Thursday, May 28, 2020

Does Coronavirus Excuse Non-Performance Under a Contract?

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Richard B. Newmanhttp://www.hinchnewman.com
Richard B. Newman is an Internet Lawyer at Hinch Newman LLP focusing on advertising law, Internet marketing compliance, regulatory defense and digital media matters. His practice involves conducting legal compliance reviews of advertising campaigns across all media channels, regularly representing clients in high-profile investigative proceedings and enforcement actions brought by the Federal Trade Commission and state attorneys general throughout the country, advertising and marketing litigation, advising on email and telemarketing best practice protocol implementation, counseling on eCommerce guidelines and promotional marketing programs, and negotiating and drafting legal agreements.

The Coronavirus outbreak has raised a number of issues relating to contractual performance obligations. An excuse for non-performance of contractual obligations may potentially exist in the form of a “force majeure,” or “Act of G-d”) provision.

Typically, force majeure provisions excuse non-performance for events such as natural disasters and war. While some force majeure clauses specifically include epidemics and pandemics, others do not. Depending upon the breadth of the clause at issue and the jurisdiction that governs the applicable contract, Coronavirus may qualify as a force majeure event.

As a general rule, a force majeure provision excuses contractual non-performance if the non-performance is caused by unforeseen events beyond the control of each party, and performance is rendered commercially impracticable or unreasonable. Additionally, a causal relationship must exist between the force majeure event and the impacted party’s failure to perform. Reasonable efforts to mitigate the impact of the force majeure event may also be required.

If there is no force majeure provision in your contract, non-performance could still potentially be excused. For example, if the primary purpose of the contract has been frustrated or rendered unfeasible.

Timely notice of the invocation of a force majeure provision may be required. In the event that a force majeure contractual provision does apply, the impacted party may potentially be excused from its performance obligations during the continuation of the force majeure event. Termination of the contract is also a potential option depending upon a number of factors, including, but not limited to, the period of time that the force majeure event continues.

Takeaway: Given these unprecedented circumstances, discussing the invocation of contractual non-performance related considerations with marketing partners may become necessary. Marketers should assess underlying marketing contracts with experienced counsel to determine whether a force majeure provision or other excuse to non-performance exists. The scope of any such provision should be assessed, as should mitigation, notice, termination and choice of law requirements.


Richard B. Newman is a digital advertising practices lawyer and FTC attorney at Hinch Newman LLP. Follow him on Twitter @FTC lawyer.

Informational purposes only. Not legal advice. May be considered attorney advertising.

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