Adhesion Contracts: Everything You Need to Know
Adhesion contracts, while on the surface not appearing to be an equitable way to conduct business, do serve a need in the business world.3 min read
Adhesion contracts are legal agreements drafted by a party that has the negotiating leverage over the other party, resulting in the weaker party faced with “take it or leave it” terms without any opportunity to discuss more favorable terms. The party in the position of power realizes the other party has a very real need for the goods or service being offered and has no actual leverage other than the inconvenient choice of going elsewhere.
The merchant or service provider has the customer over a barrel and knows it. Perhaps the party with the power has no or little competition or the customer has an immediate need that must be met.
- Products where adhesion contracts come into play include looking to buy or lease a house or car, take out a mortgage, or even get insurance.
- Services that often use adhesion contracts are contractors, auto repair shops, or medical, dental, or veterinary professionals.
Opinions on Fairness Adhesion Contracts
Adhesion contracts, while on the surface not appearing to be an equitable way to conduct business, do serve a need in the business world.
If a business had to take the time to negotiate individual contracts for every transaction it conducts, valuable time would be wasted or the cost for legal fees to hire an attorney to review every final contract might result in a large increase on the price charged for the product or service.
However, there is debate throughout the legal community as to whether these contracts, which are entered into freely, although at times reluctantly, provide justification for what might be deemed unfair clauses. In other words, if there was no coercion when the agreement was reached, is the party in power liable for damages in the event the contract is found to be unfair?
Among the common clauses existing in adhesion contracts that attract the greatest scrutiny are:
- Mandatory Arbitration – This limits the weak party’s access to seek remedies in the court system and provides only for an arbitration hearing.
- Specific Forum Selection – The weak party has no choice as to the jurisdiction where complaints are settled.
- Liquidated Damages – Limits are placed on the amount of damages the weaker party can receive in the event the power party fails to deliver on its obligation.
Reasons Consumers Enter Into Adhesion Contracts
On the surface, it doesn’t seem reasonable that anyone would enter into an agreement knowing that the other side has all the power and is setting all the terms. However, it is quite common, and the biggest factor in the deal getting done is that the customer is more focused on getting a good deal than reviewing or understanding the details. It often leads to what is commonly called “buyer’s remorse.” Here are two examples of why it may occur.
Adhesion clauses in a contract are often found in the small print at the end of a contract and couched in complex legal language that a non-attorney would have a difficult time understanding. Even if the customer should find something that doesn’t quite seem right, there’s a tendency to just accept it because if it’s among all that legalese, it must be a pretty standard clause and it would be a waste of time to even try to have it changed.
This is the practice that occurs when a customer does not have the opportunity to review the terms of the contract are separated from the bill of sale. The most common example of this form of adhesion contract is when a packaged product is purchased in a store. Payment is made at the counter, but it is not until the customer gets home and opens the box that they have the opportunity to review the terms of the agreement. By then, it’s probably too late or it would be a hassle to pack everything up and return to the store.
While the weaker party can always claim that that contract has no standing because it contained adhesion clauses, the chances of success are not in their favor. The best practice is to carefully read every contract and if you have an objection, raise it or walk away.
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