Everyone today is so busy—and life is so hectic—that we inevitably, and often for good reason, take shortcuts. But when it comes to signing contracts, the best counsel is to pause and review before committing. This is because even sophisticated businessowners and lawyers take shortcuts, which in the context of contracts means they often have a template they like and use it repeatedly in a variety of circumstances. One way many parties create bad contracts is by copying and pasting provisions from sources on the Internet. Here’s a common one:
In any dispute arising out of this Agreement, the parties will submit to binding Arbitration using the rules of the American Arbitration Association (hereinafter referred to as “AAA”).
This stand-alone clause is problematic for many reasons. First, it does not specify that the parties must use the AAA. Rather, it provides only that the parties must use the AAA’s rules. Second, it does not set forth which AAA rules apply. (The AAA has many sets of rules for different disputes.) Third, the party including this language may not realize that the AAA’s rules can be as complex as the rules of procedure the party was hoping to avoid by including an arbitration provision. Fourth, and most significantly, the parties may be unfamiliar with the AAA’s fee structure and how costly AAA arbitration can be. In disputes involving mid-sized businesses or small sums of money, it may not make good business sense to use the AAA. For this reason, and many others, always have an experienced attorney review your contract before you sign.
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