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July 27th, 2017

Legal Newsletter

Loss of guarantees due to contractual adjustments

The contractual adjustments renew the prior intention of the parties, with the revocation of the negotiation made before, as they are performing a new transaction. Although, they can lose the guarantees originally provided for the obligations.

Legal Newsletter

The contractual adjustments renew the prior intention of the parties, with the revocation of the negotiation made before, as they are performing a new transaction. Although, they can lose the guarantees originally provided for the obligations.

The articles 360 and followings of the Brazilian Civil Code deal with the matter when define that there is novation of the contract when the debtor acquire a new debit to pay the prior obligation or when any party is replaced by another, causing the succession of the creditor or debtor.

When this succession occurs, that one was replaced is released of the prior obligation.

Whether there is a succession of the original debtor – in that case there is no need for his consent - the creditor cannot require the accomplishment of the obligation of him, only from the new debtor, even if the new debtor is insolvent, unless in case of bad faith.

Among the main effects generated by the contractual amendment aimed at modifying the conditions stipulated originally for fulfillment of the obligation or any of the contracting parties is the fact that the guarantees provided at the beginning of the contract are released (bail, for example), If the novation is not expressly ratified by the original guarantors.

In the case of solidarity between the debtors, if there is a novation between the creditor and one of the joint debtors, the remaining debtors are exempt from the obligation, whose guarantee of compliance will only be held by the assets of the successor debtor.

It is important to emphasize that about the obligations considered null or extinct it is not possible to occur novation, however, what concerns to the nullable obligations, it subsists the possibility for novation. Such situation would occur, for example, when a certain obligation was contracted by a relatively capable person, which would make it nullable, but would be validated if this person were replaced by its legal representative with the novation.

This way, when the previously stipulated conditions of a contract is renewed, it is prudent to certify which guarantees will be inserted in the new obligation, and check the payment capacity of the obligation by the successor debtor, to avoid possible non-compliance with the obligation.