jurisprudence of this Court has oscillated in its examination of the objective requirement, which is due to the fact that, in each case judged here, there are very specific peculiarities to be considered in order to assess the importance of the default in relation to the context of the entire contract and the other elements surrounding the controversy.
Fluctuations within the STJ itself have revealed different judgments and understandings on the subject, and it has already been observed, for example, that failure to pay the last installment of the contract may eventually be considered substantial default, and the theory has also been applied in cases where five installments were missing.
There is therefore a need for the judge to assess, on a case-by-case basis, whether the quantitative aspect of the default has been sufficiently complied with, how serious the termination of the contract could be for the defaulting party, not forgetting objective good faith and the social function of the contract, so that substantial default can be applied.
Furthermore, caution is needed when applying the theory, considering the concern that the very nature of the contract may be disregarded, with the STJ recently deciding that it is not possible to apply this theory to contracts guaranteed by the fiduciary alienation of assets (RESP 1.622.555/MG). Another concern regarding application lies in the need to guarantee legal certainty and avoid unjust enrichment and abuse of rights.
In conclusion, despite not being expressly regulated, this theory has been accepted by case law, based on the principles that govern civil contracts, although its application must be analyzed on a case-by-case basis, when the necessary requirements are met.
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¹BECKER, Anelise. The doctrine of substantial performance in Brazilian law and from a comparative perspective. Revista da Faculdade de Direito, 1993, p.60-61.
²BRASIL, Law 10.406, of January 10, 2002. Establishes the Civil Code. Available at: <http://www.planalto.gov.br/ccivil_03/leis/2002/l10406.htm>
³STF. Special Appeal No. 1.581.505 – SC (2015/0288713-7). Rapporteur: Minister Antonio Carlos Ferreira. Fourth Panel. Date of Judgment: 08/18/2016. Registration Date: 28/09/2016.
