SW Legal studies in Business

Contract Fails for Lack of Mutual Obligation in Arbitration Agreement
Description Arkansas high court held that a loan agreement failed because the arbitration clause required the borrower to go to arbitration but allowed the lender to go to court. This lack of mutual obligation imposed liability on one party but not the other, so the contract fails.
Topic Contracts
Key Words Mutuality of Obligation; Arbitration
C A S E   S U M M A R Y
Facts E-Z Cash provides cash loans to people who present personal checks that are held until the borrower's next payday. Harris gave E-Z a check for $400 that it agreed to hold until her next payday. Rather than pay the debt, Harris kept rolling over the loan and could not repay it. She then sued E-Z contending that the service charges it imposed were in fact a form of interest on the loan that amounted to a higher interest rate than allowed by state law. E-Z moved to dismiss the suit and compel arbitration as provided in the loan agreement. The trial court refused to compel arbitration, holding that the agreement lacked mutuality and was not enforceable. E-Z appealed.

Affirmed. "The essential elements of a contract include: (1) competent parties, (2) subject matter, (3) legal consideration, (4) mutual agreement, and (5) mutual obligations. ... under Arkansas law, mutuality requires that the terms of the agreement impose real liability upon both parties. There is no mutuality of obligation where one party used an arbitration agreement to shield itself from litigation, while reserving to itself the ability to pursue relief through the court system." The agreement here gave E-Z the option to sue debtors in court, but required debtors to go to arbitration if they had a dispute with E-Z. That is not a mutual obligation, so the agreement is not valid and enforceable.

Citation E-Z Cash Advance, Inc. v. Harris, 60 S.W.3d 436 (Sup. Ct., Ark., 2001)

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