Question

On January 3rd, 2009 Holiday Inn Hotels entered into a contract with Great Designs Inc., an interior decorating firm, to have their hotel rooms re-decorated with new carpeting, bedspreads, curtains and wall art. Holiday Inn Hotels paid Great Designs Inc., $100,000 upfront and the work was to be completed by June 1st, 2009. On June 1st, 2009 work in 30% of the rooms was still not complete. The Hotel had a large conference group checking in on June 30th, 2009 that would result in all the rooms being occupied. The Hotel, therefore, terminated its contract with Great Designs Inc., and hired a different designer to finish the work. The new designer completed the work on June 30th, 2009 at an additional cost of $15,000. Answer the following questions:

1. Did Holiday Inn Hotels act correctly in discharging its contract with Great Designs Inc.? Explain.

2. Assuming that Holiday Inn Hotels did properly terminate Great Designs Inc., to what amount of damages is Holiday Inn Hotels entitled? Explain.

                                                                                                                                     

Answer 1

a. Yes, Holiday Inn Hotels acted correctly as there was breach of contract on the part of Great Designers Inc.by failing to adhere to the terms of the contract.

There were two options before Holiday Inn Hotels: 1. To ignore the breach and allow Great Designs Inc. to continue, in which case., it might have to refuse accommodation to the conference group, if the designer did not complete by June 30 or 2. To treat it as a discharge of contract by breach

So, the management of the hotel acted in a rational manner by terminating the contract with the designer and hiring another designer in its place.

b. If there were liquidated damages stipulated in the contract between Holiday Inn Hotels and Great Designs Inc., the damages would be computed accordingly.

Otherwise, Holiday Inn Hotels would claim from Great Designs Inc. restitution of $ 100,000 paid upfront as reduced by the amount earned by the designer for 30 % of the work done, plus damages of $ 15,000 for the additional cost of $ 15,000 paid to the new designer.