1.Your group is holding 100 rooms at a hotel. The hotel contract says your group has 20 percent allowable attrition and that you can reduce the room block by 20 percent up to 30 days before the meeting. At 30 days before your meeting, attendance registration and hotel pick-up is only 50 people and 50 rooms, and the prospect of more people signing up is slim. To cut your group's losses, you send a written release to the hotel for the other 50 rooms. The hotel says you can only release 20 rooms. They will not allow you to give back the other 30 rooms. Is the hotel required to take back the other 30 rooms?

a) No, 20 percent of the room block is 20 rooms per night.
b) No, your group agreed to a maximum release of 20 percent, and that's a reasonable amount.
c) Yes, there's a good chance the hotel can resell the 30 rooms to other groups or individuals.
d) Yes, the hotel is required to accept the other 30 rooms back in its inventory and attempt to resell them.

2. You signed a hotel contract that says if your organization cancels its convention to use another property it has to pay the hotel 100 percent of the revenue it was anticipating as liquidated damages. The hotel cannot legally enforce this provision.

a) True
b) False

3. You're the director of exhibit sales for the largest association in your industry and your trade show is the largest and most successful trade show in the industry. One day you get a call from the marketing director of your largest exhibitor who has supported the organization for many years. The exhibitor's marketing director explains that the company has a major product launch coming up and the company will purchase exhibit space equal to 10 booths at full price on one condition: Your association must agree not to accept an exhibit application from a certain new, start-up company in the industry that sells the same line of products. The marketing director further says if you don't accept this deal, s/he will pull out of your show and take the company's business to another trade show in the industry.

Legally, you would be a fool:

a) not to accept this deal because this is your association's largest exhibitor and a long-time supporter. 
 b) not to accept this deal because you don't want the other trade show to steal your exhibitors.
c) to accept this deal because it's illegal.
d) to accept this deal because your association doesn't want to set a precedent where one company can tell the association what to do.

4. Your association has an annual trade show that has done very well for many years. Booth sales have been handled with current staff and volunteers. However, in the past two years, booth sales have started to decline, and your board decides to enlist the expertise of full-time outside salespeople. You proceed to advertise and fill two positions listing duties, hours of employment, commission, and reimbursables. On a quarterly basis and at year-end, you report them as independent contractors so that the association does not have to pay employment taxes. This reporting is:

a) legal and good for the association.
b) good for the association, except it's illegal.
c) legal and not good for the association.
d) illegal and not good for the association.

5.Which of the following are appropriate topics for a trade or business association meeting?

a) fair profit or margin levels in the industry
b) pricing procedures
c) whether pricing practices used are unethical
d) methods to become more profitable

7. One of your organization's vice presidents likes to act as a show manager/meeting planner on occasion and books a small meeting at a hotel the organization has used before. One week after the vice president signed the hotel contract s/he was fired after s/he was caught embezzling funds from the organization and confessed.

Legally, your organization:

a) can terminate the hotel contract without liability because the vice president who signed the contract no longer works for the organization.
b) can't terminate the hotel contract without liability because the vice president was legally authorized to sign contracts up to the day s/he was terminated.
c) can terminate the hotel contract without liability because the hotel should have known the person signing the contract was not the organization's regular planner.
d) can terminate the contract without liability because embezzlement is a felony, and felons cannot sign contracts.

8.You receive a proposal from a destination management company (DMC) for a 10-day event next year but, you only need the DMC's service for three days. The proposal is generally okay except for the number of days. You cross out 10 days in the proposal and write three days in its place. You return the proposal to the DMC with your signature and your initials next to the change. The DMC does not respond. After a reasonable time has passed, may you assume that the DMC agrees with your changes and you have a binding legal agreement?

a) Yes, because this DMC has a good reputation for service and ethical behavior.
b) Yes, because my organization has a good reputation for being ethical, and we always follow through on what we promise.
c) No, although I'm the director of meetings & conventions, I'm new to the organization and the sales person and I don't know each other well.
d) No, the DMC can reject my changes because it wanted a commitment for more than three days.

9. Your association wants to do a mass e-mailing to members and non-members to promote attendance to the upcoming annual meeting. The President of the United States has agreed to be your keynote speaker, so you're pretty certain that you'll generate good attendance. To reach non-members, your association wants to buy a list of names and e-mails from a reputable list broker. A list broker is chosen because it has the technology to gather a large number of e-mails from the Internet electronically (called "harvesting") and can sell the names at a bargain price. E-mails sent to non-members will contain: (1) clear and conspicuous identification that the message is an advertisement and solicitation, and (2) the physical address of the association.

Your association's use of the harvested e-mails would be:

a) legal and good for the association.
b) legal and not good for the association.
c) good for the association, except it's illegal.
d) illegal and not good for the association.

10. Your organiz- ation cancels its meeting at a hotel 12 months before the meeting dates. The hotel contract has a liquidated damage clause for cancellation with a sliding scale. Per the sliding scale, if your group cancels 12 months before the meeting, your organization owes the hotel 50 percent of the anticipated guest room revenue. Over the meeting dates, the hotel actually sells out. Legally, must the hotel give your organization credit for resold room revenue even if it isn't required in the contract?

a) Yes, it's only fair since the hotel wasn't damaged by the cancellation.
b) No, this is a valid liquidated damage clause.
c) Yes, it would be a lousy way to treat a customer not to.
d) No, the hotel has a right to sell all of its rooms.

1. Answer: (d) Yes, the hotel is required to accept any rooms your group releases and attempt to resell them. This is a tricky question that meeting sponsors and hoteliers face every day. The purpose of stating the 20 percent allowable attrition is to clarify the minimum amount of rooms your group has to use or pay for before your group incurs liability for under-performance. You can release any percentage of rooms you want and the hotel must accept them back into inventory. Your group is still liable for using or paying for 80 percent of the block or the portion the hotel does not resell.

2. Answer: True. The hotel cannot legally enforce this liquidated damage provision because it is a penalty clause. Penalty clauses are unenforceable as a matter of law. A penalty clause exists if enforcing the clause would put the hotel in a better position financially than if the contract had actually been performed as agreed. The hotel is still entitled to its actual damages. Actual damages are the hotel's lost profit, not 100 percent of its lost revenue. In this scenario, the hotel has to give a credit for variable expenses it does not incur. It also has an affirmative duty to attempt to resell the cancelled rooms and credit the resulting revenue to reduce the potential damages owed by the canceling organization.

3. Answer: (c) An agreement between a trade show sponsor that's dominant in the market and an exhibitor to keep out another potential exhibitor is an illegal restraint of trade under antitrust law. Violation can result in civil damages and criminal penalties against the organizations and individuals involved. Answers (a), (b), and (d) all make sense but do not excuse the illegal action.

4. Answer: (b) Nice try, but it's illegal. The IRS would view the two new hires as employees because of the degree of control the association is exercising over them by listing their duties and requiring certain hours of employment. Misclassification of employees as independent contractors can lead to back taxes and penalties from the IRS. If the association had contracted with the two individuals on a commission basis stipulating only the end results desired, and no requirements for hours worked or restrictions on working for others, the individuals could legally be categorized as independent contractors and (a) would be the correct answer.

5. Answer: (b) No. The sliding scale is enforceable as a valid liquidated damage clause, and the hotel isn't required to give your organization credit for resold rooms. When agreed to in advance of a breach, liquidated damage clauses will be enforceable as written if they meet three criteria: 

•  actual damages caused by the breach must be difficult or impossible to estimate accurately 
•  the parties must have intended that the agreed amount be for the loss rather than as a deterrent to breach
• the stipulated amount of damages must be a reasonable estimate of the probable loss and not a penalty.

 Penalties in contracts are not enforceable. A penalty exists if enforcing the damage provision would put the injured party further ahead financially than if the contract had been performed as planned. In the above facts, 50 percent of the anticipated guest room revenue is a reasonable estimate of damages prospectively because it already contemplates that the hotel will be able to resell some of the cancelled rooms. The hotel does not have to give additional credit for resold rooms if it isn't required in the contract. However, the hotel would be required to give the credit for resold rooms if it was required by the terms of the contract.

6. Answer: (d) In a breach of contract or under-performance situation, the injured party is entitled to its lost profit, but not 100 percent of its lost revenue. In this scenario, the organization gave the hotel three months' notice that it was canceling the opening reception. At that point, the hotel had not bought the food and beverage items or scheduled personnel to work the event. The hotel is therefore not legally entitled to compensation for expenses that it can avoid and does not incur. However, the hotel is still entitled to receive the estimated lost profit it would have received if the group had held the opening reception as planned, but not 100 percent of the revenue. (The parties should have agreed upon a percentage to represent estimated lost profit when the contract was negotiated.) The facts in answers (a), (b), and (c) have no legal significance when calculating damages.

7. Answer: (b) A vice president, as an officer of the organization, always has the authority to sign contracts that bind the organization. If a contract is valid when it's signed, it remains valid even if the person who signed the contract leaves his/her respective organization. The contract with the hotel was valid and enforceable when the vice president signed it. Answer (a) is wrong because valid contracts can't be terminated unilaterally by a party just because the party who signed it has been terminated. Answer (c) is wrong because the hotel had a right to rely on a vice president's signature. Answer (d) is wrong because the vice president was not a convicted felon when the contract was signed. Further, there's no law against felons signing contracts.

8. Answer: (d) No. The number of days in a contract that service is to be provided is a material term. If parties don't agree on a material term, there is no contract. When you crossed out 10 days and wrote three days in its place, you created a counter-offer to the DMC. The DMC can accept or reject your counter-offer in its sole discretion. The answer would be "Yes, a contract exists" if the meeting dates come and the DMC starts its performance. Its performance would be a legal acceptance to your counter-proposal. Answers (a), (b), and (c) are legally irrelevant statements.

9. Answer: (d) Discussions of how members in the industry can become more profitable are appropriate and legal as long as the topics and discussions don't involve pricing in any way. Pricing discussions are illegal as a per se violation of antitrust laws regarding restraint of trade, therefore answers (a), (b), and (c) are wrong because they involve illegal conduct.

10. Answer: (c) It's unlawful for associations and companies to send commercial e-mail if the addresses were obtained by an automated process, and the messages didn't comply with the three criteria required by the CAN SPAM Act of 2003. In the set of facts outlined in this scenario, a method for recipients to opt out of future e-mails was left out. Commercial spammers can be fined up to $2 million.

© 2007 John S. Foster, Esq., CHME, Atlanta. All rights reserved, John.Foster@FJGLaw.net.