Depending on the size and scope of your meetings, they frequently become very involved and complex. Because of this, and as a service to our clients, we will update this page with current information from our legal counsel. We are undertaking this effort to keep you as informed as possible about the latest contract issues.
You can look forward to checking this page on a regular basis for the latest legal articles we have posted.
AVOID GOING TO COURT BY WRITING SUCCESSFUL CONTRACTS
John S. Foster, CHSE, Esq.
Recent disputes and lawsuits between meeting sponsors and hotels
continue to emphasize the principle that it's better (and cheaper) to
stay out of trouble than to have to get out of trouble. One legal
scholar put it aptly when he said that a lawsuit is a process where you
go in as a pig and come out as a sausage. In other words, the process
is never neat, clean or simple and both parties come out in a different
shape than when then went in. Further, when you are involved in a
lawsuit, whether as plaintiff or defendant, there is no guarantee that
your side will prevail with satisfactory results.
The best way for meeting sponsors and suppliers to avoid future
controversies and lawsuits is to write a successful contract that
clearly specifies the intent of the parties and is legally sufficient.
Following are some guidelines and suggestions to assist both planners
and suppliers in avoiding expensive and time-consuming lawsuits:
CONTRACTING TIPS FOR PLANNERS AND SUPPLIERS
UNDERSTAND THE LEGAL ELEMENTS OF A CONTRACT:
It is important to understand where you are in the discussion
process. Remember this adage: If you ask the other side for something
before a contract exists it's called "negotiating"; if you ask for
something after a contract exists it's called "begging". There is a
substantial difference between the two positions.
A document must meet the following five requirements to be a binding contract:
An Offer, Acceptance, Consideration, in writing when required by law, and legally
Competent Parties. Unless all five elements co-exist the document is merely a proposal
to do business and can be modified at will by the parties negotiating.
UNDERSTAND THE PROPER WAY TO REVISE A CONTRACT OR PROPOSAL:
Rarely does the party receiving the other sides' proposal agree
with all of the terms and conditions it contains. To advance the
negotiation process and to avoid a dispute over what terms are in the
final contract, it is imperative that negotiating parties understand
the proper way to revise or amend a proposal or existing contract.
Some suggestions for doing so follow:
Strike-out terms in the original and write new terms in margin:
Both parties must initial and date all changes
Place new terms in an attached addendum:
The addendum should be crossed referenced on the last page of
the original document and on the first page of the addendum. Also,
terms in the original that contradict the terms in the addendum should
be crossed out and a reference to the addendum should be made in the
margin to make it easier on the reader to follow the changes. All
parties must sign and date the addendum.
Rewrite the original with new terms:
If the crossed out terms and addendum become lengthy and
difficult to follow, the best practice is for one of the parties to
prepare a new original with all of the revisions agreed to by the
parties.
UNDERSTAND HOW TO SIGN CONTRACTS CORRECTLY (PRINCIPAL VS. AGENT):
In our legal system, you can sign a contract in only one of two
capacities: as a principal or as an agent. If you sign the contract as
a principal, you are the person primarily liable for performance of the
contract. If you sign as an authorized agent (or employee) of a
company or association the terms in the contract are binding on the
company or association. If you do not intend to be the party primarily
responsible on the contract then use your job title or the words "as
agent for" and clearly identify the parent company or association who
is responsible.
AVOID "TO BE NEGOTIATED" CLAUSES AND ALWAYS DEFINE YOUR TERMS:
Contracts must have specific terms in order to be enforceable.
Parties should negotiate all of the key terms for price, quantity and
performance up front and specify these terms in the contract. Don't
leave important terms such as future room rates or future food and
beverage prices to be negotiated at a later date. Use percentage caps
or formulas referencing the change in the Consumer Price Index to
settle how future prices will be calculated.
Successful contracts will avoid terms that are vague and capable of
being interpreted different ways by different parties. Vague wording
such as: "a reasonable amount of meeting space is being held for your
group" is an example. What is reasonable to one side may not be
reasonable to the other. Another example would be: "the group may
cancel without liability if the hotel doesn't complete substantial
renovations". The word "substantial" should be defined, deadlines
should be established, and independent criteria should be referenced
and used.
UNDERSTAND HOW TO NEGOTIATE AND MANAGE AN ATTRITION CLAUSE:
Attrition clauses are becoming a fixture in hotel contracts and
both sides must understand how to negotiate and manage the key
variables involved. The variables include: review dates, percentage of
slippage allowed, and how damages due the hotel, if any, will be
calculated. Professional planners should be able to establish a room
block that is within the margin of error allowed by the attrition
clause. For long-term meetings that are held on an annual basis,
review dates can be agreed upon and formulas can be established that
will allow the meeting sponsor to raise or lower the future room block
without liability and still give the hotel assurances.
UNDERSTAND THE ELEMENTS OF A CANCELLATION CLAUSE AND THE CONCEPT OF DAMAGES (VERSUS PENALTIES):
The law states that if one party breaches a contract the other
party is entitled to damages. Damages are defined as lost profit (or
additional expenses) but not lost revenue. Parties to a contract may
agree to specific sums as damages, or a formula for determining
damages. These specific sums or formula will be enforceable only if
they are a reasonable approximation of the actual damages. Terms that
attempt to penalize one or both parties are not enforceable. A term is
deemed to be a penalty if the non-breaching party would come out
further ahead if the other side breaches the contract rather than
perform its obligations. Generally, the non-breaching party has a duty
to mitigate its damages when a breach occurs unless the contract
provides for fixed sums that are reasonable.
SPELL OUT TERMS FOR DEPOSITS (GROUP AND INDIVIDUAL):
If deposits are required from the group or from individuals, a
successful contract will specify the dates when deposits are due and
under what circumstances the deposits are refundable. If these terms
are missing, there is the potential for a later dispute.
UNDERSTAND OPTION DEADLINES AND THE MAIL BOX RULE:
Contract proposals will frequently specify a date by which the
other side must accept the proposal in order for a contract to be
formed. These are known as option deadlines and are always strictly
enforced unless the party imposing the deadline waives it. The party
receiving a proposal with an option deadline must adhere to the
deadline or get the other side to waive it in order to have a valid
contract.
The mailbox rule is also a rule pertaining to contract acceptance. A
valid acceptance to a contract occurs when it is signed and put into
the mailbox, not when the contract is received by the other party. Some
contracts will change the effect of this rule by requiring the document
to specifically reach their office to be a valid acceptance. You must
understand your responsibility when attempting to accept a contract so
that you have a legally sufficient acceptance. (The Mail Box rule does
not preclude the use of fax machines).
RECOGNIZE AND UNDERSTAND INDEMNIFICATION AND HOLD HARMLESS LANGUAGE WHEN YOU SEE IT:
If the contract contains an indemnification clause you need to
understand what risks and responsibilities you are being asked to
assume. Don't agree to indemnify and hold harmless other people or
entities for their negligence. Each party should be responsible for its
own negligence and the contract should specify this.
UNDERSTAND THE MERGER CLAUSE:
This clause states that the entire agreement of the parties has
been merged into the final contract and the agreement can't be changed
without each sides' written permission. The significance of this
clause is that you can't later claim that the other party promised
something that wasn't included in the final document. If the other
side makes promises, make sure you get in writing.
CONCLUSION
Successful contracts that are well-written and clearly specify
the intent of the parties will lead to more successful meetings and
satisfied clients. If reviewing or preparing contracts is not your
strong point, get assistance from an expert such as your in-house legal
counsel or another attorney who is familiar with the meetings industry.
Keep in mind that you want to avoid being a sausage.
John S. Foster is an attorney whose practice is totally focused in: Meetings, Conventions and Trade Shows, Hospitality and Travel Law and Association Management. His firm is counsel to over 300 Corporations and Associations. Previous experience includes Director of Sales & Marketing for Marriott, Hyatt and Holiday Inns. He is the Legal Editor for Convene Magazine.
JOHN S. FOSTER, CHSE, ESQ. is an attorney and counsel whose office specializes in the areas of meetings, trade shows, travel law and Not-for-profit organizations and association management. He is an associate counsel for over three
hundred (300) national and regional associations and companies. John has been a director of sales and marketing for Hyatt Hotels, Marriott Hotels and Resorts, and Holiday Inns and holds the Certified Hospitality Marketing Executive (CHME) designation from HSMAI. He is the legal editor for CONVENE, published by PCMA and the author of four books on the legal aspects of meetings and conventions: "MEETING & FACILITY CONTRACTS"; MEETINGS & LIABILITY"; INDEPENDENT MEETING PLANNERS & THE LAW"; and "WHAT EVERY HOTELIER MUST KNOW ABOUT LEGAL
AFFAIRS MANAGEMENT". Information about ordering these books can be obtained from John's office. His practice is in Atlanta where he can be reached at 404-873-5200 or by e-mail:
This e-mail address is being protected from spambots. You need JavaScript enabled to view it
