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What is Arbitration?

Posted by Jonathan Krems | Dec 13, 2021 | 0 Comments

Have you ever got a new credit card in the mail, and skipped reading the paperwork they send with it?  Or how about gone to buy a new car?  Do you read the contract for the car or your financing?  If you're in business, do you read the fine print of your commercial contracts?  Every day we as consumers (and also small business owners) are faced with contracts.  We all agree to the terms of consumer contracts every time we get a new credit card or buy a new car.  Likewise, many commercial contracts also are signed by small business owners, especially with their vendors, all the time.  In today's Freedom Friday blog, I want to talk about a term that is in a lot of these contracts.  Its not in every consumer contract for a credit card, but many credit card companies include several paragraphs about this.  Also, this term appears in almost every contract for a new car, especially if you are financing the transaction, and it appears in many contracts relating to construction.  And that is the term arbitration.  “What is arbitration?” you ask?  In today's Freedom Friday blog and email newsletter, I want to answer that question, “What is arbitration?” and explain why its important to read and understand your contracts, especially commercial contracts for you as a small business owner.

So, “what is arbitration?”  Arbitration is an alternative dispute resolution process.  Ok, what is that?  So, sometimes when two people or businesses or parties enter into a contract, after a while, they have a “dispute” or a disagreement.  Perhaps an individual bought a car, and there was something wrong with it.  Another example is you as a small business owner hired a construction company, and they did not do what the contract said they were going to do in constructing your office.  At first blush, in such situations, you may want to sue the company who allegedly breached the contract.  However, many contracts have a section on “arbitration,” which usually means these kinds of disputes have to be submitted to a process outside of the courts.  Thus, it is an “alternatively dispute resolution” process, that is, a way for the parties to resolve their issues outside of the courts.  Its less expensive, less time-consuming, and avoids a trial before a judge or a jury.

Arbitration is kind of like a judicial proceeding (everything is done before an arbitrator, or sometimes an arbitration panel), in which the arbitrator considers evidence and the testimony of witnesses, and then makes a decision which is often binding on the parties, and can be enforced in court, for real.  Often times, if damages are given, the result is called an “arbitration award,” and sometimes a case is filed in court to enforce the “arbitration award” and make it an actual judgment in court.  You see this a lot of times in construction cases.

The important issue in arbitration is that there must be an agreement by the parties to submit their dispute to the arbitration process.  This is called an “arbitration agreement,” and this is included in many credit card terms and conditions, contracts for vehicle purchases, and construction contracts.  It is important to read and understand these contracts so that if there is a problem, you may need to send your dispute to arbitration.

If you are interested in starting a small business anywhere in Oklahoma, or you need legal help building, protecting, or defending your small business or other assets, please contact me at [email protected] to schedule a FREE strategy session.

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About the Author

Jonathan Krems

Jonathan is the Founder and Managing Attorney of Liberty Legal Solutions, LLC, a law firm dedicated to building, protecting, and defending the business and personal interests of our clients in Oklahoma.  Jonathan's primary practice areas are business law, contracts and agreements, business liti...


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