What is an Adhesion Contract?
An adhesion contract is an agreement with non-negotiable terms and conditions. Typically, these are prepared by a party that offers a product or service, while the consumer must accept the contract to obtain it. The creator of the contract holds a stronger bargaining position.
Adhesion contracts are also known as standard, standardized, or boilerplate contracts.
Key Takeaways
- Adhesion contracts are take-it-or-leave-it agreements where you must either accept the contract as it is or walk away.
- They simplify business transactions by standardizing the agreement between the supplier and buyer.
- For enforceability, adhesion contracts cannot be unreasonably one-sided.
- Courts determine what is reasonable within an adhesion contract.
- The legal perspective of such contracts has evolved and can vary across jurisdictions.
Understanding Adhesion Contracts
Adhesion contracts are frequently used in various industries including insurance, leases, vehicle purchases, and mortgages, where there are many customers opting for a standard agreement.
For example, in an insurance contract, the company drafts the contract, while the potential policyholder only has the option to accept or decline; they cannot counter the offer or enable a new contract. The onus is on consumers to scrutinize adhesion contracts as the terms are set by the other party.
Contract Regulation
In the United States, adhesion contracts are generally enforceable under the Uniform Commercial Code (UCC), ensuring similar commercial transactions laws across the country. However, acceptance and enforcement may vary in jurisdictions like American Samoa, Puerto Rico, and Louisiana, which have not fully adopted the UCC.
The UCC includes provisions for adhesion contracts pertaining to the sale or lease of goods, while also subjecting these contracts to state laws’ scrutiny and interpretation.
History of Adhesion Contracts
The term adhesion contract became part of the U.S. legal lexicon post a 1919 Harvard Law Review article by Edwin W. Patterson on life insurance contracts. Courts largely accepted these contracts after a significant 1962 Supreme Court of California ruling supporting adhesion analysis. Adhesion contracts offer efficiency in standardized transactions but occasionally face challenges, particularly around clarity and accessibility in electronic formats.
Enforceability of Adhesion Contracts
Adhesion contracts, generally fashioned as take-it-or-leave-it deals, undergo scrutiny based on two perspectives:
Reasonable Expectations
Courts assess if the terms of an adhesion contract go beyond or match what the weaker party might reasonably expect. The reasonability hinges on the prominence of terms, their purpose, and circumstances surrounding the contract’s acceptance.
Unconscionability
This doctrine focuses on fairness, evaluating if the terms are oppressively one-sided and would never be accepted by a reasonably sound person. Such contracts can be deemed unenforceable, especially if a hefty profit is made by exploiting one party’s lack of leverage.
Use Cases of Adhesion Contracts
Consumers typically encounter adhesion contracts during typical transactions such as airline tickets, insurance policies, mortgage loans, health care, or when purchasing an automobile.
Consumer Benefits of Adhesion Contracts
Generally, adhesion contracts provide benefits by standardizing and expediting transactions. Albeit the lack of negotiation flexibility, not reading and understanding any adhesion contract could be detrimental. Reviewing all terms ensures informed consumer rights.
What If You Don’t Agree to an Adhesion Contract?
Should you disagree with the adhesion contract’s terms, your option is to decline it and look elsewhere for a required product or service.
The Bottom Line
Adhesion or standardized contracts demand you adhere to all terms set by the other party in a transaction. These contracts are common in many consumer transactions, yet it’s imperative you thoroughly read them before signing.
Related Terms: Uniform Commercial Code, standardized contracts, boilerplate contracts, insurance contracts, leases.
References
- Cornell Law School, Legal Information Institute. “Adhesion Contract (Contract of Adhesion)”.
- U.S. Government Publishing Office. “Code of Federal Regulations: Title 7 - Agriculture, Subtitle B, Chapter XVIII, Subchapter H, Part 1941, Subpart B, Section 1941.57 - Security Instruments”.
- Louisiana Secretary of State. “What is Uniform Commercial Code?”
- Patterson, Edwin W. “The Delivery of a Life-Insurance Policy”. Harvard Law Review, vol. 33, no. 2, Dec. 1919, pp. 222. Download PDF.
- Zhang, Mo. “Contractual Choice of Law in Contracts of Adhesion and Party Autonomy”. Akron Law Review, vol. 41, no. 1, 2008, pp. 123.
- PandaDoc. “Everything You Need to Know About Electronic vs Traditional Contracts”.
- Cornell Law School, Legal Information Institute. “Unconscionability”.
