Business disputes can be expensive and time-consuming. When purchasing wholesale merchandise, businesses can include ADR clauses in California business contracts to establish a process for resolving disputes before immediately going to court.
Alternative Dispute Resolution (ADR) generally includes negotiation, mediation, and arbitration.
What Is an ADR Clause?
An ADR clause explains how the parties will handle a disagreement arising from their contract.
A contract might require the parties to:
- Attempt good-faith negotiation;
- Participate in mediation if negotiation fails; and
- Proceed to arbitration or litigation, depending on the agreement.
ADR does not guarantee that a dispute will be resolved without court involvement, but it can provide a structured process for attempting to resolve the matter.
Example: Wholesale Driving Gloves
Suppose a California business purchases 1,000 pairs of leather driving gloves for $7 per pair, for a total purchase price of $7,000.
The contract could include a provision such as:
Dispute Resolution: The parties agree to first attempt in good faith to resolve any dispute arising from this Agreement through direct negotiation. If the dispute cannot be resolved, the parties agree to participate in mediation before pursuing further legal remedies, except where immediate court relief is permitted or necessary. Any arbitration requirement must be separately agreed upon in accordance with applicable law.
The contract should also clearly identify the glove specifications, quantity, price, delivery requirements, inspection procedures, warranties, and return provisions.
Why Include ADR Before a Dispute?
A wholesale driving-glove transaction could lead to disagreements involving:
- Product quality or specifications;
- Quantity or damaged merchandise;
- Shipping delays;
- Payment;
- Returns or refunds; or
- Warranty claims.
Having an ADR provision already included in the contract gives the parties a predetermined process for addressing these problems.
California law recognizes written arbitration agreements under applicable circumstances, including provisions of the California Code of Civil Procedure. Federal law, including the Federal Arbitration Act, may also apply to qualifying transactions involving interstate commerce.
Bottom Line
For wholesale purchases such as driving gloves, an appropriately drafted ADR clause can provide a practical path toward negotiation or mediation and, when agreed upon, arbitration—potentially reducing the need for costly litigation.
Legal Disclaimer
Khan Paralegal and Notary is not an attorney and is not a law firm. This article is for general informational and educational purposes only and does not constitute legal advice or create an attorney-client relationship. ADR and arbitration provisions can have significant legal consequences. Consult a California-licensed attorney regarding your specific contract or dispute.