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The four essential components OF AN ENFORCEABLE CONTRACT

All contracts, whether verbal or written, must include specific components that
will make them legally enforceable in a court of law. If any of the components are
missing, the courts will consider the contract unenforceable.
To be enforceable, a contract must be legally valid, and it must consist of an
offer , acceptance , and consideration.

(Enforceable contract: A contract recognized as valid by the courts and subject to the court’s ability to compel compliance with its terms.)

(Offer: A proposal to perform an act or to pay an amount that, if accepted, constitutes a legally valid contract.)

(Acceptance: Unconditional agreement to the precise terms and conditions of an offer.)

(Consideration: The payment exchanged for the promise(s) contained in a contract.)
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Legality

Not all agreements or promises made between two or more parties are legally valid.
If, for example, a child who is 10 years old “ agrees, ” even in writing, to host 100 of
his friends at the local amusement park, the park owner would have no recourse
if the 10 - year - old subsequently neglected to arrive with his friends and pay the
admission fees. The reason, logically, is that society requires a party to a contract
to be of a minimum age before he or she can legally commit to the promises made
in the contract. In most cases, minors do not meet the minimum age requirement;
therefore, any contract they enter into would be considered unenforceable by the
courts. In addition, an individual who does not have the mental capacity to understand
what the terms of the contract entail will not be able to enter into an enforceable
contract. This incapacity could be due to a variety of reasons, from mental
illness to inebriation.
Even if the parties to a contract are considered legally capable, the courts will
not enforce a contract that requires the breaking of a law. If, for example, a gourmet
restaurant contracts with a foreign supplier to provide an imported food product
that has not entered the country with the proper inspections, the courts will not
enforce the contract because the activity involved — that is, the selling of uninspected
food products — is itself illegal. Agreements to perform illegal acts are not
enforceable. Thus, to be considered legally enforceable, a contract must be made by
parties who are legally able to contract, and the activities specified in the contract
must not be in violation of the law.

Offer

Given that two or more parties are legally capable of entering into a contract, and
that the contract involves a legal activity, the second component required in a
legally enforceable contract is an offer.
The offer simply states, in as precise a manner as possible, exactly what the
offering party is willing to do, and what he or she expects in return. The offer may
include specific instructions for how, where, when, and to whom the offer is made.
The offer may include time frames or deadlines for acceptance, which are either
clearly stated or implied. In addition, the offer will generally include the price or
terms of the offer.
When a guest enters a restaurant and reads the menu, he or she is reading a
series of offers from the restaurant manager. While the menu may state, “ 16 - Ounce
Roast Prime Rib of Beef, $ 22.95, ” the contract offer could be stated as, “ The restaurant
will provide prime rib, if you, the guest, will agree to pay $ 22.95 for it. ”
When a school foodservice director places an order for produce with a vendor,
the offer is similar. The foodservice director offers to buy the necessary products
at a price quoted by the vendor. The reason that an offer is a required component
of a contract is clear. The offer sets the term and responsibilities of both parties. The
offer states, “ I will promise to do this, if you will promise to do that. ”
Returning to the tree - trimming case referred to earlier in this thread, you can
see why the offer is so important in a contract. In that example, the restaurateur
and the tree service had differing ideas on precisely what constituted the offer. In
fact, a great deal of litigation today involves plaintiffs and defendants who seek
the court ’ s help to define what is “ fair ” in regard to a legitimate offer, when those
offers have not been clearly spelled out. It is important to note also that the courts
will enforce contracts that have reasonably identifiable terms, even if those terms
are heavily weighted in favor of one of the parties. Because of this, it is a good idea
to clearly understand all of the terms of an offer prior to its acceptance. By doing
so, the effective hospitality manager can help minimize his or her potential for
litigation.

Consideration

An important part of the contract is consideration, which can best be viewed as
something of value, such as the payment or cost of the promises of performance
agreed to in a contract. For a contract to be valid, consideration must flow both
ways. In the case of the prime rib dinner just mentioned, the consideration by the
restaurant is the prime rib. The guest, by ordering the prime rib, is agreeing to pay
$ 22.95 as consideration. Similarly, an airline that offers to transport a passenger
round trip does so for a specific fare, which in this case is the consideration. The
airline provides the trip and the guest pays the fare.
Consideration may be something other than money. If a restaurant agrees
to host an employee Christmas party for a professional decorating company in
exchange for having the company decorate its restaurant for Christmas, the consideration
paid by the restaurant would be the hosting of the employee Christmas
party, while the consideration paid by the decorator would consist of the products
and services required to decorate the restaurant.
Another type of consideration often employed in the hospitality industry is the
temporary or permanent use of property. When a hotel advertises a specific rate for
the rental of a room, that rate is the consideration to be exchanged for the overnight
use of the room.
When that same hotel company purchases a piece of land to build a new property,
it will likely exchange money for the right to build on or own the property.
Consideration can also be the promise to act or not act. When the board of
directors of a country club agrees to employ a club manger for a certain annual salary,
the club provides consideration in the form of money, while the club manager ’ s
consideration consists of the work (acts) that he or she will do while managing
the club. In some cases, consideration requires that one of the contracting parties
does not act. Suppose that a couple buys an established restaurant from its
current owner. The restaurant ’ s name, as well as the original restaurant owner, is
well known in the local area. Consideration in the sales contract may well include
language that prohibits the original owner from opening a restaurant with a similar
name in the immediate vicinity for a specified period of time. In this case, the consideration
requires the original owner not to act in a specific manner.
A hotel may rent a room for $ 25, $ 250, or $ 2,500 per night should it so choose.
The guest has a right to agree or not agree to rent the room. As long as both parties
to a legitimate contract are in agreement, the amount of the consideration is
not generally disputable in court. Indeed, should an individual who is competent
wish to sell a piece a land he or she owns for $ 1 (perhaps to a charitable group),
the courts will allow it, regardless of the appraised value of the land. The important
point here is that the courts will ordinarily not deem a contract unenforceable simply
because of the size of the consideration. It is the agreement to exchange value
that establishes mutual consideration, and thus the contract ’ s enforceability, not the
magnitude of the value exchanged.

Acceptance

Because it takes at least two parties to create a contract, a legal offer and its consideration
must be clearly accepted by a second party before the contract comes into
existence. It is important to note that the acceptance must mirror exactly the terms
of the offer in order for the acceptance to make the contract valid. If the acceptance
does not mirror the offer, it is considered a counteroffer rather than an acceptance.
When an acceptance that mirrors the offer is made, an express contract has been
created.
An offer may be accepted orally or in writing, unless the offer itself specifies the
manner of acceptance. In both cases, however, it must be clear that the terms of
the offer were in fact accepted. It would not be fair, or ethical, for a wine steward to
ask if a diner would like an expensive bottle of wine, and then, because the diner
did not say no, assume that the lack of response indicated an acceptance of the offer.
In that circumstance, the diner should not be required to pay for the wine. In the
same manner, a contractor who offers to change the light bulbs on an outdoor sign
for a restaurant cannot quote a price to the restaurant manager and then proceed
to complete the job without a clear acceptance by the manager.

(Express contract: A contract in which the components of the agreement are explicitly stated, either orally or in
writing.)

ANALYZE THE SITUATION- Mini Case Study

JOANNA HART was offered a position as director of foodservice for the
independent school district of Laingsford. She received a written offer of
employment on the first of the month, with a stipulation that the offer
would be in effect until the 15th of the month. If Ms. Hart were to accept
the employment offer, she would have to sign the employment contract
and return it to the Laingsford Superintendent of Schools before the offer
expired on the 15th. Upon reading the details of the contract, Ms. Hart felt
that the salary identified in the letter was too low, and thus she adjusted
it upward by $5,000, initialing her change on the contract copy. She then
returned the offer letter to the schools superintendent with a cover letter,
stating she was pleased to accept the position as detailed in the contract.
The contract arrived by mail in the office of the superintendent on the 14th
of the month, at which time, the superintendent called Ms. Hart to express
his regret that she had rejected the employment offer. During the telephone
call, Ms. Hart realized that the superintendent would not accept her salary
revision proposal, so instead she verbally accepted the position at the original
rate of pay. The superintendent, however, declined her acceptance, stating
that the original employment offer no longer existed.
1. Does the school have the legal right to withdraw its offer of
employment? Why or why not?
Legal acceptance may be established in a variety of ways. In the hospitality
industry, these generally take the form of one of the following:

1. Verbal or nonverbal agreement.
In its simplest form, acceptance of a contract offer can be done verbally, with a
handshake or even with an affirmative nod of the head. If, for example, a guest
in a cocktail lounge orders a round of drinks for his table, he is verbally agreeing
to the hotel ’ s unspoken, but valid, offer to sell drinks at a specific price. If, when
the drinks are consumed, the guest is asked if he would like another round, and
he nods his head in an affirmative way, he will be considered to have accepted the
offer of a second round. Acceptance may also be implied by conduct. If a guest at
a delicatessen stands in line to order coffee, and while doing so sees a display of
breakfast muffins that are clearly marked for sale, unwraps a muffin and begins
to eat it while waiting in line, her actions would imply the acceptance of the deli ’ s
offer to sell the muffin.

2. Acceptance of a deposit.
In some cases, a hospitality organization may require a deposit to accompany, and
thus affirm, the acceptance of an offer. If, for example, a hotel is offering a two -
night package over New Year ’ s weekend, it may decide that the offer to rent a room
for that period specifies an acceptance that must be made in the form of a nonrefundable
guest deposit.

3. Acceptance of partial or full payment.
In some cases, full or partial prepayment may be required to demonstrate acceptance
of an offer. This concept of payment prior to enjoying the benefits of the contract
is not at all unusual. Theaters, amusement parks, and cinemas are all examples of
contracts that are affirmed via prepayment. It is the right of hotels and restaurants
to make full or partial prepayment a condition of their contracts. It is the right of
the guests, however, to refuse this contract offer and take their business elsewhere
should they wish to do so.

4. Agreement in writing.
In many cases, the best way to indicate acceptance of an offer is by agreeing to
the offer in writing. As mentioned previously, a large number of management/
guest contracts in the hospitality industry are made orally. Dinner reservations and
hotel reservations made over the telephone are quite common. When the sum of
money involved is substantial, however, even these reservation contracts should
be confirmed in writing, if at all possible. In most cases, the confirmation of an
offer in writing provides more than just proof of acceptance. Because most people
are more cautious when their promises are committed to paper, a written contract
acceptance is often accompanied by a summary of the terms of contract. This helps
prevent confusion. For example, when a hotel guest asks the hotel to send written
confirmation of a room reservation, that confirmation document would include
such information as:
Name of the guest
Date of arrival
Date of departure
Room rate
Type of room requested
Smoking or nonsmoking preference
Number of guests in room
Type of payment agreed to (e.g., cash, credit card, debit card)
Hotel cancellation policy
It is generally one or more of the preceding elements of a reservation that are in
dispute when guests claim that the hotel has made an error in their reservation. It is
clear that the number of disputes over hotel - guest contract terms would be greatly
reduced with the increased use of written documentation of acceptance.
In today ’ s business environment, agreement in writing can take several forms.
The fax machine allows rapid confirmation, and revision, of contract terms. This
machine has become an indispensable component in the hospitality manager ’ s effort
to manage his or her legal environment. Electronic mail (e - mail) is even more
popular as a quick and effective way to accept contract terms in writing. E - mail
has the advantage of allowing both parties to revise documents directly as they are
passed back and forth. As well, a record (the e - mail string) is maintained of changes
and revisions as they occur. Last, the regular U.S. Postal Service has traditionally
been recognized as a legally binding method of providing written acceptance of
contracts.
To illustrate the importance of this concept, consider, for example, the food
vendor that is promoting a special sale on boneless hams for the Christmas holidays.
The vendor sends an e - mail to all of its clients. In the e - mail, an offer for the sale
of the hams is made that includes a 20 percent price reduction if orders of the hams
exceed $ 100,000 and “ payment is made by November 1. ”
A cafeteria chain ’ s purchasing agent receives the e - mail and decides to take
advantage of the offer. The agent prints the e - mail, fills in the e - mail order form ’ s
blank spaces to indicate the amount of product to be purchased and places it in
an envelope, along with a check for the full purchase amount. The printed e - mail
form and check are mailed, and the envelope is postmarked on November 1 by
the postal service. The purchasing agent will be considered to have met the terms
of the contract and to have responded within the prescribed time frame because
the acceptance was postmarked on the first of the month. However, if the vendor
had stated, “ acceptance must be received in our offices by November 1, ” then the
acceptance would not have been in time. Again, this points out the importance of
clarity and specificity when agreeing to any contract terms.
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