Contracts in US Dollars
- Brazil
- 05/29/2002
- Azevedo Sette Advogados
The general rule under Brazilian Law is the prohibition to contract in foreign currency (Article 1 of Decree-Law 857 of September 11, 1969).
Article 2 of the same Decree covers the exceptions to such rule, which include (i) contracts related to the import and export of goods; (ii) contracts to finance or to guarantee operations related to the export of goods produced in Brazil and sold abroad by way of credit sale; (iii) currency exchange contracts; (iv) loan contracts and any other contract in which one of the parties is domiciled abroad; and (v) contracts which have as object the assignment, transfer, delegation, or modification of the contracts mentioned above, even when both parties are domiciled in Brazil. Another important exception refers to foreign resource based leasing contracts (Law 8880/94).
Among legal scholars and professionals, notwithstanding the Decree-Law 857, there is still some controversy on whether or not contracts expressed in foreign currency or linked to foreign currency are valid.
In despite of this controversy, it is not legal for an authorized branch office in Brazil, due to the restrictions and prescriptions mentioned above, to contract in foreign currency. As the domicile of the “branch” is, effectively, in Brazil, it will not be covered by the exceptions prescribed in the Decree-Law 857.
However, the Brazilian Superior Court (“Tribunal Superior de Justica”), which interprets Brazilian federal laws, had ruled for the validity of contracts expressed or linked to foreign currency as long as the payments are made in Brazilian currency, Real.
In spite of that, according to Law 9069/95, that implemented the economic plan Plano Real (the “Real Plan”), the Real Plan was undertaken through three basic elements: (i) a monetary reform including the creation of a new currency (the “Real”), (ii) the elimination of indexation in contracts, including wages and exchange rate, and (iii) a greater reliance on market mechanisms.
Therefore, since the publication of such law, agreements expressed or linked in foreign currency are forbidden, except in the hypothesis allowed by Brazilian legislation.
In case of a high devaluation of BRL the party harmed by the devaluation may be able to seek a judicial review of the contract expressed or linked to foreign currency under the basis of excessive hardship.
