Everything is precious to one who has long been deprived of everything. Friedrich Nietzsche
Claims for damages typically arise from an event of great personal impact. A scar, an amputation, a loved one who is no longer with us. Civil liability, precisely because it is based on harm, involves, in one way or another, a loss.
And among the various functions of civil liability is the quest to restore what has been lost (the restorative function), whether through the restorative power of damages or the soothing force of compensation. This pursuit is directly linked to the duration of the proceedings, since the resolution of the issue that arose in the factual realm will not always come from a settlement, requiring the entire judicial process—sometimes lasting years or even decades—until a final decision on the merits is rendered.
This duration has two serious effects on the parties: on the one hand, it keeps the pain caused by the harmful event alive; on the other, it erodes the final amount awarded when the resolution does not take the form of specific restitution.
The first effect mentioned—which is not the focus of this paper—is extremely harmful and corrosive, as it fuels the pain caused by the incident, perpetuating a story that is, more often than not, a sad one. Every day, the legal process brings back memories, inflicts pain, and causes suffering—a pain that, beyond being acute, seems to have no end. This may one day be the subject of a discussion that is more sociological than legal.
Here, it falls to us to analyze the second effect: the deleterious erosion of the amount of damages or compensation. This effect, if not stemmed, strongly encourages the alleged perpetrator of the harm to resort to countless procedural mechanisms designed specifically to buy time and, thereby, put pressure on the victim so that the victim, disillusioned by the delay and unable to bear the pain of the memory, accepts detrimental settlements to free themselves from the lawsuit, which becomes a burden as difficult to bear as the harmful event itself. It is a labyrinth that traps both parties in a struggle that closely resembles the dialogue between the student and the soldier, when Don Quixote seeks to discover who is the poorest and leaves us with the fantastic conclusion that “there is no one poorer in the very same poverty, for he is bound by the misery of his pay” (Miguel de Cervantes. Don Quijote de la Mancha, Barcelona: Edimat Libros, Parte Primera, Cap. XXXVIII).
To mitigate this effect, the Brazilian legal system features two fundamental elements, widely recognized in popular usage: interest and monetary adjustment.
First, it is important to distinguish between the two based on their legal nature and, in doing so, highlight the different functions they serve in relation to the value of the case.
First, with regard to interest, there is a category known as a classic example of civil fruits. And any of its forms will retain this same nature. This is because there are default interest and compensatory interest (if we distinguish them by function) and contractual interest and statutory interest (if distinguished by their proximate cause).
The function of default interest is to discourage delays in performance; it may arise from a contractual agreement, a non-contractual obligation based on consensus (such as an alimony agreement), or even in connection with compensation for a civil tort (the subject of our current discussion).
Compensatory interest, on the other hand—which also shares the nature of “fruits”—is the amount paid for the use of another person’s money. It serves as compensation for the loss of use by the owner and must be paid by the party who used the money during the specified period. As can be seen, in both cases interest is due as a result of the appropriation of another’s money; or, to put it in familiar terms, interest is the price due for obtaining the potential use of another’s capital. In short, while default interest arises from unauthorized appropriation, compensatory interest stems from prior consent to the use of the money.
Shifting focus to the proximate cause, we note that contractual interest applies based on the parties’ agreement, leaving it to the legislature, on a supplementary basis, to provide for interest applicable in the absence of an agreement between the parties, known as statutory interest.
Interest is, in the final analysis, the cost of money.
While closely related to the concept of interest and preceding it in application, monetary adjustment has the nature of a product, since—as it aims to maintain the purchasing power of the principal—its collection (receipt) will result in a reduction of the principal. Note the difference between this concept and that of interest, which, even when withdrawn, leaves the principal from which it originated intact. Even compound interest, known as interest on interest, does not lose this nature, but it is beyond the scope of these brief lines, since capitalization is recognized in our system only in contractual obligations; what concerns us now is a discussion of the obligations arising from various torts (or even lawful acts involving a duty to compensate).
Having established this first point, we can see that money has a cost, that every sum carries a burden, and that this cost plays a significant role in claims for damages, given the factual delay in litigation. We will now discuss this.
Litigation delays are already as well-known as the price of chayote at the market. No one would disagree with this. When it comes to the reason for this delay, there is a whole universe of positions, ideas, and justifications. It is not our place here to debate its origin, so we will take it as a given that the process takes time—whether a little or a lot—but it does take time. Whose fault is it? There is no need to determine this, as it will, for us, be a fact of nature.
With that in mind, we can see that procedural delays could erode the amount to be received, further victimizing the claimant. In order to prevent (or at least attempt to prevent) this situation, the law and the courts have devised a system of safeguards to ensure the (at least partial) inviolability of the right to damages or compensation.
Let us begin our analysis with monetary adjustment.
As a mechanism for maintaining the purchasing power of a nominal monetary amount, the application of monetary adjustment precedes the accrual of interest. And it is essential to note that its application will vary according to the nature of the damage. For property damages, monetary adjustment applies as of the date of the actual loss, in accordance with Statement 43 of the STJ Precedent Summary—Monetary adjustment applies to debts arising from tortious acts as of the date of the actual loss. Note that there is no difference depending on whether the liability is contractual or non-contractual.
On the other hand, when the issue at hand involves moral damages, monetary adjustment applies as of the date the amount is determined, in accordance with Precedent 362 of the STJ’s Summary of Precedents—Monetary adjustment of the amount of compensation for moral damages applies as of the date the amount is determined.
As for interest, the system is different. Here, the nature of the damage is irrelevant; rather, it is the source of liability that matters. In the case of non-contractual civil liability, interest accrues from the date of the harmful event, as provided for in Article 398 of the Civil Code and Precedent No. 54 of the STJ.
Art. 398. In obligations arising from a tort, the debtor is deemed to be in default as of the time the tort was committed.
STJ Precedent No. 54—Default interest accrues as of the date of the harmful event in cases of non-contractual liability.
When the matter arises from contractual liability, the application varies depending on whether the obligation is liquidated or unliquidated. It is worth noting that a liquidated obligation is one that is certain as to its existence and determined as to its subject matter, according to a long-standing but still relevant legal principle. Since the defaulted contractual obligation is liquidated, interest shall accrue from the due date of the obligation (as we observed in the case of ex re default), in accordance with the provision of Article 397 of the Civil Code:
Art. 397. Default on a positive and liquid obligation upon its maturity automatically places the debtor in default.
And what if the obligation to pay damages arising from contractual liability is not liquid? In this case, interest is calculated from the date of service of process, pursuant to Article 405 of the Civil Code:
Art. 397. Failure to perform a positive and liquid obligation upon its due date automatically places the debtor in default.
This system ensures, if not the full fulfillment of the compensatory function (since this depends on the stipulation of the original amount itself), at least that the fixed amount is not significantly eroded over time.
We know that the entire functional structure of civil liability is designed to prevent the occurrence of a tort; should one occur, to provide specific restitution; and, if this is impossible, to ensure fair indemnification or compensation. To comprehend the full scope of this concept while accepting the occurrence of a tort as something normal is to trivialize the very purpose of Civil Law. Beyond punishment, the Jus Civile seeks to balance private relationships, guide individual decisions, and promote social peace. Remedying the damage is merely the tip of the iceberg, since civil liability—though focused on the future—has a crucial interest in the past. And, on the path toward a society in which the principle of “neminem laedere” is conceived as an insurmountable clause—at least with regard to intentional acts—the proper correction and updating of values is a fundamental factor. May these aspirations thus become a reality.
Article originally published on September 8, 2020.