Mark Pestronk
Q: At the request of an important corporate account, our agency signed a major hotel convention contract. The account sent the million-dollar payments to us, and we forwarded them to the hotel, minus our fee. The account canceled the trip and requested a refund under the force majeure clause of the contract, due to a hurricane. The hotel refused to provide a refund, citing the cancellation clause's penalties. Can the account successfully sue the hotel for a refund, even though it was not a party to the contract? If not, could our agency be liable for the refund?
A: The general rule is that a nonsignatory to a contract has no rights under the contract, so it cannot sue under it. So, if the account cannot sue the hotel, then the account might well try to hold your agency liable for the refund, depending on the provisions of the agreement between you and the account.
There are two exceptions to the general rule, and both of them depend on the exact wording of the contract between you and the hotel. First, that contract could expressly state that the account is a "third-party beneficiary" of the hotel contract.
The quoted term was at issue in the recent case of Schneider Electric USA Inc. v. Seven Mile Resort Holdings Ltd., in federal court in Tampa. The agency (Incentives Plus) had signed the convention contract with the Westin Grand Cayman, and the account (Schneider Electric) had canceled because of Covid.
The convention contract stated, "The parties hereby designate Schneider Electric USA Inc. as third-party beneficiary of this agreement ...." The court held that the quoted phrase was sufficient to allow Schneider to be the plaintiff in the suit against the hotel for a refund.
The second exception occurs when the agency expressly signs "as agent for" the account. In the Schneider case, the "letter of agreement" (i.e., the contract) between the agency and the account stated that "Incentives Plus Inc. will act as your agent when booking a hotel ...." However, the contract between Incentives Plus and the hotel had no such corresponding clause, which was likely a drafting mistake.
Moreover, the "letter of agreement" went on to include a boilerplate clause stating, "Nothing in this agreement will be deemed or construed to create an employee/employer, joint venture, partnership or agency relationship between [the parties]." Not deleting that clause was probably also a drafting mistake.
My advice is that your agency should be sure to provide, in all hotel group contracts that you sign, a clause stating that the account is a third-party beneficiary and that your agency is signing as agent for the account. Even better: Get the account to sign the contract and have it name your agency as the agency of record.
Incidentally, the court in the Schneider case held that the question of whether the force majeure clause required a refund should be left up to the jury, and my guess is that the case will be settled before it reaches trial.