Ask A Lawyer ! 7 questions about contracts John J. Richardson, Esquire Goehring, Rutter & Boehm

1. What is the difference between a Letter of Intent, Memorandum of Understanding, and a Contract?

Letters of Intent – usually non-binding documents, outline main issues relevant to a tentative agreement, first step on path to a legally binding agreement Memoranda of Understanding – not a legally binding document, a signed commitment on the part of two or more parties to conduct business in a specified manner, establishes the requirements of the contract If an LOI and MOU is intended to be non-binding, then it should include language specifically stating so. Contract – a binding and enforceable written legal agreement; reflects a valid offer, acceptance and consideration

2. Explain the difference between liquidated damages and penalties or fees.

Liquidated damages clause provides an estimate of damages in the event one of the contracting parties does not perform or breaches the contract Designed to “make whole” the non-breaching party If disproportionate or punitive, it will not be enforced. The hotel has a duty to attempt to resell cancelled rooms and must make a good faith effort to do so.

Contract clauses that are deemed to constitute penalties are generally unenforceable in Pennsylvania. Damages must be reasonably related to non-breaching parties’ actual damages – not punitive.

3. What elements should be considered when crafting cancellation and attrition clauses that are fair to both parties?

Mitigation clause: Hotel shall undertake all reasonable efforts to resell canceled rooms, and will credit those revenues against the liquidated damages in an amount not to exceed the full amount of such damages Timing of payment: Damages payments shall be made X days after [original meeting date] provided that Hotel provides proof of reasonable efforts to resell canceled rooms. Damages shall exclude: service charges, surcharges, commissions, and rebates as well as state and local sales taxes, unless required by law. Average Occupancy Rate: no fees owed if hotel meets or exceeds its average occupancy level for that particular period of the year

Attrition: Calculate attrition on a per-night basis. Deficient rooms each night should be compared to the number of rooms left to sell in the Hotel that night. The meeting sponsor is responsible for the lesser of these two numbers. Totals each night should be added cumulatively then multiplied by the group rate and by a percentage amount to represent estimated lost profit.

Cancellation Total rooms available to sell in the hotel each night. Minus out-of-order rooms or rooms being renovated. Minus “sold” rooms. Compare “unsold” rooms each night to the number of canceled rooms in the group’s block each night. Group is responsible for the lesser number. Add each nights totals cumulatively and multiply by the group rate and an amount to represent estimated lost profits in guestrooms.

4. Explain legal terms we often see but do not fully comprehend such as: indemnification, subrogation, waiver, and force majeure.

Indemnification The act of making another “whole” by paying any loss another might suffer. This act of compensation usually arises from a clause in a contract where a party agrees to pay for any losses which arise or have arisen. A promise to pay for the liability of another.

Subrogation The act of a third-party assuming the legal rights of another in order to collect a debt or damages and attain a remedy at law.

Waiver Traditionally this is the voluntary waiver of a known right by an express statement – conduct that suggests such a voluntary waiver has been made.

Force Majeure: “Act of God” Protects parties in the event that the contract cannot be fully performed due to causes outside the control of the parties, such as natural disasters, threats of terrorism, government travel advisories, etc.

5. How often do hotels actually go through the process of contracting a lawyer to sue an organization for breach of contract? Breach of meeting contract suits, on the Allegheny County court docket: – Westin: 0 – Omni: 0 – Doubletree: 0

6. Liability of transporting visitors on government property in government owned vehicles v. privately owned vehicles Liability and insurance coverage follows the owner of the vehicle and the operator of the vehicle

7. Do people with industry certifications (i.e. Planners and Suppliers) have any greater liability when negotiating? Ordinary negligence principles should apply. “Reasonable man” or “reasonableness” standard. Industry certification/designation may come into evidence to show notice/awareness of potential hazards, but should not give rise to a heightened standard of care or personal liability