Salvador Beliz Abra Oliveira and Caio Fugiwara Garcia

Every day, individuals and companies enter into private contracts to establish the conditions for the provision of services or the supply of goods, as well as the price to be paid by the beneficiary. Failure to perform the obligation as agreed automatically places the debtor in default, provided that the obligation is liquid and has a fixed due date. Alternatively, default may be established through extrajudicial or judicial notice to the debtor [1].

Once the debtor is in default, the creditor acquires the right to demand not only performance of the main obligation, but also payment of charges such as monetary adjustment and default interest, regardless of proof of loss [2].

Monetary adjustment aims to preserve the real value of the obligation against the negative effects of inflation during the period of default. Default interest, in turn, seeks to penalize the debtor for the delay in performing the obligation.

Although the law provides for the consequences of default, private contracts often do not clearly establish the criteria for applying default charges, such as the monetary adjustment indexes and the default interest rates applicable to the principal debt.

In the absence of agreed parameters, resulting in a contractual gap, the creditor may turn to the Judiciary to recover the credit. In this case, however, the judgment will follow the legal criteria for default charges applicable to civil debts.

Before the enactment of Federal Law No. 14,905/2024, where the contract did not specify a monetary adjustment index, courts commonly applied the INPC/IBGE (National Consumer Price Index), applying by analogy article 2 of Federal Law No. 6,899/1981 and Federal Decree No. 86,649/1981, and treating the INPC as the successor to the extinct ORTN and IPC indexes [3].

As for default interest, the former wording of article 406 of the Civil Code, which provided for the statutory interest rate, was the subject of intense disagreement in case law and legal doctrine, with two main positions:

• (a) statutory interest would correspond to the Selic rate;
• (b) statutory interest would be 1% per month, as provided for in article 161, § 1 of the National Tax Code (CTN) [4].

The Selic rate would be used under the STJ’s understanding

At the Superior Court of Justice, the prevailing understanding was that statutory interest corresponded to the Selic rate, including under the repetitive appeals system, resulting in the theses of Topics No. 99 [5] and 112 [6]. However, the controversy over the statutory interest rate applicable to civil debts persisted in the following years and was the subject of a new judgment under the repetitive appeals procedure (REsp No. 1,795,982).

Given the legal uncertainty caused by the legislative silence on the applicable criteria and by disagreement in case law, the Executive Branch proposed Bill No. 6,233/2023, intended to amend the Civil Code to fill the regulatory gap. On July 28, 2024, the text was signed into law by the President, resulting in Federal Law No. 14,905/2024 and ushering in a new legal landscape.

The bill’s explanatory memorandum clarifies that the main factors motivating the reform were the intense disagreement in case law and the inadequacy of the Selic rate, which “does not adequately compensate the creditor for the risks to which it is exposed”, as well as simple interest of 1% per month, which “does not respond to market conditions and may be relatively high or low depending on economic circumstances” [7].

With the enactment of the law, the controversy over the legal criteria to be applied in judgments involving civil debts was resolved, since:

• (a) the current wording of the sole paragraph of article 389 of the Civil Code expressly provides that, if no monetary adjustment is agreed, the applicable index will be the Broad National Consumer Price Index (IPCA/IBGE); and
• (b) the current wording of article 406 of the Civil Code expressly provides that the statutory default interest rate, that is, when not agreed, will correspond to the Selic rate, minus the monetary adjustment referred to in the provision mentioned in the previous item.
  

On the other hand, in its most recent judgment under the repetitive appeals procedure (REsp No. 1,795,982) [8], the STJ confirmed that the statutory default interest applicable to civil debts prior to the entry into force of Federal Law No. 14,905/2024 will be the Selic rate.

New rules for monetary adjustment

The new legal criteria for monetary adjustment and default interest on civil debts came into force on August 31, 2024, under article 5 of the new law. Until that date, civil debts would continue to be adjusted by the INPC and the Selic rate, as held in the judgment of REsp No. 1,795,982.

Although not expressly stated in the law, it should be noted that the new criteria established by Law No. 14,905/2024 cannot retroact to alter judicial enforcement orders arising from final judgments, out of respect for the inviolability of res judicata, or for the broader principle from which it derives, legal certainty, under article 6 of the LINDB and article 5, item XXXVI of the Constitution [10].

Those who do not wish to apply the legal criteria obviously retain the contractual freedom to stipulate specific conditions to better protect their interests. However, the legislative change will affect the limits that private parties must observe in exercising their freedom of contract, especially when agreeing on default interest rates.

This is because article 5 of Federal Decree No. 22,626/1993 (the Usury Law) prohibits default interest at rates higher than 1% per month (12% per year), and article 1 of the decree prohibits and penalizes contracts stipulating interest rates higher than twice the statutory rate.

However, article 3 of Federal Law No. 14,905/2024 excluded certain situations from the limitation imposed by Federal Decree No. 22,626/1993, allowing interest above the legal cap to be agreed when the obligations are:

• (a) entered into between legal entities;
• (b) represented by credit instruments or securities;
• (c) incurred with: i) financial institutions and other institutions authorized to operate by the Central Bank of Brazil; ii) investment funds or clubs; iii) leasing companies and simple credit companies; and iv) civil society organizations of public interest under Law No. 9,790 of March 23, 1999, engaged in granting credit; or
  
• (d) carried out in the financial, capital or securities markets.

The absence of a legal cap, however, does not remove control over manifestly abusive conditions, since contemporary contract law remains guided by the principles of social function, objective good faith and the prohibition of unjust enrichment.

In addition, it will also be necessary to await regulations and court decisions to determine how this dynamic applies between legal entities and individuals in cases of veil piercing and of joint and/or subsidiary liability of individuals.

Regulation of default interest

The legislative changes introduced by Law No. 14,905/2024 bring important changes to the regulation of contractual default interest, mainly by relaxing the limits imposed by the Usury Law in certain legal relationships. While obligations agreed between legal entities now enjoy a greater degree of freedom in setting interest rates, negotiations between individuals remain subject to traditional restrictions, albeit with interpretive challenges to be resolved by the Judiciary.

Care in drafting contracts and the use of compensatory penalty clauses may be effective strategies to minimize risks and uncertainties, ensuring greater legal certainty in commercial relationships.

Furthermore, article 406, § 2 of the Civil Code, as worded by the new law, assigns to the National Monetary Council the task of establishing “the methodology for calculating the statutory rate and how it is applied”. Accordingly, on August 29, 2024, the Central Bank published CMN Resolution No. 5,171, which governs how the “statutory rate” is computed and sets out the formula to be used for the calculations.

Under the rule, the formula considers the monthly Selic and IPCA-15 factors for the month preceding the reference month for calculating interest, which will be compounded on a simple basis. Under article 8 of the regulation, the formula’s variables will be published by the Central Bank on the first business day of each month [11].

Alongside the publication of the first Selic and IPCA benchmarks, the Central Bank has already made available a tool that allows simulating adjustment calculations using the statutory rate, through the “citizen’s calculator”, by entering the amount to be adjusted and the start and end dates [12].

It remains to be seen how the courts will position themselves and whether additional regulations will clarify the application of these new rules, allowing a better understanding of the scope and implications of these new provisions in the Brazilian legal system.

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[1] See art. 397 of the Civil Code: “Failure to perform a positive and liquid obligation on its due date automatically places the debtor in default”, and the sole paragraph adds that “where there is no due date, default is established by judicial or extrajudicial notice.”

[2] See art. 394 of the Civil Code: “a debtor who fails to make payment and a creditor who refuses to receive it at the time, place and manner established by law or agreement are considered in default.” Next, art. 395 of the Civil Code adds that “the debtor is liable for the losses caused by its default, plus interest, monetary adjustment and attorneys’ fees”. Art. 407 of the Civil Code concludes that “Even if no loss is alleged, the debtor is obliged to pay default interest, which shall be counted both on monetary debts and on obligations of another nature, once their monetary value has been set by court judgment, arbitration or agreement between the parties”.

[3] INTERLOCUTORY APPEAL IN APPEAL ON SPECIAL APPEAL. CIVIL PROCEDURE. ENFORCEMENT OF JUDGMENT. JUDICIAL DEBTS. MONETARY ADJUSTMENT. INDEX. 1. Special appeal filed against a judgment published while the 2015 Code of Civil Procedure was in force (STJ Administrative Statements Nos. 2 and 3). 2. The case law of the Superior Court of Justice firmly holds that, for the monetary adjustment of judicial debts, the INPC index is the most appropriate. Precedents. 3. Interlocutory appeal dismissed. (STJ. AgInt in AREsp No. 1,687,207/RJ. 2020/0078733-6. Third Panel. Reporting Justice Ricardo Villas Bôas Cueva. Judgment date: 08/08/2022. Publication date: 08/15/2022)

[4] In this sense, Statement 20 of the 1st Civil Law Conference of the Federal Justice Council provides that “the default interest rate referred to in art. 406 is that of art. 161, § 1 of the National Tax Code, that is, one percent per month.” Available at: https://www.cjf.jus.br/enunciados/enunciado/666

[5] Thesis established in STJ Topic 99: Regarding the default interest owed by CEF – for not having credited, in due time and at the correct index, the monetary adjustment of FGTS accounts – its calculation must follow, in the absence of a specific rule, the statutory rate, previously provided for in art. 1062 of the 1916 Civil Code and now in art. 406 of the 2002 Civil Code. (…) “currently, the default interest rate referred to in that provision [art. 406 of the 2002 CC] is the benchmark rate of the Special System for Settlement and Custody – SELIC”, which “cannot be combined with other monetary adjustment indexes. Available at: https://processo.stj.jus.br/repetitivos/temas_repetitivos/pesquisa.jsp?novaConsulta=true&tipo_pesquisa=T&cod_tema_inicial=99&cod_tema_final=99

[6] Thesis established in STJ Topic 112: The default interest rate referred to in art. 406 of the 2002 Civil Code is the benchmark rate of the Special System for Settlement and Custody – SELIC. Available at: https://processo.stj.jus.br/repetitivos/temas_repetitivos/pesquisa.jsp?novaConsulta=true&tipo_pesquisa=T&cod_tema_inicial=112&cod_tema_final=112

[7] BRAZIL. Chamber of Deputies. Bill No. 6,233/2023. Amends Law No. 10,406 of January 10, 2002 – Civil Code, to provide for monetary adjustment and interest. Available at: https://www.camara.leg.br/proposicoesWeb/fichadetramitacao?idProposicao=2416729

[8] The judgment ended on 08/21/2024, with Justice Raul Araújo designated to draft the judgment.

[9] See art. 6 of the LINDB: “the Law in force shall have immediate and general effect, respecting perfected legal acts, vested rights and res judicata”. § 3 adds that “res judicata is a court decision that is no longer subject to appeal”.

[10] See art. 5, XXXVI of the Federal Constitution: “the law shall not impair vested rights, perfected legal acts and res judicata”.

[11] Available at: https://www.bcb.gov.br/estabilidadefinanceira/exibenormativo?tipo=Resolu%C3%A7%C3%A3o%20CMN&numero=5171

[12] Available at: https://www3.bcb.gov.br/CALCIDADAO/publico/exibirFormCorrecaoValores.do?method=exibirFormCorrecaoValores&aba=6

Originally published by ConJur (in Portuguese).