A contract of adhesion refers to a contract drafted by one party in a position of power, leaving the weaker party to “take it or leave it.” Adhesion contracts are generally created by businesses providing goods or services in which the customer must either sign the boilerplate contract or seek services elsewhere. To explore this concept, consider the following adhesion contract definition.
Definition of Adhesion Contract
- A standardized contract offered to consumers on a “take it or leave it” basis without giving the consumer an opportunity to bargain for terms that are more favorable.
Common Uses for Adhesion Contracts
Adhesion contracts are the standard form contracts commonly offered for a consumer’s signature for such activities as buying a car, leasing a house, taking out a mortgage, and getting insurance coverage. Also known as “adhesionary contracts,” or “”take-it-or-leave-it contracts,” the makers of these contracts always have the upper hand, and no need to allow the consumer to bargain regarding the terms. Other common uses for adhesion contracts include home contractor or repair services, auto repair services, services for medical or dental care, and veterinary care.
Fairness of Contracts of Adhesion
While contracts of adhesion unquestionably answer an important need in the business world, there is much disagreement about the fairness of contracts of adhesion. Without form contracts, the time it takes for negotiating and preparing individual contracts for each business transaction would increase greatly, resulting in an outrageous increase in prices. The down side is that, with each form contract signed, there is a potential for the seller to incorporate unfair terms.
In the judicial community, there is also debate as to whether the courts should enforce obviously unfair clauses in adhesion contracts, and if so, to what extent. This brings up the question of whether the makers of these contracts, which are entered into freely and without coercion by the customer or client, should be allowed to evade liability for unfair contracts. Clauses subject to the most doubt regarding fairness of contracts of adhesion include:
- Mandatory Arbitration – limits the signor’s access to the court system as a remedy
- Specific Forum Selection – when the forum is to be chosen specifically by the contract maker, the signor is locked out of the selection process
- Liquidated Damages – limits the amount the signor might recover, or specifies an amount the signor might be required to pay in a dispute
Acceptance of Unfair Terms
The most common reason consumers unwittingly accept unfair or even ridiculous terms in a boilerplate contract is that they are focused on getting a good deal for their money. Reading, and trying to understand, the terms of a lengthy contract in tiny print are not high on their priority list. Adding to the likelihood that such terms will not be read is the fact that the terms generally include complex legal language, and refer to legal statutes or rules that are difficult to understand. Even in the unlikely event a consumer discovered something in the contract they did not like, there is no way for the them to ask for it to be removed, as adhesion contracts are by nature “take it or leave it.” This leads to the broad acceptance of unfair terms.
Other issues that virtually guarantee a consumer will not actually read and understand an adhesion contract before signing is the practice of separating the terms of a complicated contract. In this case, the consumer is often told that the rest of the terms of the agreement are in another document. Consider the consumer who purchases a computer software program. The instructions for installation, as well as the terms and conditions of owning, installing, and using the software are inside the packaging. This is referred to as a “shrink-wrap contract.” While the distributor may take the stance that the consumer has ostensibly agreed to be bound by those terms and conditions by opening the package, the consumer had no way to read them prior to such an “acceptance” of unfair terms.
How the Law Deals with Adhesion Contracts
Generally speaking, in the United States the law deals with adhesion contracts, or standard form contracts, like any other contract. A signature legally binds the parties to the contract, whether or not the consumer has read the provisions. The form of, and disputes over, many adhesion contracts have encouraged many jurisdictions to apply exceptional scrutiny to, and special rules dealing with, standard form contracts, however. As with any contract, any ambiguity or unclear provisions are interpreted in favor of the party who did not prepare the contract. This helps discourage the practice of building in ambiguous provisions to later be interpreted however the contract-maker desires.
Related Legal Terms and Issues
- Signor – a person who signs, as in a contract or other document
- Coercion – the act of using force or intimidation to ensure compliance