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What is an Arbitration Contract?

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  • Written By: Luke Arthur
  • Edited By: Heather Bailey
  • Last Modified Date: 02 December 2016
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An arbitration contract is a contract which two parties enter into in case of a dispute. If a dispute arises between two parties who are in an arbitration contract, the dispute will be settled through the arbitration process. This type of contract is typically written by a lawyer and has the benefit of lowering litigation costs in the long term.

When two companies or individuals decide to go into business together, there is the chance that they could have a dispute at some point. Many individuals will decide to enter into an arbitration contract before going into business together. This way, the arbitration contract will govern what will happen if a dispute arises between the two parties. This contract is a form of conflict resolution between two parties.

In order to create the arbitration contract, the two parties involved will usually consult an attorney. A contract attorney can come up with the necessary wording for this type of document. This way, both parties will be satisfied with the results of the contract.

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If a dispute arises, the two parties will refer to the contract. It will specify what type of arbitration will be pursued by the two parties and who will oversee the arbitration. The two parties will go to an arbitrator and present their cases to him or her. The arbitrator will make a decision in regards to how the conflict should be resolved. The two parties in the contract will abide by the decision of the arbitrator and make the necessary changes.

One of the primary benefits of using this type of contract is that it reduces the amount of litigation. Many times, when businesses have a dispute with one another, one will file a lawsuit against the other business. This can result in very expensive litigation costs. By using a simple arbitration contract, these costs can be avoided for the most part.

Another benefit of using this system is that it saves a great deal of time for both parties. Instead of going to court and spending months in the judicial system, both businesses can visit an arbitrator and get a decision quickly. In most cases, this process will only take a few days or weeks. After that, the businesses can both get back to doing what they do best. In some cases, the businesses will even be able to go back to working with one another successfully.

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