Tuesday, 27 June 2017

Legal Issues:

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

  1. 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.

  2. 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:

    1. Strike-out terms in the original and write new terms in margin:
      Both parties must initial and date all changes
    2. 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.
    3. 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.


  3. 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.

  4. 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.

  5. 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.

  6. 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.

  7. 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.

  8. 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).

  9. 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.

  10. 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.

© 1998 John S. Foster, Esq., All Rights Reserved, Atlanta, Georgia.


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

Should you like a copy of this complete article, or if you have an inquiry on other legal issues, please email This e-mail address is being protected from spambots. You need JavaScript enabled to view it to request additional information.


Add this page to your social websites