Chapter 2 Hospitality Contracts



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  • Chapter 2
  • Hospitality Contracts
  • In This Chapter, You Will Learn:
  • How to identify the fundamental components of a contract.
  • The types of contracts commonly used in the hospitality industry.
  • Ways to protect a hospitality operation from guests who do not honor their reservations.
  • In This Chapter, You Will Learn:
  • The significance of essential clauses in hospitality contracts.
  • How to avoid legal difficulties related to contracts before they arise.
  • Introduction to Contracts
  • Legalese:
  • Plaintiff - The person or entity that initiates litigation against another. Sometimes also referred to as the claimant, petitioner, or applicant.
  • Introduction to Contracts
  • Legalese:
  • Defendant - The person or entity against which litigation is initiated. Sometimes referred to as the respondent.
  • Introduction to Contracts
  • Analyze the Situation 2.1
  • In response to a telephone inquiry, Vincent's Tree Service offered to trim an apple tree on the lawn outside the front lobby of the Olde Tyme Prime Rib restaurant, for a fee of $500. Mr. Wilbert, the restaurant's manager, agreed to the price and a start date of Monday.
  • Analyze the Situation 2.1
  • At noon on Monday, Vincent's informed Mr. Wilbert that the job was completed. The tree trimming went fine, but a large amount of branches and leaves from the tree were left neatly piled near the tree's base. When Mr. Wilbert inquired about the removal of the debris, Vincent's stated that removing the debris had never been discussed, and was not included in the quoted price.
  • Analyze the Situation 2.1
  • Mr. Wilbert agreed that the topic of removal was never discussed, but stated that it is generally assumed that when a company trims a tree, it will remove the brush it generates; therefore, he refused to pay until the brush was removed.
  • Which party's argument seems valid? Why or why not?
  • Components of an Enforceable Contract
  • Legalese:
  • Enforceable Contract - A contract recognized as valid by the courts and subject to the court’s ability to compel compliance with its terms.
  • Components of an Enforceable Contract
  • Legalese:
  • Offer – A proposal to perform an act or to pay an amount that, if accepted, constitutes a legally valid contract.
  • Components of an Enforceable Contract
  • Legalese:
  • Consideration - The payment exchanged for the promise(s) contained in a contract.
  • Components of an Enforceable Contract
  • Legalese:
  • Acceptance - Unconditional agreement to the precise terms and conditions of an offer.
  • Components of an Enforceable Contract
  • Legalese:
  • Express Contract – A contract in which the components of the agreement are explicitly stated, either orally or written.
  • Analyze the Situation 2.2
  • JoAnna Hart was offered a position as Director of Foodservice for the independent school district of Laingsford. She received a written offer of employment on the first of the month, with a stipulation that the offer would be in effect until the fifteenth of the month.
  • Analyze the Situation 2.2
  • If Ms. Hart were to accept the employment offer, she would have to sign the employment contract, and return it to the Laingsford Superintendent of Schools before the offer expired on the fifteenth.
  • Upon reading the details of the contract, Ms. Hart felt that the salary identified in the letter was too low, and thus she adjusted it upward by $5,000, initialing her change on the contract copy.
  • Analyze the Situation 2.2
  • She then returned the offer letter to the Schools Superintendent with a cover letter, stating she was pleased to accept the position as detailed in the contract. The contract arrived by mail in the office of the superintendent on the fourteenth of the month, at which time, the Superintendent called Ms. Hart to express his regret that she had rejected the employment offer.
  • Analyze the Situation 2.2
  • During the telephone call, Ms. Hart realized that the Superintendent would not accept her salary revision proposal, so instead she verbally accepted the position at the original rate of pay. The Superintendent, however, declined her acceptance, stating that the original employment offer no longer existed.
  • Analyze the Situation 2.2
  • Does the school have the legal right to withdraw its offer of employment? Why or why not?
  • Search the Web 2.1
  • Log on to the Internet and enter: www.yahoo.com.
  • Under Search, type “hospitality contracts”.
  • Search for stories related to contracts and contract negotiations that are making headlines in the news, nationally or in your area.
  • Print out one of the articles and be prepared to summarize it in class.
  • Introduction to Hospitality Contracts
  • Franchise agreements
  • Management contracts
  • Group rooms contracts
  • Convention or meeting space contracts
  • Purchasing agreements
  • Introduction to Hospitality Contracts
  • Legalese:
  • Franchisee - The person or business that has purchased and/or received the franchise.
  • Introduction to Hospitality Contracts
  • Legalese:
  • Franchisor - The person or business that has sold and/or granted the franchise.
  • Introduction to Hospitality Contracts
  • Legalese:
  • Uniform Commercial Code (UCC) - A model statute covering things such as the sale of goods, credit, and bank transactions. All states have adopted the UCC, with the exception of Louisiana.
  • Introduction to Hospitality Contracts
  • Legalese:
  • Caveat Emptor – A Latin phrase meaning “let the buyer beware.” The phrase implies that the burden of determining the relative quality and price of a product falls to the buyer, not the seller.
  • The Uniform Commercial Code (UCC)
  • To simplify, clarify and modernize the law governing commercial transactions.
  • To permit the continued expansion of commercial transactions.
  • To provide for consistency in the law regarding the sale and financing of personal property in the various jurisdictions (municipalities, counties and states).
  • Legalese:
  • Confirmed Reservation - A contract to provide a reservation in which the provider guarantees the guest’s reservation will be honored until a mutually agreeable time. A confirmed reservation may be either guaranteed or nonguaranteed.
  • Establishing an Effective Reservation Policy
  • Legalese:
  • Guaranteed Reservation - A contract to provide a confirmed reservation in which the provider guarantees the guest’s reservation will be honored regardless of time of arrival, but the guest will be charged if he or she no- shows the reservation. Prepayment or payment authorization is required.
  • Establishing an Effective Reservation Policy
  • Legalese:
  • Nonguaranteed Reservation - A contract to provide a confirmed reservation where no prepayment or authorization is required.
  • Legally Managing at Work
  • How can we reduce no-show reservations?
  • Essential Hospitality Contract Clauses
  • Legalese:
  • Attrition – Reduction in the number of projected participants or attendees.
  • Essential Hospitality Contract Clauses
  • Legalese:
  • Indemnification – To make one whole; to reimburse for a loss already incurred.
  • Essential Hospitality Contract Clauses
  • Length of time that contract price terms are in existence.
  • Identification of who is authorized to modify the contract.
  • Deposit and cancellation policies.
  • Allowable attrition.
  • Essential Hospitality Contract Clauses
  • Indemnification for damages.
  • Payment terms.
  • Performance standards related to quantity.
  • Providing Products and Services
  • Essential Hospitality Contract Clauses
  • Payment terms.
  • Delivery or start date.
  • Completion date.
  • Performance standards.
  • Receiving Products and Services
  • Essential Hospitality Contract Clauses
  • Licenses and permits.
  • Indemnification.
  • Nonperformance clauses.
  • Dispute resolution terms.
  • Receiving Products and Services
  • Exculpatory Clauses
  • Legalese:
  • Exculpatory Clause or Contract- A contract (or clause in a contract) that releases one of the parties from liability for their wrongdoings.
  • Analyze the Situation 2.3
  • Laureen Statte was a guest at the Boulder Inn, a midpriced hotel in an urban area. When she checked into the hotel she inquired about the availability of a workout room. Upon receiving assurances that the hotel did indeed have such an area, Ms. Statte checked into the hotel, put away her luggage, changed into workout attire and proceeded to the workout area.
  • Analyze the Situation 2.3
  • Upon entering the workout room, she noticed a sign prominently posted near the entrance to the workout room stating: “Hotel Not Liable for Any Injuries Incurred During Workouts.”
  • According to her attorney, Ms. Statte lifted deadweights for approximately 10 minutes, then mounted a treadmill.
  • Analyze the Situation 2.3
  • As an experienced treadmill user, she started slowly, gradually increasing the treadmill's speed. Shortly after beginning the treadmill workout, Ms. Statte fell backward into a plate-glass window that was approximately 2 feet behind the treadmill. The shards from the glass severely injured Ms. Statte.
  • Analyze the Situation 2.3
  • Ms. Statte's attorney claimed the accident was the fault of the hotel because the treadmill was too close to the window, and the hotel neglected to outfit the window with safety glass. As its defense, the hotel pointed out the presence of the exculpatory clause sign, which was clearly posted, and which Ms. Statte agreed that she read prior to beginning her workout. Who is liable?
  • Analyze the Situation 2.3
  • As the hotel manager, how might you resolve this dispute?
  • Could a lawsuit have been prevented?
  • Legalese:
  • Breach of Contract - Failure to keep the promises or agreements of a contract.
  • Preventative Legal Management and Contracts
  • Legalese:
  • Damages - Losses or costs incurred due to another’s wrongful act.
  • Remedies and Consequences of Breaching an Enforceable Contract
  • Suit for specific performance.
  • Liquidated damages.
  • Economic loss.
  • Alternative dispute resolution.
  • Remedies and Consequences of Breaching an Enforceable Contract
  • Legalese:
  • Arbitration - A process in which an agreed- upon, independent, neutral third party (the arbitrator), renders a final and binding resolution to a dispute. The decision of the arbitrator is known as the “award.”
  • Remedies and Consequences of Breaching an Enforceable Contract
  • Legalese:
  • Mediation - A process in which an appointed, neutral third party (the mediator), assists those involved in a dispute with resolving their own differences. The result of mediation, when successful, is known as the “settlement.”
  • Statute of Limitations
  • Legalese:
  • Statute of Limitations - Various laws that set maximum time periods in which lawsuits must be initiated. If the suit is not initiated (or filed) before the expiration of the maximum period allowed, then the law prohibits the use of the courts for recovery.
  • Preventing Breach of Contract
  • Get it in writing.
  • Read the contract thoroughly.
  • Keep copies of all contract documents.
  • Use good faith when negotiating contracts.
  • Note and calendar time deadlines for performance.
  • Preventing Breach of Contract
  • Ensure the performance of third parties.
  • Share contract information with those who need to know, and educate staff on the consequences of contract breach.
  • Resolve ambiguities as quickly and fairly as possible.
  • What Would You Do?
  • Assume that you manage a 300-room hotel. Your local university football team is playing a home game on Saturday, and demand for rooms far exceeds supply. Your no-show rate on reservations for the past three football games has been 8, 12, and 9 percent respectively. Currently you have 100 nonreserved rooms.
  • What Would You Do?
  • Prepare a brief report (half-page) describing how you would answer the following questions.
  • How many room reservation contracts are you willing to accept? Should you require that all reservations be confirmed?
  • Should you require that all reservations be confirmed?
  • What factors will you consider as you make your decision? What strategies will you employ to reduce no-shows?
  • What Would You Do?
  • Write a short essay (half-page) answering questions 4 and 5, drawing from your personal perspective.
  • You and your family are traveling out of state to attend one of your school team’s away football games. Upon arrival, the hotel where you have a confirmed reservation denies you a room because it has none available. What do you think the hotel should do for you?
  • What if no other rooms were available within a 50 mile radius of the hotel you originally booked at?
  • Rapid Review
  • List the advantages of written contracts versus oral contracts.
  • Discuss “legality” as a major component required of an enforceable contract. Give a hospitality example of “legality” coming into question.
  • Using the World Wide Web, go to the home page of a national hotel chain. Evaluate the hotel chain’s reservation booking system from a legal perspective. Address specifically the concept of consideration.
  • Rapid Review
  • You are the General Manager of a midsized hotel. Draft a memo for your front desk staff describing the rationale and policy for billing guests with a confirmed reservation who do not arrive at the hotel to use their rooms.
  • Give a hospitality example that illustrates why it is so important to establish acceptance of an offer prior to the formation of a contract.
  • Rapid Review
  • On a busy weekend, you have forecasted that 10 percent of your dining room reservations will no-show. Create notes that you would use to explain to your reservationist why he or she should continue to book reservations when you are past capacity.
  • Identify at least three essential contract clauses that protect the hotel when contracting to provide space and food products for a large wedding party.
  • Rapid Review
  • You purchased a warranty for your telephone system that provides 24-hour response time from the vendor. Draft a letter to the vender protesting the breach of contract that resulted when it took three days for you to get service. Remember that your goal is to have a professional relationship with the vendor, as well as a working telephone system.


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