1. COPYRIGHT © 2008 by Delmar Learning. ALL RIGHTS RESERVED. Hotel, Restaurant, and Travel Law: A Preventive Approach, Seventh Edition Chapter 4 Contract Law and the Hospitality Business

2. COPYRIGHT © 2008 by Delmar Learning. ALL RIGHTS RESERVED. Introduction  A contract is an agreement between two or more parties that is enforceable in court

3. COPYRIGHT © 2008 by Delmar Learning. ALL RIGHTS RESERVED. Elements of a Contract  Certain essential elements must exist for the contract to be valid Contractual capacity Mutuality Legality Consideration Proper form Genuine assent

4. COPYRIGHT © 2008 by Delmar Learning. ALL RIGHTS RESERVED. Capacity to Contract  The ability to both Understand the terms of the contract Appreciate that failure to perform its terms can lead to legal liability

5. COPYRIGHT © 2008 by Delmar Learning. ALL RIGHTS RESERVED. Capacity to Contract (continued)  People who lack contractual capacity: Viewed by the law as having diminished mental abilities  Minors (under 18, 19, or 21 depending on state)  Very intoxicated  Mentally incompetent

6. COPYRIGHT © 2008 by Delmar Learning. ALL RIGHTS RESERVED. Voidable Contract  One that may be canceled at the option of one party  Right to cancel, also called the right to avoid or disaffirm

7. COPYRIGHT © 2008 by Delmar Learning. ALL RIGHTS RESERVED. Mutuality  All parties to the contract are interested in its terms and intend to enter an agreement to which they will be legally bound

8. COPYRIGHT © 2008 by Delmar Learning. ALL RIGHTS RESERVED. Mutuality (continued)  Offer—a proposal to do or give something of value in exchange for something else

9. COPYRIGHT © 2008 by Delmar Learning. ALL RIGHTS RESERVED. Mutuality (continued)  Offerer—the person who makes an offer  Offeree—person to whom the offer is made

10. COPYRIGHT © 2008 by Delmar Learning. ALL RIGHTS RESERVED. Mutuality (continued)  Offer must be definite  If terms are vague, contract may not result  Invitation to negotiate—open discussions that may or may not lead to an offer

11. COPYRIGHT © 2008 by Delmar Learning. ALL RIGHTS RESERVED. Responses to an Offer  Acceptance—an expression of agreement by the offeree to the terms of the offer  Counteroffer—the offeree is interested in the offer but wants to change a few terms

12. COPYRIGHT © 2008 by Delmar Learning. ALL RIGHTS RESERVED. Legality  Terms of the contract must be legal  Void contract—one that is unenforceable in court

13. COPYRIGHT © 2008 by Delmar Learning. ALL RIGHTS RESERVED. Legality (continued)  Price-fixing—competing hotels agree among themselves to each charge the same amount for a room  Antitrust laws—guarantee that competitors will not undersell each other with the effect of depriving consumers of the benefits of competition

14. COPYRIGHT © 2008 by Delmar Learning. ALL RIGHTS RESERVED. Consideration  Something of value exchanged for something else of value  Can take one of three forms: A tangible item of value or a promise to give such an item Performance or a promise to perform Forbearance—agreeing to refrain from doing something you have a legal right to do

15. COPYRIGHT © 2008 by Delmar Learning. ALL RIGHTS RESERVED. Illusory Contracts  The terms of the contract do not contain a firm commitment

16. COPYRIGHT © 2008 by Delmar Learning. ALL RIGHTS RESERVED. Proper Form  Is an oral contact enforceable? General rule is yes; however, may be difficult to prove

17. COPYRIGHT © 2008 by Delmar Learning. ALL RIGHTS RESERVED. Statute of Frauds  Objective is to prevent the perpetuation of a fraud by someone claiming that a contract exists when in fact none does

18. COPYRIGHT © 2008 by Delmar Learning. ALL RIGHTS RESERVED. Statute of Frauds (continued)  Some contracts must be in writing Contracts for the purchase and sale of real property Contracts that cannot be completed within one year from when they are made Contracts to pay another person’s debt if that person fails to pay Contracts for the sale of goods

19. COPYRIGHT © 2008 by Delmar Learning. ALL RIGHTS RESERVED. 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

20. COPYRIGHT © 2008 by Delmar Learning. ALL RIGHTS RESERVED. Genuine Assent  The parties must genuinely agree to the contract terms  Duress—threats of harm if they do not sign

21. COPYRIGHT © 2008 by Delmar Learning. ALL RIGHTS RESERVED. Genuine Assent (continued)  Fraud—intentionally untruthful statement made for the purpose of misleading someone  Innocent misrepresentation—an untruthful statement that the speaker believes to be accurate

22. COPYRIGHT © 2008 by Delmar Learning. ALL RIGHTS RESERVED. Mistakes  Some mistakes have legal significance, others do not  Mistakes made by a buyer as to the value or quality of a good being purchased will not affect the validity of the contract

23. COPYRIGHT © 2008 by Delmar Learning. ALL RIGHTS RESERVED. Mistakes (continued)  Unilateral mistake—error made by only one party to the contract  Mutual mistake—error made by both parties to the contract

24. COPYRIGHT © 2008 by Delmar Learning. ALL RIGHTS RESERVED. Ambiguous Terms  Important to state terms of the agreement clearly, without ambiguity  If terms are vague or confusing, it could result in court disputing the meaning  Careful drafting can avoid such lawsuits

25. COPYRIGHT © 2008 by Delmar Learning. ALL RIGHTS RESERVED. Trade Usage  Practices or modes of dealing generally adhered to in a particular industry, such that an expectation arises that they will be honored in a given transaction

26. COPYRIGHT © 2008 by Delmar Learning. ALL RIGHTS RESERVED. Conditions  Absolute—in most contracts, promises of the parties to perform their contractual obligations  Contingent—relies on the occurrence or nonoccurrence of a specified event

27. COPYRIGHT © 2008 by Delmar Learning. ALL RIGHTS RESERVED. Contracts Formed on the Internet  Virtually every type of commercial deal can be, and is, pursued via the Internet  How valid are these contracts entered in cyberspace? As a general rule, as enforceable as their “land-based” counterparts

28. COPYRIGHT © 2008 by Delmar Learning. ALL RIGHTS RESERVED. Contracts Formed on the Internet (continued)  “Click-on acceptance”—generally considered to be signed consent

29. COPYRIGHT © 2008 by Delmar Learning. ALL RIGHTS RESERVED. Breach of Contract  Failure to perform as required by a contract  Civil wrong

30. COPYRIGHT © 2008 by Delmar Learning. ALL RIGHTS RESERVED. Breach of Contract (continued)  Nonbreaching party may be entitled to a remedy Damages—money to compensate for resulting loss Specific performance—performance of the contract terms

31. COPYRIGHT © 2008 by Delmar Learning. ALL RIGHTS RESERVED. Compensatory Damages  Sum of money necessary to cover loss incurred by the nonbreaching party as a result of the breach  Nonbreaching party generally not entitled to damages for pain and suffering

32. COPYRIGHT © 2008 by Delmar Learning. ALL RIGHTS RESERVED. Requirement of Foreseeability  A plaintiff seeking to collect damages for breach of contract must prove that the damages were foreseeable to the breaching party

33. COPYRIGHT © 2008 by Delmar Learning. ALL RIGHTS RESERVED. Requirement of Reasonable Certainty  Plaintiff in a breach-of-contract case must prove to a reasonable certainty that they suffered a loss as a result of the breach

34. COPYRIGHT © 2008 by Delmar Learning. ALL RIGHTS RESERVED. Duty to Mitigate  Plaintiff seeking to collect damages for breach of contract must prove that it attempted to mitigate its loss  Mitigate—reduce or lessen

35. COPYRIGHT © 2008 by Delmar Learning. ALL RIGHTS RESERVED. Punitive Damages  Sum of money sometimes awarded to a plaintiff  In excess of compensatory damages  Meant to punish the defendant for wanton or malicious behavior

36. COPYRIGHT © 2008 by Delmar Learning. ALL RIGHTS RESERVED. Specific Performance  A court order requiring the defendant to perform the act promised in the contract  Applicable only to contracts involving the sale of unique, one-of-a-kind items

37. COPYRIGHT © 2008 by Delmar Learning. ALL RIGHTS RESERVED. Contracting for a Room  Contract for a room between innkeeper and guest must satisfy the essential elements  Most contracts for hotel rooms begin with an invitation to negotiate from a would-be guest

38. COPYRIGHT © 2008 by Delmar Learning. ALL RIGHTS RESERVED. Contracting for a Room (continued)  Offer is then often made by the hotel or guest  Agreement should be put in writing to avoid misunderstandings as to: Dates Duration of stay Applicable rate Special needs of the guest

39. COPYRIGHT © 2008 by Delmar Learning. ALL RIGHTS RESERVED. Overbooking and Breach of Reservation Contract  A hotel reservation, once made and confirmed, constitutes a contract  Binds hotel to provide accommodations

40. COPYRIGHT © 2008 by Delmar Learning. ALL RIGHTS RESERVED. Overbooking and Breach of Reservation Contract (continued)  Hotels sometimes overbook (confirm more reservations than the number of rooms)  For those guests the hotel cannot house, it will be in breach of contract and liable for damages

41. COPYRIGHT © 2008 by Delmar Learning. ALL RIGHTS RESERVED. Damage to Goodwill  Goodwill—favorable reputation producing an expectation of future business

42. COPYRIGHT © 2008 by Delmar Learning. ALL RIGHTS RESERVED. Agreement Not to Compete  Provision barring the seller from competing in the same geographical area for a specified period of time

43. COPYRIGHT © 2008 by Delmar Learning. ALL RIGHTS RESERVED. Breach by a Guest  When a guest cancels a reservation

44. COPYRIGHT © 2008 by Delmar Learning. ALL RIGHTS RESERVED. Cancellation Clause for Organization Reserving a Large Block of Rooms  An association may reserve many rooms (sometimes 100s or even 1000s) for a conference  Many contracts have a cancellation provision that identifies the obligations of each party in the event of termination of the contract

45. COPYRIGHT © 2008 by Delmar Learning. ALL RIGHTS RESERVED. Attrition Clause  Contract provision that obligates the organization to compensate the hotel if less than the contractual number of rooms (block) are rented by conventioneers

46. COPYRIGHT © 2008 by Delmar Learning. ALL RIGHTS RESERVED. No-Cause Termination Clause  Contract provision permitting either party to terminate the contract for any reason or for no reason at all

47. COPYRIGHT © 2008 by Delmar Learning. ALL RIGHTS RESERVED. Forum Selection Clause  Allows the parties to agree that any litigation resulting from the contract will be initiated in a specific forum

48. COPYRIGHT © 2008 by Delmar Learning. ALL RIGHTS RESERVED. Forum Selection Clause (continued)  Three types of forums Reference might be to a particular court in a jurisdiction agreed upon by the parties Might refer to a specific kind of dispute resolution process (mediation, arbitration, hearing before a special referee) Might refer to both, requiring a specific process to be carried out in a specific location

49. COPYRIGHT © 2008 by Delmar Learning. ALL RIGHTS RESERVED. Intentional Interference with Contractual Relations  Tort—noncriminal conduct done by one person that causes injury or financial loss to another

50. COPYRIGHT © 2008 by Delmar Learning. ALL RIGHTS RESERVED. Intentional Interference with Contractual Relations (continued)  To commit the tort of intentional interference with contractual relations, three elements are necessary: A valid contract must exist between two parties A third party must be aware of the existence of the contract Third party must intentionally cause or induce one of the contracting parties to break the contract and do business instead with the third party

51. COPYRIGHT © 2008 by Delmar Learning. ALL RIGHTS RESERVED. Catering Contracts  Contract with caterer or restaurant for food  No excuse for not having a written contract  Refer to Figure 4-1 in the textbook for items that should be included in the contract

52. COPYRIGHT © 2008 by Delmar Learning. ALL RIGHTS RESERVED. Convention Contract  Contract between an organization planning a convention and the hotel at which the conference will be held  Refer to Figure 4-2 in the textbook for items that should be included in the contract