chapter 2 hospitalitycontracts. © 2005 stephen c. barth p.c. and john wiley & sons, inc. all...

Chapter 2Chapter 2

HospitalityHospitality

ContractsContracts

© 2005 Stephen C. Barth P.C. and John Wiley & Sons, Inc.All Rights Reserved

Hospitality ContractsHospitality Contracts

Introduction to ContractsIntroduction to Contracts Introduction to Hospitality ContractsIntroduction to Hospitality Contracts Essential Hospitality Contract Essential Hospitality Contract

Clauses Clauses Preventative Legal Management and Preventative Legal Management and

ContractsContracts


In This Chapter, You Will Learn:In This Chapter, You Will Learn:

1.1. How to identify the fundamental How to identify the fundamental components of a contract.components of a contract.

2.2. The types of contracts commonly The types of contracts commonly used in the hospitality industry.used in the hospitality industry.

3.3. Ways to protect a hospitality Ways to protect a hospitality operation from guests who do not operation from guests who do not honor their reservations.honor their reservations.


In This Chapter, You Will Learn:In This Chapter, You Will Learn:

4.4. The significance of essential clauses The significance of essential clauses in hospitality contracts.in hospitality contracts.

5.5. How to avoid legal difficulties How to avoid legal difficulties related to contracts before they related to contracts before they arise.arise.


Introduction to ContractsIntroduction to Contracts

Legalese:Legalese:

PlaintiffPlaintiff - The person or entity that - The person or entity that initiates litigation against another. initiates litigation against another. Sometimes also referred to as the Sometimes also referred to as the claimant, petitioner, or applicant.claimant, petitioner, or applicant.



Legalese:Legalese:

DefendantDefendant - The person or entity - The person or entity against against which litigation is initiated. which litigation is initiated. Sometimes Sometimes referred to as the referred to as the respondent.respondent.



Legalese:Legalese:

ContractContract - An agreement or promise - An agreement or promise made made between two or more between two or more parties, that the parties, that the courts will enforce.courts will enforce.


Analyze the Situation 2.1Analyze the Situation 2.1

In response to a telephone In response to a telephone inquiry, Vincent's Tree Service inquiry, Vincent's Tree Service offered to trim an apple tree on the offered to trim an apple tree on the lawn outside the front lobby of the lawn outside the front lobby of the Olde Tyme Prime Rib restaurant, for Olde Tyme Prime Rib restaurant, for a fee of $500. Mr. Wilbert, the a fee of $500. Mr. Wilbert, the restaurant's manager, agreed to the restaurant's manager, agreed to the price and a start date of Monday. price and a start date of Monday.



At noon on Monday, Vincent's informed At noon on Monday, Vincent's informed Mr. Wilbert that the job was completed. Mr. Wilbert that the job was completed. The tree trimming went fine, but a large The tree trimming went fine, but a large amount of branches and leaves from the amount of branches and leaves from the tree were left neatly piled near the tree's tree were left neatly piled near the tree's base. When Mr. Wilbert inquired about the base. When Mr. Wilbert inquired about the removal of the debris, Vincent's stated removal of the debris, Vincent's stated that removing the debris had never been that removing the debris had never been discussed, and was not included in the discussed, and was not included in the quoted price. quoted price.



Mr. Wilbert agreed that the topic of Mr. Wilbert agreed that the topic of removal was never discussed, but stated removal was never discussed, but stated that it is generally assumed that when a that it is generally assumed that when a company trims a tree, it will remove the company trims a tree, it will remove the brush it generates; therefore, he refused brush it generates; therefore, he refused to pay until the brush was removed.to pay until the brush was removed.

1.1. Which party's argument seems valid? Which party's argument seems valid? Why or why not?Why or why not?


Components of an Enforceable Components of an Enforceable ContractContract

Legalese:Legalese:

Enforceable Contract Enforceable Contract - A contract - A contract recognized as valid by the courts and recognized as valid by the courts and

subject to the court’s ability to subject to the court’s ability to compel compel compliance with its terms.compliance with its terms.



Legalese:Legalese:

Offer Offer – A proposal to perform an act – A proposal to perform an act or to or to pay an amount that, if pay an amount that, if accepted, accepted, constitutes a legally constitutes a legally valid contract.valid contract.



Legalese:Legalese:

Consideration Consideration - The payment - The payment exchanged exchanged for the promise(s) for the promise(s) contained in a contained in a contract.contract.



Legalese:Legalese:

AcceptanceAcceptance - Unconditional - Unconditional agreement to agreement to the precise terms the precise terms and conditions of an and conditions of an offer.offer.



Legalese:Legalese:

Express Contract Express Contract – A contract in – A contract in which the which the components of the components of the agreement are agreement are explicitly stated, explicitly stated, either orally or either orally or written.written.



JoAnna Hart was offered a JoAnna Hart was offered a position as Director of Foodservice position as Director of Foodservice for the independent school district of for the independent school district of Laingsford. She received a written Laingsford. She received a written offer of employment on the first of offer of employment on the first of the month, with a stipulation that the the month, with a stipulation that the offer would be in effect until the offer would be in effect until the fifteenth of the month. fifteenth of the month.



If Ms. Hart were to accept the If Ms. Hart were to accept the employment offer, she would have to sign employment offer, she would have to sign the employment contract, and return it to the employment contract, and return it to the Laingsford Superintendent of Schools the Laingsford Superintendent of Schools before the offer expired on the fifteenth.before the offer expired on the fifteenth.

Upon reading the details of the Upon reading the details of the contract, Ms. Hart felt that the salary contract, Ms. Hart felt that the salary identified in the letter was too low, and identified in the letter was too low, and thus she adjusted it upward by $5,000, thus she adjusted it upward by $5,000, initialing her change on the contract copy. initialing her change on the contract copy.



She then returned the offer letter to the She then returned the offer letter to the Schools Superintendent with a cover letter, Schools Superintendent with a cover letter, stating she was pleased to accept the stating she was pleased to accept the position as detailed in the contract. The position as detailed in the contract. The contract arrived by mail in the office of the contract arrived by mail in the office of the superintendent on the fourteenth of the superintendent on the fourteenth of the month, at which time, the Superintendent month, at which time, the Superintendent called Ms. Hart to express his regret that called Ms. Hart to express his regret that she had rejected the employment offer. she had rejected the employment offer.



During the telephone call, Ms. Hart During the telephone call, Ms. Hart realized that the Superintendent realized that the Superintendent would not accept her salary revision would not accept her salary revision proposal, so instead she verbally proposal, so instead she verbally accepted the position at the original accepted the position at the original rate of pay. The Superintendent, rate of pay. The Superintendent, however, declined her acceptance, however, declined her acceptance, stating that the original stating that the original employment offer no longer employment offer no longer existed.existed.



1.1. Does the school have the legal right Does the school have the legal right to withdraw its offer of to withdraw its offer of employment? Why or why not? employment? Why or why not?


Search the Web 2.1Search the Web 2.1

Log on to the Internet and enter: Log on to the Internet and enter: www.yahoo.comwww.yahoo.com..

1.1. Under Search, type “hospitality Under Search, type “hospitality contracts”.contracts”.

2.2. Search for stories related to contracts Search for stories related to contracts and contract negotiations that are and contract negotiations that are making headlines in the news, nationally making headlines in the news, nationally or in your area.or in your area.

3.3. Print out one of the articles and be Print out one of the articles and be prepared to summarize it in class.prepared to summarize it in class.


Introduction to Hospitality Introduction to Hospitality ContractsContracts

Franchise agreementsFranchise agreements Management contractsManagement contracts Group rooms contractsGroup rooms contracts Convention or meeting space Convention or meeting space

contractscontracts Purchasing agreementsPurchasing agreements



Legalese:Legalese:

FranchiseeFranchisee - The person or business - The person or business that that has purchased and/or has purchased and/or received the received the franchise.franchise.



Legalese:Legalese:

FranchisorFranchisor - The person or business - The person or business that that has sold and/or granted the has sold and/or granted the franchise.franchise.



Legalese:Legalese:

Uniform Commercial Code (UCC) Uniform Commercial Code (UCC) - A model - A model statute covering things such as the statute covering things such as the

sale sale of of goods, credit, and bank goods, credit, and bank transactions. All transactions. All states have adopted states have adopted the UCC, with the the UCC, with the exception of exception of Louisiana.Louisiana.



Legalese:Legalese:

Caveat Emptor Caveat Emptor – A Latin phrase meaning – A Latin phrase meaning “let “let the buyer beware.” The phrase the buyer beware.” The phrase implies that implies that the burden of determining the burden of determining the relative the relative quality and price of a quality and price of a product falls to the product falls to the buyer, not the seller.buyer, not the seller.


The Uniform Commercial Code The Uniform Commercial Code (UCC)(UCC)

1.1. To simplify, clarify and modernize the To simplify, clarify and modernize the law governing commercial transactions.law governing commercial transactions.

2.2. To permit the continued expansion of To permit the continued expansion of commercial transactions.commercial transactions.

3.3. To provide for consistency in the law To provide for consistency in the law regarding the sale and financing of regarding the sale and financing of personal property in the various personal property in the various jurisdictions (municipalities, counties and jurisdictions (municipalities, counties and states).states).


Establishing an Effective Establishing an Effective Reservation PolicyReservation Policy

Legalese:Legalese:

Confirmed Reservation Confirmed Reservation - A contract to - A contract to provide a provide a reservation in which the reservation in which the provider guarantees provider guarantees the guest’s the guest’s reservation will be honored until reservation will be honored until a a mutually agreeable time. A confirmed mutually agreeable time. A confirmed reservation may be either guaranteed or reservation may be either guaranteed or

nonguaranteed.nonguaranteed.



Legalese:Legalese:

Guaranteed Reservation Guaranteed Reservation - A contract to - A contract to provide provide a confirmed reservation in which a confirmed reservation in which the the provider guarantees the guest’s provider guarantees the guest’s reservation reservation will be honored regardless will be honored regardless of time of arrival, of time of arrival, but the guest will be but the guest will be charged if he or she no-charged if he or she no- shows the shows the reservation. Prepayment or reservation. Prepayment or payment payment authorization is required.authorization is required.



Legalese:Legalese:

Nonguaranteed Reservation Nonguaranteed Reservation - A - A contract to contract to provide a confirmed provide a confirmed reservation where reservation where no prepayment no prepayment or authorization is or authorization is required.required.


Legally Managing at WorkLegally Managing at Work

How can we reduce no-show How can we reduce no-show reservations?reservations?


Essential Hospitality Contract Essential Hospitality Contract ClausesClauses

Legalese:Legalese:

Attrition Attrition – Reduction in the number – Reduction in the number of of projected participants or projected participants or attendees.attendees.



Legalese:Legalese:

Indemnification Indemnification – To make one – To make one whole; to whole; to reimburse for a loss reimburse for a loss already incurred.already incurred.


Essential Hospitality Contract Essential Hospitality Contract Clauses Clauses

1.1. Length of time that contract price terms Length of time that contract price terms are in existence.are in existence.

2.2. Identification of who is authorized to Identification of who is authorized to modify the contract.modify the contract.

3.3. Deposit and cancellation policies.Deposit and cancellation policies.

4.4. Allowable attrition.Allowable attrition.

Providing Products and Services



5.5. Indemnification for damages.Indemnification for damages.6.6. Payment terms.Payment terms.7.7. Performance standards related to Performance standards related to

quantity.quantity.

Providing Products and Services



1.1. Payment terms.Payment terms.

2.2. Delivery or start date.Delivery or start date.

3.3. Completion date.Completion date.

4.4. Performance standards.Performance standards.

Receiving Products and Services



5.5. Licenses and permits.Licenses and permits.

6.6. Indemnification.Indemnification.

7.7. Nonperformance clauses.Nonperformance clauses.

8.8. Dispute resolution terms.Dispute resolution terms.

Receiving Products and Services


Exculpatory ClausesExculpatory Clauses

Legalese:Legalese:

Exculpatory Clause or Contract- Exculpatory Clause or Contract- A A contract contract (or clause in a contract) that (or clause in a contract) that releases releases one one of the parties from of the parties from liability for liability for their wrongdoings.their wrongdoings.



Laureen Statte was a guest at the Laureen Statte was a guest at the Boulder Inn, a midpriced hotel in an urban Boulder Inn, a midpriced hotel in an urban area. When she checked into the hotel area. When she checked into the hotel she inquired about the availability of a she inquired about the availability of a workout room. Upon receiving assurances workout room. Upon receiving assurances that the hotel did indeed have such an that the hotel did indeed have such an area, Ms. Statte checked into the hotel, area, Ms. Statte checked into the hotel, put away her luggage, changed into put away her luggage, changed into workout attire and proceeded to the workout attire and proceeded to the workout area.workout area.



Upon entering the workout room, Upon entering the workout room, she noticed a sign prominently posted she noticed a sign prominently posted near the entrance to the workout room near the entrance to the workout room stating: “Hotel Not Liable for Any stating: “Hotel Not Liable for Any Injuries Incurred During Workouts.”Injuries Incurred During Workouts.”

According to her attorney, Ms. According to her attorney, Ms. Statte lifted deadweights for Statte lifted deadweights for approximately 10 minutes, then approximately 10 minutes, then mounted a treadmill. mounted a treadmill.



As an experienced treadmill user, she As an experienced treadmill user, she started slowly, gradually increasing the started slowly, gradually increasing the treadmill's speed. Shortly after treadmill's speed. Shortly after beginning the treadmill workout, Ms. beginning the treadmill workout, Ms. Statte fell backward into a plate-glass Statte fell backward into a plate-glass window that was approximately 2 feet window that was approximately 2 feet behind the treadmill. The shards from behind the treadmill. The shards from the glass severely injured Ms. Statte.the glass severely injured Ms. Statte.



Ms. Statte's attorney claimed the Ms. Statte's attorney claimed the accident was the fault of the hotel accident was the fault of the hotel because the treadmill was too close to because the treadmill was too close to the window, and the hotel neglected to the window, and the hotel neglected to outfit the window with safety glass. As outfit the window with safety glass. As its defense, the hotel pointed out the its defense, the hotel pointed out the presence of the exculpatory clause presence of the exculpatory clause sign, which was clearly posted, and sign, which was clearly posted, and which Ms. Statte agreed that she read which Ms. Statte agreed that she read prior to beginning her workout. Who is prior to beginning her workout. Who is liable?liable?



1.1. As the hotel manager, how might As the hotel manager, how might you resolve this dispute?you resolve this dispute?

2.2. Could a lawsuit have been Could a lawsuit have been prevented?prevented?


Breach of ContractBreach of Contract

Legalese:Legalese:

Breach of Contract Breach of Contract - Failure to keep - Failure to keep the the promises or agreements of a promises or agreements of a contract.contract.


Preventative Legal Preventative Legal Management and ContractsManagement and Contracts

Legalese:Legalese:

Damages Damages - Losses or costs incurred - Losses or costs incurred due to due to another’s wrongful act.another’s wrongful act.


Remedies and Consequences of Remedies and Consequences of Breaching an Enforceable ContractBreaching an Enforceable Contract

1.1. Suit for specific performance.Suit for specific performance.

2.2. Liquidated damages.Liquidated damages.

3.3. Economic loss.Economic loss.

4.4. Alternative dispute resolution.Alternative dispute resolution.



Legalese:Legalese:

Arbitration Arbitration - A process in which an - A process in which an agreed-agreed- upon, independent, neutral upon, independent, neutral third party third party (the arbitrator), renders (the arbitrator), renders a final and a final and binding resolution to a binding resolution to a dispute. The dispute. The decision of the decision of the arbitrator is known as arbitrator is known as the the “award.”“award.”



Legalese:Legalese:

Mediation Mediation - A process in which an - A process in which an appointed, appointed, neutral third party (the neutral third party (the mediator), assists mediator), assists those involved in a those involved in a dispute with resolving dispute with resolving their own their own differences. The result of differences. The result of mediation, mediation, when when successful, is known as the successful, is known as the “settlement.”“settlement.”


Statute of LimitationsStatute of Limitations

Legalese:Legalese:

Statute of Limitations Statute of Limitations - Various laws that - Various laws that set set maximum time periods in which maximum time periods in which lawsuits lawsuits must must be initiated. If the suit be initiated. If the suit is not initiated is not initiated (or filed) before the (or filed) before the expiration of the expiration of the maximum period maximum period allowed, then the law allowed, then the law prohibits the use prohibits the use

of the courts for recovery.of the courts for recovery.


Preventing Breach of ContractPreventing Breach of Contract

1.1. Get it in writing.Get it in writing.

2.2. Read the contract thoroughly.Read the contract thoroughly.

3.3. Keep copies of all contract Keep copies of all contract documents.documents.

4.4. Use good faith when negotiating Use good faith when negotiating contracts.contracts.

5.5. Note and calendar time deadlines Note and calendar time deadlines for performance.for performance.


Preventing Breach of ContractPreventing Breach of Contract

6.6. Ensure the performance of third Ensure the performance of third parties.parties.

7.7. Share contract information with Share contract information with those who need to know, and those who need to know, and educate staff on the consequences educate staff on the consequences of contract breach.of contract breach.

8.8. Resolve ambiguities as quickly and Resolve ambiguities as quickly and fairly as possible.fairly as possible.


What Would You Do?What Would You Do?

Assume that you manage a 300-Assume that you manage a 300-room hotel. Your local university room hotel. Your local university football team is playing a home football team is playing a home game on Saturday, and demand for game on Saturday, and demand for rooms far exceeds supply. Your no-rooms far exceeds supply. Your no-show rate on reservations for the show rate on reservations for the past three football games has been past three football games has been 8, 12, and 9 percent respectively. 8, 12, and 9 percent respectively. Currently you have 100 nonreserved Currently you have 100 nonreserved rooms.rooms.


What Would You Do?What Would You Do?Prepare a brief report (half-page) describing Prepare a brief report (half-page) describing how you would answer the following questions.how you would answer the following questions.

How many room reservation contracts are you How many room reservation contracts are you willing to accept?willing to accept? Should you require that all Should you require that all reservations be confirmed? reservations be confirmed?

Should you require that all reservations be Should you require that all reservations be confirmed?confirmed?

What factors will you consider as you make What factors will you consider as you make your decision? What strategies will you employ your decision? What strategies will you employ to reduce no-shows?to reduce no-shows?


What Would You Do?What Would You Do?

Write a short essay (half-page) answering Write a short essay (half-page) answering questions 4 and 5, drawing from your personal questions 4 and 5, drawing from your personal perspective.perspective.

4.4. You and your family are traveling out of state You and your family are traveling out of state to attend one of your school team’s away to attend one of your school team’s away football games. Upon arrival, the hotel where football games. Upon arrival, the hotel where you have a confirmed reservation denies you a you have a confirmed reservation denies you a room because it has none available. What do room because it has none available. What do you think the hotel should do for you?you think the hotel should do for you?

5.5. What if no other rooms were available within a What if no other rooms were available within a 50 mile radius of the hotel you originally 50 mile radius of the hotel you originally booked at?booked at?


Rapid ReviewRapid Review

1.1. List the advantages of written contracts List the advantages of written contracts versus oral contracts.versus oral contracts.

2.2. Discuss “legality” as a major component Discuss “legality” as a major component required of an enforceable contract. Give a required of an enforceable contract. Give a hospitality example of “legality” coming hospitality example of “legality” coming into question.into question.

3.3. Using the World Wide Web, go to the home Using the World Wide Web, go to the home page of a national hotel chain. Evaluate page of a national hotel chain. Evaluate the hotel chain’s reservation booking the hotel chain’s reservation booking system from a legal perspective. Address system from a legal perspective. Address specifically the concept of consideration.specifically the concept of consideration.



4.4. You are the General Manager of a You are the General Manager of a midsized hotel. Draft a memo for your midsized hotel. Draft a memo for your front desk staff describing the front desk staff describing the rationale and policy for billing guests rationale and policy for billing guests with a confirmed reservation who do with a confirmed reservation who do not arrive at the hotel to use their not arrive at the hotel to use their rooms.rooms.

5.5. Give a hospitality example that Give a hospitality example that illustrates why it is so important to illustrates why it is so important to establish acceptance of an offer prior establish acceptance of an offer prior to the formation of a contract.to the formation of a contract.



6.6. On a busy weekend, you have forecasted On a busy weekend, you have forecasted that 10 percent of your dining room that 10 percent of your dining room reservations will no-show. Create notes that reservations will no-show. Create notes that you would use to explain to your you would use to explain to your reservationist why he or she should reservationist why he or she should continue to book reservations when you are continue to book reservations when you are past capacity.past capacity.

7.7. Identify at least three essential contract Identify at least three essential contract clauses that protect the hotel when clauses that protect the hotel when contracting to provide space and food contracting to provide space and food products for a large wedding party.products for a large wedding party.



8.8. You purchased a warranty for your You purchased a warranty for your telephone system that provides 24-hour telephone system that provides 24-hour response time from the vendor. Draft a response time from the vendor. Draft a letter to the vender protesting the letter to the vender protesting the breach of contract that resulted when it breach of contract that resulted when it took three days for you to get service. took three days for you to get service. Remember that your goal is to have a Remember that your goal is to have a professional relationship with the vendor, professional relationship with the vendor, as well as a working telephone system.as well as a working telephone system.

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