Contract of Adhesion: Everything You Need to Know
Contract of adhesion, also referred to as a boilerplate contract, is a contract that is generally drafted by one party who has greater bargaining power and signed by another party who has lesser bargaining power.3 min read
1.1. Property Leases1.2. Deeds and Mortgages1.3. Insurance Policies1.4. Car Purchases or Rentals1.5. Contracts to Borrow Money or Property2. Are Adhesion Contracts Legal?
Contract of adhesion, also referred to as a boilerplate contract, is a contract that is generally drafted by one party who has greater bargaining power and signed by another party who has lesser bargaining power.
Since there is such disparity between the parties, the weaker party usually adheres to the initial contract since it is unable to negotiate the original terms of the deal. This is also sometimes referred to as a “take it or leave it” situation.
Clearly, the party with greater bargaining power has more overall power in the contract and can usually freely negotiate any terms it wants with the other party knowing that the other party will agree upon those terms.
While this type of contract would seem unfair or even unenforceable, there is nothing wrong with entering into such an agreement. In fact, this type of contract is more common than one would think. If businesses spent time negotiating every single deal, they wouldn’t get any work done.
Where Are Adhesion Contracts Used?
Adhesion contracts can be used in a variety of industries. However, they are most common in the following types of deals:
- Property leases
- Deeds and mortgages
- Insurance policies
- Car purchases or rentals
- Contracts to borrow money or property
Property leases generally involve contracts of adhesion, as most landlords will not negotiate with a tenant as to the contract provisions. This includes the monthly rent and other requirements that the tenant must adhere to, such as keeping the property clean, informing the landlord of any issues in the home, paying the electric bill, etc.
Deeds and Mortgages
Similarly, deeds and mortgages are also contracts of adhesion as the contract itself will not leave room for negotiation. While the buyer and seller of a piece of property can negotiate certain terms of the deal, the final mortgage and deed cannot be negotiated.
Insurance policies are also another common form of adhesion contracts. You’ll never be able to negotiate provisions in the insurance contract with your insurance company. The contract is one that you can either take or leave. If you don’t agree to the terms of the contract, then you can contact another insurance company to see what that company offers its policyholders.
Car Purchases or Rentals
When you purchase or lease a car, the dealership will have you sign a contract. While you can negotiate the potential purchase or lease price, you cannot negotiate the provisions in the contract. In fact, most dealerships have the same boilerplate language for all of their customers.
Contracts to Borrow Money or Property
Furthermore, adhesion contracts are used in any industry where one party has to borrow money or property to execute a transaction. Therefore, the weaker party will undoubtedly enter into the agreement since it needs the money from the other party.
Are Adhesion Contracts Legal?
Yes, adhesion contracts are legal. Such contracts are dealt in the same way as any other contract. The signature of both parties will legally bind them to the contract. However, courts will closely review adhesion contract legal disputes to determine if the provisions of the contract indicate one or more of the following:
- Unfair surprise
- Lack of notice
- Unequal bargaining power
- Substantive unfairness
For example, in Texas, insurance companies cannot use complex or ambiguous language. If this occurs, the insurance holder can bring a legal action against the insurance company indicating that he or she didn’t understand the terms of the insurance contract. The court will require the insurance company to write its contracts in the way that a person of average intelligence can understand. Therefore, any ambiguity in the contract will be interpreted in favor of the insurance holder.
Similarly, for any parties that are involved in a legal dispute regarding an adhesion contract, the court will look at the doctrine of reasonable expectations to determine if there is any justification for enforcing the terms of the contract. This is done by looking at the contract terms and attempting to identify what the weaker party would have reasonably expected from the contract.
If you need help drafting a contract of adhesion, or if you want to bring legal suit against the other party to the contract, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law, and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.