The Principle of the Principal

Abstract

Three court cases have clarified the relationship between a hotel owner and its management firm. Those cases are Woolley v. Embassy Suites, Pacific Landmark v. Marriott, and Government Guarantee Fund of Finland v. Hyatt. In each case, the owner charged that the manager had in some way defaulted on the terms of the contract and summarily terminated the manager-even though the contract provided for no such termination. Without examining the competing claims of default, the courts held that operating firms are agents of owners. As a point of common law (and statute), agency agreements may be terminated by either party. The open issue is what damages the owner must pay the operator for terminating the agreement. The courts suggested, however, that an agency with interest would be irrevocable. Two of the essential points of such an arrangement are an investment in the property by the management firm itself (not a subsidiary) and a contract provision stating that the agency truly protects some right of the agent and is for the benefit of the agent. To date, no record exists of an operating firm establishing an agency with interest.