Adhesion Contract

What Is an Adhesion Contract?

Whether or not we know of it, we have signed hundreds of Adhesion contracts throughout our lives.

For example, you consented to a contract of adhesion (COA) when you downloaded your smartphone's most recent operating system. 

Home mortgages, insurance policies, credit card agreements, and lease and buy agreements for vehicles are more instances of this type of contract.

These contracts exist when one party exerts substantial influence over the terms of the arrangement.

The following traits apply to these contracts:

• They are constructed using boilerplate language and typically printed forms
• They serve to meet large-scale consumer needs for goods and services.
• Instead of just one individual, they are drafted for an arbitrary number of people.

An offeror can only assert this kind of contract to a consumer by providing the proper clauses. A standard set of terms and conditions that are the same as those provided to other customers must be provided to the customer for a COA to exist.

Those terms and conditions are non-negotiable, meaning the weaker party in the agreement must accept the contract terms as written rather than asking for clauses to be added, deleted, or amended.

There is no room for negotiation between the parties in the agreement, often known as standard form, boilerplate, or leonine contracts.

In this case, the signees could be numerous and have little to no negotiation power, whereas the drafter could be a single organization with enormous bargaining strength.

In terms of legal interpretation, as we will explain later in this article, courts tend to dissect the boilerplate provisions in a manner that questions the offering party due to the lack of authority given to the signee.

The contract's main objective is to boost operational effectiveness while reducing transaction costs.

 Advantages and Disadvantages of Adhesion Contract

As was already established, COA is frequently used in bank lending, insurance, mortgages, leases, and large purchases.

Although these contracts tend to increase efficiency and expedite the purchasing process, their use is controversial due to certain potential advantages and disadvantages they may present.

Here are some of the advantages:

1. Helps in Increasing commercial effectiveness

As adhesion contracts include non-negotiable terms and conditions, they eliminate the need for customized contracts for each client. 

To maximize the use of the firm's human resources, the legal department of the company drafts clauses specific to each market so that a small number of employees can conclude a large number of contracts.

Thus, both parties benefit from this by saving time and increasing their business's efficiency.

2. Reduced transaction costs

Retrospective costs are expenses that are incurred as a result of engaging in a transaction or a good exchange. Among them are costs associated with negotiations, communication, and enforcement.

These contracts deliver all the information in the form of a legally binding, non-negotiable agreement, significantly reducing these costs.

In addition to the visible benefits, there are some disadvantages to using adhesion contracts, as specified below:

1. Risk to the buyer

These contracts, which are essentially "take it or leave it" agreements, contain non-negotiable clauses.

The parties who structured the contract typically did so that the buyer was responsible for any costs related to the loss or damage of the purchased goods.

As a result, the buyer is put at intolerably high risk because there may be no choice but to sign the contract.

2. Unfair conditions and unequal power dynamics

The buyer may be forced to comply with the contract terms, even though the terms and conditions are unjust and entirely in the selling party's favor.

Especially if the products sold are vital to the buyer and the writing party has significant negotiation leverage while the buying party has virtually none.

Contracts of adhesion, notwithstanding the possibility of inherent bias, simplify transactions by establishing a uniform understanding between the parties.

When a provision in a contract using a standard form unfairly benefits the party that drafted it, the buyer is protected by the law. 

By doing this, firms are guaranteed a commercially feasible contract that doesn't significantly mistreat the buyer.

Adhesion Insurance Definition

A COA is any "take it or leave it" agreement in which the consumer can accept the transaction as final or back out.

Adhesion agreements are standard contracts most prominently found in insurance policies. It is the insurance company that prepares almost every insurance policy agreement. 

In this context, COA aims to simplify business transactions by integrating the service provider and client agreement.

When purchasing insurance, the insured person will have access to deductibles and other coverage options. The policy is, nevertheless, being issued by the insurer.

Standard insurance policies contain mostly boilerplate language. Adhesion insurance contracts are used because they are more economical.

It would be unaffordably costly and time-consuming to sit down with every potential insurance client and go over the specific details of a policy, at least from the perspective of the insurance issuers.

Here is a real-world example:

Assume you're visiting another city and need a car to get around. You go to a car rental agency and choose a vehicle. Then, a contract with a list of terms and conditions is handed to you. 

You read it over and realize you're uncomfortable with the clause that holds you liable for any dents discovered on the car upon return.

However, the agency informs you that these terms are non-negotiable. As a result, this contract is a COA. You can either agree to the terms or step away.

history Of COA

Contracts of Adhesion have existed for many years and were first formally recognized by French civil law. Then, they became part of American law through a 1919 publication in the Harvard Law Review.

This concept aided American courts in determining when COA ought to be upheld and when they shouldn't.

Adhesion contract theory has been incorporated in various ways by most American courts. Their widespread use has dramatically altered this field of American jurisprudence, even though many courts sift through them.

The use of COA has grown over the past century and a half. As a result of the rise of digital contracts and "click-through" agreements, this is especially true today. 

The bargaining strength of the parties, in proportion to the advantage the agreement provided to the signee, has frequently been accounted for by courts.

Other courts base their "unconscionability" and "reasonability" conclusions on the terms themselves.

COA Interpretation in the Twenty-First Century

Adhesion contract law has undergone tremendous modification over the years and is still evolving. However, it is now widely acknowledged that adhesion contracts may be enforceable if they are created and handled appropriately.

The treatment of adhesion contracts differs from state to state because the contract laws are governed by state law. 

Nevertheless, transparency throughout obtaining the weaker party's consent tends to be a problematic recurring topic that most courts deal with while interpreting these contracts.

It is, therefore, a matter of how contract terms are conveyed to the opposing party that determines the fairness of that contract.

Reviews of adhesion contracts frequently focus on evaluating the contract's unconscionability, which is a doctrine in contract law that characterizes provisions that are so unfair; or one-sided in favor of the party who has the superior negotiating power.

The clause's significance, its function, and the circumstances surrounding the contract's execution will all be taken into consideration by the court.

The judiciary perspective evolved to interpret ambiguous language and terms against the party that wrote them. Courts strike a balance between the previously mentioned factors and the freedom of the individual to enter into contracts.

These contracts are undoubtedly here to stay, but some preventive measures must be implemented to ensure they continue to be enforceable in the ever-evolving legal environment.

Is an adhesion contract enforceable?

If properly written, a COA is enforceable. However, as was already mentioned, the party who drafts the agreement has considerably more negotiating power than the party who signs it. 

This signifies that the courts who uphold these agreements examine them carefully. Courts have traditionally used the law of reasonable expectations to evaluate whether a COA is enforceable.

According to this concept, if the contract requirements go beyond what the weaker party may reasonably expect, a specific clause or the entire agreement may be considered unenforceable.

Whether or not a contract's expectations are reasonable depends on the importance of the terms, their intended use, and the circumstances surrounding contract acceptance.

Some adhesion agreements have been called into question under the unconscionability doctrine of contract law. However, the same equitable principles are the foundation of the fact-specific theory of unconscionability.

In COA, unconscionability typically arises when one party lacks meaningful choice due to one-sided contract stipulations combined with overly burdensome terms that nobody would accept and shouldn't.

Adhesion contracts offer enforceability via the Uniform Commercial Code (UCC). Yet, the UCC is only recognized by some states, districts, and jurisdictions, and as a result, some of these contracts are void.

The UCC governs these contracts for the sale of goods and services. Contrarily, state laws scrutinize COA clauses more closely, and their laws govern their interpretation.

Courts will consider several elements and the "reasonable expectation" test to evaluate if a COA is enforceable. These elements consist of, but are not restricted to:

• Any possibility of an unjustified surprise
• The nature of the contract and its obligations
• Use of words or language that doesn't make sense
• Lack of notice
• Substantive fairness
• The disparity in negotiation power
• Violation of public policy
• Meeting the reasonable expectations of the signers

The situation's facts and conditions significantly impact the likelihood of a successful conflict resolution.

Before signing an executed agreement that is non-negotiable or amendable, business owners and signing parties should consult with business lawyers on the legitimacy of contracts.

How to construct an enforceable high-volume Adhesion agreement?

A frequent type of adhesion contract is a high-volume contract, a no-negotiation arrangement.

Contractual law is a constantly changing field. Several issues that support enforceability have emerged as courts continue to struggle with these agreements.

Here are some techniques commonly used to draft enforceable adhesion contracts:

1. Asking users to click "I agree" before continuing

The drafting party assures that the user has expressed their wilful acceptance of the agreement. The fact that the user performed this action to accept the contract is enough evidence that they did so voluntarily.

2. A COA tends to state the conditions of service clearly.

A link to the terms and conditions is provided, and users are urged or required to read them before accepting.

3. Simple signature techniques can make a huge difference.

Users can quickly and easily accept a contract with clickwrap agreements. Then, crucial data is captured by reliable software so that these agreements can, later on, be enforced.

4. The enforcement of COA depends on accurate back-end records. 

The acceptance of the agreement, the version, and the manner and date of signature must all be documented. The ideal software takes care of all this, making it simple and efficient for the drafting body.

Researched and Authored by Ayoub Mresa | LinkedIn

Reviewed and Edited by Krupa Jatania I LinkedIn

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