Introduction
In March 2023, the Third Panel of Brazil’s Superior Court of Justice (“STJ”) issued a significant decision addressing the applicability of the legal concept of “undervalue” in real estate’s sale, under private offer, as stated in Section 891 and its paragraph, of the Brazilian Code of Civil Procedure (“CPC”).
The decision was issued considering unsuccessful attempts to court ordered sale of real estate in the enforcement action, after a proposal for acquisition of said real estate by private offer was submitted accepted by the trial court. The Court faced the discussion of the applicability of “undervalue” may be applied to other forms of judicial sale of assets, rather than public bidding.

Background
The annulment of sales for “undervalue” is a recurring theme in Brazilian caselaw. As the prior Brazilian Civil Code, dated of 1916, expressly prohibited the sale at low prices in public auction, it did not specify what percentage of the evaluation could be regarded as such, allowing the courts to face, under the facts of the case, whether the price should be deemed as “undervalue”. This resulted in a notorious legal instability in determining this amount, which was a subject of debate both in legal doctrine and case law.

After 2015 the matter took another turn. A new Brazilian Civil Procedure Code (“CPC”) was issued, with its Section 891 and paragraph with the exact definition of “undervalue”. While Section 891 provided that “undervalue” prices are unacceptable, said paragraph states that “it is considered undervalue if the price is lower than the minimum [price] set by the court and stated in the public notice, and if no minimum price has been set, it is considered undervalue if the price set lower than fifty percent of the appraisal”.

Although said above provision is applicable to public bidding, STJ haven’t faced yet if said provision should be extended to other forms of judicial sale.

Facts
In the case reviewed by STJ, a proposal for acquisition of the property was submitted by a third party, which was accepted by the local court due to unsuccessful attempts to sale through public biding. However, the State Court São Paulo (“TJSP”) annulled this direct sale, arguing that the proposed price should be considered as “undervalue” due to the alleged appreciation of the property between the date of appraisal and the offer by the third party.

Upon appealing to STJ the buyer argued that the proposal (registered as Resp nº 2.039.253), corresponding to more than 50% of the original value of the property, was made after four years of unsuccessful attempts to sell in a judicial biding and after a decade of abandonment and depreciation of the property.

In the review of Resp nº 2.039.253, the presiding Justice emphasized that the rule against undervalue applies to all forms of judicial sale, encompassing both sale by private offer and bidding. However, the Justice pointed out that the concept of undervalue is not rigid, and STJ allows its review in specific situations, granting the sale for an amount lower that half of its appraisal when the merits of the case justifies so.

The presiding Justice conclude that in the absence of a pre-established price, the general rule of the CPC shall be applied, in accordance to Section 891, in the sale by private offer. According to the presiding minister, this interpretation is in line with the legal principles of reasonable duration of the process, protection of legitimate trust and creditor and debtor interest’s

Comment
Based on the decision, the concept of undervalue extends to alienation by private offer, providing essential guidance for situations where a sale becomes necessary. The flexibility of the term in specific circumstances demonstrates sensitivity to the complexities of the real estate market and transactions.

Published in Lexology.