Click to edit Master title style Chapter 4 Contract Law and the Hospitality Business Many slides Copyright © 2008 by Delmar Learning Hotel, Restaurant, and Travel Law: A Preventive Approach, Seventh Edition

Liebeck v. McDonald's Restaurants Stella Liebeck suffered 3 rd degree burns in her pelvic region when she spilled her McDonald’s coffee Jury awarded: –$160,000 compensatory damages –2.7 million in punitive damages Trial judge reduced the final verdict and the parties settled before appealed

Liebeck v. McDonald's Restaurants Liebeck’s attorney argued that the coffee was defective, claiming it was too hot

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Introduction Basic information about contracts Usefulness of written vs. verbal contracts Components of an enforceable contract

Overview Litigation against restaurants generally arises because the plaintiff believes that the defendant either: –Did something not supposed to do; or –Didn’t do anything that was required to do Litigation by restaurants

Vocabulary Contract An agreement or promise made between two or more parties that courts will enforce

Vocabulary Enforceable contract A contract recognized as valid by the courts and subject to the courts’ ability to compel compliance with its terms

Introduction to Contracts Oral Contracts Written Contract

Legally valid Age requirement Mental capacity to understand terms Breaking the law

An enforceable contract Offer Acceptance Consideration No defenses to formation

Mutual Assent In general, one party must accept the other’s offer Ask, did words or conduct manifest a present intention to contract?

The Offer A proposal to perform an act or pay an amount, which, if accepted, creates an agreement Offerer—the person who makes an offer Offeree—person to whom the offer is made

To be valid, the offer must be An expression of promise, undertaking or commitment to enter into a contract Definite and certain in its terms, and Communicated to the offeree

Termination of an offer An offer may be accepted as long as it has not been terminated Terminated by offeror Terminated by offeree Terminated by operation of law

Type of Contract Classified by the acceptance Bilateral Requires an exchange of promises Unilateral Requires the exchange of an act for a promise

The acceptance Must be communicated (how?) Unconditional agreement to precise terms and conditions of an offer (mirror rule) If so, express contract If not under the mirror rule, then it is a counteroffer NOT an acceptance

Consideration (without there is no contract ) The payment (value) exchanged for the promise(s) contained in a contract Bargained for exchange Legal value

Consideration (without there is no contract ) Mutuality – must exist on both sides of a contract –All parties to the contract are interested in its terms and intend to enter an agreement to which they will be legally bound

Defenses to formation Absence of mutual assent Mistake (mutual and unilateral) Misrepresentation Absence of consideration Lack of capacity Unconscionably

Statute of Frauds Certain agreements must be in writing to be enforced - MYLEGS Marriage Year Land Executor Goods Surety

Examples of Hospitality Contracts Vendors Security Landscaping Advertising

Examples of Hospitality Contracts Franchise Agreements (parties) Meeting Space Contracts Purchase Agreements Uniform Commercial Code (goods) Guest Reservations

Catering Contracts Contract with caterer or restaurant for food No excuse for not having a written contract Refer to Figure 4-1 (page 128) in the textbook for items that should be included in the contract

Convention Contract Contract between an organization planning a convention and the hotel at which the conference will be held Refer to Figure 4-2 (page 129) in the textbook for items that should be included in the contract

Essential Contract Clauses These should be identified and reviewed before entering into the contract Resolve these prior to acceptance

Common Contract Clauses Length of time for price (or offer) Authorization to modify Deposit and cancellation policies Indemnification

Common Contract Clauses Payment terms Performance standards Delivery or start date Completion date

Common Contract Clauses Licenses and permits Nonperformance Dispute resolution terms

Exculpatory Clauses Can be added to a contract Seeks to excuse Releases one of the parties from liability for wrongdoing May or may not be accepted by the courts

Breach of Contract Failure to keep the promises or agreement of a contract Material or minor breach Acts of God Voluntary breach

Breach by a Guest When a guest cancels a reservation

Parol Evidence Rule Prevents the parties from modifying a written contract using evidence of oral agreements made prior to signing the written contract Does not apply to agreements made after a contract is signed

15 Minute Lunch

Remedies A legal means for compensation when an enforceable contract has been breached Specific performance Liquidated damages Economic loss Punitive (generally not in commercial) Initiate a lawsuit (SOL concerns)

Remedies - ADR Arbitration Mediation

Preventing contract breaches Get in in writing Read the contract thoroughly Keep copies of all contract documents Use good faith when negotiating contracts Note and calendar performance deadlines Ensure performance of third parties Share contract info “need to know” people Resolve ambiguities early