What is an Adhesion Contract: Everything You Need to Know
To understand what is an adhesion contract, it can be seen when two parties enter into an agreement; where one party drafts the agreement which the other party signs. 3 min read
To understand what is an adhesion contract, it can be seen when two parties enter into an agreement; where one party drafts the agreement which the other party signs. The signing party is usually in the weaker position, as in the case of consumer transactions, where there is minimal opportunity to modify contractual terms.
Most consumer transactions are considered as adhesion contracts which are not normally negotiable.
- Airline tickets
- Cellphone service
- Residential Leases
- Hotel rentals
- Insurance contracts
Recognizing Adhesion Contracts
Another peculiar example is the non-disparagement clause in customer agreements on review platforms such as Yelp. A dentist attempted to sue the writer of a negative or disparaging comment but was defeated as non-disparaging clauses are prohibited on Yelp who cited free speech.
Adhesion contracts are normally standardized but may be carefully scrutinized and modified by courts for equality and fairness.
The concept of reasonable expectations is often used to justify the invalidation of parts of an adhesion contract if they are deemed to be above or beyond what the signing party could reasonably expect. Advocates, however, argue that standard adhesion contracts are efficient savers of time and resources as it can be overwhelmingly inefficient for businesses to negotiate contracts individually, and they are offered on a take it or leave it basis. There is nothing inherently wrong with adhesion contracts, but they may not always be valid.
The courts have found that some adhesion contracts are egregiously unfair to weaker parties, and have refused to enforce them. An example would be the penalties for default of loan payments that are often hidden in the small print of loan agreements. In such cases, the courts have ruled that the agreement was not mutual.
Adhesion Contracts in the Digital Age
With more transactions being processed online, adhesion contracts continue to gain prominence where agreements can be enacted with a single mouse click. The courts now have a more prominent role and rule that valid virtual contracts should be identical to hard copy contracts, and hidden or obscure clauses in fine prints may be unenforceable.
Can Adhesion Contracts be Fair
While contracts of adhesion can be beneficial for businesses, there still is some discussion about fairness. The time and resources spent by businesses in negotiating individual contracts are reduced, however, the potential to introduce unfair terms is increased. Signed contracts, even digitally signed ones, are seen as binding, so ensuing debates in the judiciary question whether contracts with obviously unfair clauses should be enforced, or if the issuer can avoid liability.
Accepting Unfair Terms
Consumers often accept unfair terms for a number of reasons.
- Immediacy is often the driving force as is the focus on obtaining the best bargains.
- Reading and interpreting fine print may not seem as important.
- Fine prints are often written in complex legalese that may be incomprehensible to the average consumer.
- The terms may only be accessible after purchase, as may be the case with some installation of software applications, where the terms become binding after the package has been opened or software installed.
Adhesion Contracts Can Have Advantages
The proponents of standard form adhesion contracts, also seen as boilerplate contracts, outline the virtue as they are seen as streamlined to present consistency and uniformity. They also claim that costly time spent in negotiating or deal-making is eliminated. The critics, however, argue that in some cases, these contracts turn out to be nothing more than one-sided deals.
Solutions to the Dilemma of Modern Day Adhesion Contracts.
Some courts have leaned aggressively to the side of the weaker participant, and disclose an increasing number of clauses as being unfair or unconscionable. However, this action can trigger other issues that can contravene the rights to issue contracts. Other courts have asked the participants to select important contract terms to be given prominence on the first page of the contract.
Electronic agreements are intended to facilitate faster and easier transactions, however, they can be complex and not always amenable to what can be seen as fair.
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