Most of us are very familiar with the concept of a contract of adhesion – even if we might not be acquainted with the term itself. Adhesion contracts – also known as boilerplate or standard form contracts – are generally a “take it or leave it” proposition. As a rule, they make it easier to do business efficiently at scale. However, contracts of adhesion can sometimes be problematic insofar as certain terms and conditions may be deemed unenforceable by the courts.
In this article, we’ll talk about what an adhesion contract is, its benefits and drawbacks, and enforceability. We’ll also touch upon the best ways to manage the end-to-end contract lifecycle at scale. Because adhesion contracts are typically used in high-volume scenarios, it’s important for companies to maintain firm control of the entire lifecycle.
What is an Adhesion Contract?
Let’s begin by defining exactly what an adhesion contract is. Most of us engage in contractual agreements virtually every day. More often than not, we don’t even think of those agreements as formal contracts per se, – but if you have installed software on your computer, bought concert tickets, or checked into a hotel for the night, then you probably consented to a set of contractual terms laid out in a contract of adhesion.
Adhesion contracts are standard form legal agreements dictated by one party in a transaction. With contracts of adhesion, no opportunity is ever presented to negotiate the terms or modify the language of the agreement. It’s purely a “take it or leave it” proposition. That very description highlights one of the key characteristics associated with contracts of adhesion – namely, that one party to the agreement typically has a substantially stronger bargaining position in the relationship.
Say, for example, that you’re thinking of buying concert tickets to see one of your favorite bands. As you click through the website to buy tickets, you notice a link to the terms and conditions that apply to the purchase. As you scroll through the T’s and C’s, you see that you’ll be subject to search upon entering the event and that cameras may be prohibited. If you refuse to consent to the search, you’ll be barred from entering the event without any refund or compensation.
Some people might question the potential prohibition of cameras. Does that mean you’ll be turned away from the event if you bring your cell phone with you? What if your family needs to contact you during the concert? If this were a different kind of contract, you might ask the seller to add contractual language to clarify that restriction – or to remove it altogether. But the ticket agency doesn’t negotiate those terms. If you don’t like it, you’re left with a few choices – don’t buy a ticket, leave your cell phone in the car, or take your chances on the fact that you might be turned away.
With a contract of adhesion, the buyer has no opportunity to negotiate.
Examples of Adhesion Contracts
Not surprisingly, most contracts involving consumers are adhesion contracts. c, mortgages and personal loans, credit card agreements, utilities, airline tickets, motor vehicle purchases, and leases are all examples of transactions that are typically accompanied by an adhesion contract.
Virtually any time you sign something that says “I agree,” you’re consenting to the terms & conditions of an adhesion contract.
When you check into a hotel, you may be asked to initial a form acknowledging the nightly rate, check-out time, and no-smoking policy. If pets are allowed, many hotels add a cleaning fee which is also specified in the document.
When you take your car to the auto repair shop, you’ll be required to sign a form giving your consent to the services to be performed and agreeing to pay the estimated costs. There may also be a waiver of certain liabilities included.
When you visit a doctor or other health care provider, you’ll typically need to sign a raft of different forms – either hard copy or electronic – that acknowledge your obligation to pay for services provided, consent to receive treatment, and agree to allow your information to be shared with third-party business associates such as insurance companies and medical testing labs.
In all of these cases, the contractual terms are dictated by the seller, making them adhesion contracts.
Benefits of Adhesion Contracts
The primary benefit of an adhesion contract lies in its efficiency. Standardized contracts eliminate the need for customized agreements and negotiation with individual buyers. They allow for a single, uniform process for executing transactions with an unlimited number of customers. This does away with costly activities such as two-way communication and bargaining, often making enforcement easier as well by dictating arbitration as a means of resolving conflict.
Contracts of adhesion also provide an opportunity to implement protections for the seller, such as limiting liability and safeguarding intellectual property rights.
Downsides of Adhesion Contracts
As illustrated in our concert ticket example, adhesion contracts often place undue risk on the buyer. The same T’s & C’s that prohibit cameras may also outline each party’s rights in the event that a concert is canceled, for example. In such cases, contractual language will usually be constructed to minimize the seller’s risk and liability at the expense of the buyer, who is left to make a “take it or leave it” decision.
This approach often leads to criticism that standard-form contracts are simply unfair. If the buyer has other options, they can choose not to engage in the transaction, – but if they have a dire need for medical services, housing, or other essentials, then this puts them in an especially weak position.
Are Adhesion Contracts Enforceable?
Given those kinds of constraints, are these kinds of contracts actually enforceable?
Generally speaking, adhesion contracts are considered to be enforceable under the Uniform Commercial Code (UCC), which means they are valid by default in most US states. That doesn’t guarantee enforceability, though.
In fact, courts consider a number of factors to determine whether or not standard-form contracts carry force. Unreasonable provisions that are clearly one-sided may not always hold up under judicial scrutiny, for example. Provisions that bar buyers from posting negative reviews, for example, have been dismissed as unnecessary and unreasonable.
When the bargaining power of the two parties falls on two opposite ends of the spectrum, courts may likewise be inclined to decide in favor of the weaker party. If a buyer is deemed to be especially vulnerable to manipulation, that may also signal a lack of enforceability.
Manage your Contracts with Icertis Contract Intelligence
Whether you’re dealing with contracts of adhesion or complex negotiated agreements, managing contracts at scale is critical to protecting your company’s interests, optimizing revenue, ensuring compliance, and minimizing risk.
Icertis Contract Intelligence helps companies manage contracts and agreements of all kinds, enhancing business value and increasing efficiency through every step of the process. To learn more about Icertis, contact us today for a free, no-obligation clm demo or consultation.