Many people fail to read and understand the provisions of their contract for goods or services until it’s too late. Almost eighty percent of a standard contract regulates the positive relationship between parties, focusing on the excitement of “who gets what, for how much and when.” This is true in almost any contract we endorse. Think about the last time you bought or leased a house, apartment, a car, took a new job or hired a new service.
We use or encounter contracts regularly, and most often parties spend little, if any, time to understand the legal consequences they face if they fail to abide by the terms of a contract. A contract’s default provisions regulate the outcome of a breach that invariably includes an aggrieved parties damages, attorney fees and costs. A default provision in a contract can even dictate the jurisdiction or the process by which a dispute can be adjudicated. Will a disputed matter get heard in court, or at arbitration?
What is arbitration? Arbitration is a formal alternative to litigation and is generally considered a more efficient process than litigation because it is quicker, less expensive, and provides greater flexibility of process and procedure. While they may seem efficient, arbitration provisions tend to be found in more boilerplate (standard or difficult to change) contracts that often puts the individual at a disadvantage.
Arbitration clauses can dictate where a dispute can be heard and by a pre-designated arbitration board. Signing a contract with an arbitration clause can be expensive for an aggrieved party who might find themselves having to pay out-of-state travel or legal representation.
In arbitration, the parties to a contract agree to have their case reviewed by a third-party that is not a judge (although many arbitrators are retired judges). Arbitration involves using a neutral party to both review and help settle the dispute. Arbitrators are bound to apply the laws of their jurisdiction. Arbitration helps keep a legal matter from going to the court, and can be either mandatory or voluntary.
Mandatory or voluntary arbitration. Mandatory binding arbitration is a contract provision that requires the parties to resolve contract disputes through arbitration. If an arbitration clause is included in a contract, and if the contract itself is valid, the parties are required to abide by the clause. Once you have signed a contract with a mandatory arbitration clause, you will have no choice but to settle your dispute through arbitration.
Another possibility is voluntary arbitration. In this instance, the parties agree on their own to use arbitration to settle their dispute. No contract or law requires this action. Most often, parties choose to use arbitration to save money, ensure confidentiality, time and sometimes even good will. If the matter is personal, such as in a divorce proceeding, voluntary arbitration can be equally valuable to both sides.
In arbitration, the parties agree to accept the ruling of the arbitrator and understand that the arbitrator’s decision is final. An aggrieved party may only take the decision to Court by appealing or in order to collect from their judgment.
Appealing a decision. Appealing an arbitrator’s decision is difficult. Case law states that when a court reviews an appeal from the arbitration, courts should avoid looking at the facts of the case or the merits of the decision. Rather, the court should determine if the arbitrator was fair, biased or even tainted by fraud. This is an extremely high standard and the courts most often defer to the arbitrator absent fraud or overt bias. The courts must find that an arbitrator’s decision was so unfair as to be manifestly unreasonable.
When a party fails to comply with an arbitration award, the award recipient may take their award to court and seek judicial enforcement. Absent any showing of deprivation of due process, the judicial review will generally affirm the award rendered through the arbitration process, and allow for it’s later enforcement.
About the Author: For over 25 years, Michigan attorney David Soble has advised business leaders, banks, lenders, real estate investors and individuals on their legal matters concerning real estate, business, financial and mortgage disputes. He has authored three books and has had hundreds of articles published monthly in over 250 national periodicals and newspapers. Disclaimer: This article is for educational purposes. Always consult with a competent attorney before you sign any contract or internet forms.