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Mandatory binding arbitration in contract disputes

On Behalf of | Sep 12, 2022 | Contract Disputes

It is quite common for contracts to have particular clauses that set parameters for the terms of any agreement, and often, they are very restrictive for New York residents when a contract breach may have occurred. The clauses always have a purpose, which is not always positive for the contracting agent. The terms are mandatory to enter into the contract. One of those clauses in certain contracts will typically be a mandatory arbitration requirement to settle any disputes between contracting agents in place of possible mediation or formal litigation.

Understanding arbitration

The first step in understanding mandatory binding arbitration is understanding how arbitration works in contract disputes. Arbitration is a formal court proceeding, but it is restricted to each party submitting his or her position to a legal arbitrator. The two parties choose this individual to review the contract terms and apply contract law principles to reach a decision with little or no hearing involved unless the arbitrator requests more information.

How “mandatory” and “binding” apply to a case

Contracts with exemption clauses are “take it or leave it” propositions. Entering into the contract is the only method of establishing the business relationship, and it is “mandatory” that the signing party agree to the contract’s terms. Using arbitration as a form of alternative dispute resolution is a common requirement because it eliminates the chance for a class-action lawsuit in the event of a claimed legal dispute over a policy that also applies to all other contractors. All decisions issued by an arbitrator come with no option for an appeal, making the decision “binding” for all parties.

It is very important for all New York residents entering into a contract to read all the fine print before signing anything. Legal options may be limited if a disagreement arises, and arbitration is mandatory.