Takeaway: The 3rd Panel of the Brazilian Superior Court of Justice (STJ) has concluded that fixed-term service agreements between companies are subject to the statutory penalty rule under Article 603 of the Brazilian Civil Code, even if the contract does not expressly mention this provision. The rule entitles service providers to full payment for services rendered and 50% of the remaining contractual amount in cases of early, unjustified termination.

The dispute involved a service agreement for property management, access control, cleaning, and maintenance, entered into between two legal entities. The contract was duly performed and, upon the end of its initial term, it was renewed for an additional 60 months (5 years). However, 10 months into the renewed term, the client unilaterally and unjustifiably terminated the agreement, prompting the service provider to file a claim for damages.

The legal basis for the claim was the Article 603 of the Brazilian Civil Code, which states that, in the event of early and unjustified termination of a fixed-term service contract, the client must pay the full amount for services rendered and 50% of the value for the remaining term.

Lower courts had initially denied the applicability of Article 603, arguing that the agreement did not contain a specific clause to that effect. However, the STJ reversed this position, holding that Article 603 does not require express contractual provision to apply—even in contracts between legal entities. The Court emphasized that the rule serves to protect legitimate expectations and discourage arbitrary contract termination—strengthening predictability in business relationships.

Although the Court applied the statutory penalty (50% of the remaining contractual value), it adjusted the amount equitably in light of the case’s specific circumstances.

This decision underscores the importance of carefully drafting termination provisions in business contracts. In the absence of express terms, courts may default to Article 603 of the Brazilian Civil Code, potentially exposing the terminating party to significant financial liability.

To access the full judgment (in Portuguese), click here.

The team at MAC Advogados has solid experience in corporate contracts and is ready to provide strategic and preventive legal support in negotiations, drafting, and contract review.