Contracts 102 – Dispute Resolution Clauses

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As you are aware from my earlier blogs, it is vital for your business that you have and maintain good contracts.  As you know, a contract is an agreement that sets forth the rights and obligations to the parties.  However, one of the most vital reasons to have written contracts is to address what happens when things go south…when the other party to the agreement does not fulfill its responsibilities.  A dispute resolution clause can help you to know, in advance, how you can address contractual problems.

If you do not have a dispute resolution clause within your agreement, then you are left with the single option of filing a lawsuit.  Lawsuits can become the most expensive and time-consuming way to adjudicate your contract dispute.  You should explore whether you want a clause that provides for mediation and/or arbitration of your disputes.  Mediation is an informal way to try to resolve your dispute.  Typically, a third party mediator will be engaged to foster communication between the disputing parties and assist them in ending their differences – typically with one party paying the other party a negotiated amount of money.  A mediator cannot force either party to agree to anything.  However, a mediated resolution may be the best way to preserve the relationship between the parties and enable them to work together into the future.

Some contracts provide that if mediation is unsuccessful, the parties will proceed to arbitration.  Some simply provide for arbitration without mediation.  Arbitration can be either binding or non-binding.  Under either circumstance, an arbitrator hears evidence and enters a ruling in favor of one party or the other.  It is very similar to litigation.  However, it can be done privately and can oftentimes be more expeditious and less expensive.  If it is binding arbitration, the decision of the arbitrator can become a judgment which can, ultimately, be enforced against the losing party.

Regardless of the terms of your dispute resolution clause, you should be certain to make sure that there is language that allows for the prevailing party to recover attorneys’ fees and costs.  Also, you should be attentive to whether the contract provides that jurisdiction and venue are where you do business.  Gordon Law is here to help you review contracts; write contracts; and enforce contracts.

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