Adhesion Contract (Contract of Adhesion)
Adhesion contracts, also known as ‘form’ or ‘boilerplate contracts,’ are contracts drafted by a party in a position of power, in which the other party has no negotiating power. Adhesion contracts are typically used by businesses providing goods and services to consumers. When an adhesion contract is presented to a consumer, the consumer can either agree to all the terms or obtain services elsewhere; the terms are not negotiable. Another notable sign of an adhesion contract is that the ‘terms and conditions’ offered to one consumer are identical to those provided to every other consumer.
Common uses for adhesion contracts include insurance contracts, mortgages, leases, and installment contracts (example-furniture or automobile purchases).
Proponents of form contracts argue that they make commerce more efficient by precluding the re-negotiation of contracts every time a business sells a good or service.
Adhesion contracts are generally enforceable in court; however, given the inherent one-sided nature of adhesion contracts, courts are more likely to scrutinize them.
Courts are acutely aware of the inequitable bargaining power of the consumer, inherent unfairness, and potential unconscionability of adhesion contracts. Due to the ‘take it or leave it’ nature of adhesion contracts, courts may employ the ‘doctrine of reasonable expectations,’ in addition to standard contract interpretation tools, to protect consumer expectations.
Courts may use the ‘doctrine of reasonable expectations’ to invalidate clauses of a contract if the clause was outside of the reasonable objective expectations of the person who did not draft the contract.
Recent Developments in Adhesion Contracts
The prevalence of adhesion contracts has grown in the digital age. Many consumers now purchase items and consent to adhesion contracts online. Online sellers of goods and services should make their terms and conditions conspicuous, fair, and reasonable.
Interpretation of Adhesion Contracts in the 21st Century
As contract law is state law, the treatment of adhesion contracts varies from state to state. However, a common thread in reviewing adhesion contracts is evaluating the unconscionability of the contract or a specific clause of the contract. The court will evaluate the importance of the clause, the purpose of the clause, and the circumstances surrounding the execution of the contract.
Additionally, ambiguous terms will be construed against the party who drafted them. Courts balance the foregoing considerations with an individual’s right to contract freely. Some common challenges to adhesion contracts are mandatory arbitration clauses, forum selection clauses, and limitations on damages.
Another challenge to consumers today is that often, critical parts of the contract are hidden or spread out across multiple documents. Some courts require key terms to be placed together on the first page of a contract.
Edwin W. Patterson, The Delivery of a Life-Insurance Policy, 33 HARV. L. REV. 198, 222 & n.106 (1919).
See Restatement (Second) of Contracts §211. Standardized Agreements
See Uniform Commercial Code §2-302. Unconscionable Contracts or Clauses