What Is a Contract of Adhesion?

Contract of Adhesion Definition

A contract of adhesion, sometimes called a boilerplate or standard form contract, is a non-negotiable agreement created by the stronger party in a transaction. These agreements are typically crafted by the party with greater bargaining power, which is often a business or organization. They are then presented to the less powerful party, such as a consumer or employee, on a “take it or leave it” basis with no opportunity to negotiate the terms.

This article will explore the definition of a contract of adhesion, how it works, its benefits, and some real-world examples. 

• Contract of Adhesion Definition
• How Does an Adhesion Contract Work?
• Examples of Adhesion Contracts
• Benefits of Adhesion Contracts
• Drawbacks of Adhesion Contracts
• Are Adhesion Contracts Enforceable?
• Use Icertis to Effectively Manage Contracts of Adhesion

How Does an Adhesion Contract Work?

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, 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.

One party in a transaction dictates these standardized agreements with no opportunity to negotiate terms or modify language. It’s purely a “take it or leave it” proposition where one party holds a substantially stronger bargaining position.

Say, for example, that you’re thinking of buying concert tickets to see one of your favorite bands. As you navigate through the website to purchase tickets, you'll notice a link to the terms and conditions that apply to your purchase. As you scroll through it, 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.

Courts often scrutinize these agreements for fairness, especially when the clauses heavily favor the party that drafted them. While generally considered enforceable, unreasonable or excessively one-sided provisions may be invalidated during review. This legal oversight helps maintain a balance between standardized contracts and consumer protection. 

Examples of Adhesion Contracts

Contracts of adhesion appear in countless everyday transactions. Understanding where you encounter them can help you make better decisions about the agreements you enter.  Here are a few common examples of contracts of adhesion:

Insurance Policies

Insurance companies rely heavily on standardized agreements. When purchasing auto, home, or health insurance, policyholders receive comprehensive documents with predetermined coverage limits, deductibles, and exclusions. 

While you may select between coverage options, the fundamental terms remain non-negotiable, giving the insurance company control over policy language and interpretation.

Terms and Conditions

Nearly every website and app requires users to accept terms and conditions before accessing services. These agreements typically include clauses that limit the company's liability, outline acceptable use policies, and specify how disputes will be resolved. 

Most users simply click "I agree" without reading the extensive text, unknowingly consenting to binding legal terms that may include arbitration requirements or data collection practices.

Rental Agreements

Landlords commonly use standardized lease agreements with little room for modification. These contracts establish payment terms, property use restrictions, and maintenance responsibilities. 

While some landlords might negotiate minor points, such as pet policies or paint colors, the core legal protections and obligations typically remain fixed, leaving tenants to either accept the terms or find alternative housing.

Credit Card Agreements

Financial institutions offer credit cards with extensive terms and conditions that cover interest rates, fees, rewards programs, and dispute resolution procedures. These contracts often include clauses that allow the issuer to change terms with minimal notice, giving cardholders few options beyond canceling the card if they disagree with the new conditions.

Automobile Purchases

Car dealerships use non-negotiable financing and warranty agreements when selling vehicles. While you might negotiate the vehicle price, the underlying legal documents, which cover financing terms, interest rates, and warranty limitations, typically remain standardized. However, potential hidden fees and restrictions are often buried in the fine print.

End-User License Agreements

Software and digital services require users to accept end-user licensing agreements before installation or first use. These EULAs establish how software can be used, transferred, or modified, often including extensive liability limitations and data collection permissions. 

Users must accept all terms before accessing the product, regardless of whether they've read or understood the agreement.

Benefits of Adhesion Contracts

Despite their one-sided nature, adhesion contracts offer several advantages to both businesses and consumers.

Lower Costs

By minimizing legal and administrative expenses associated with contract creation and negotiation, adhesion contracts reduce operational costs for businesses.

Legal teams don't need to review thousands of individually negotiated agreements, allowing them to focus on other tasks. This efficiency can lead to cost savings that may be passed on to consumers in the form of lower prices or improved services, depending on the level of market competition.

Improved Accessibility

Standardized contracts make services widely available to large populations by creating consistent, easily deployable agreements. This accessibility allows for quick transactions for everything from software downloads to gym memberships without requiring legal expertise from consumers.

Standardization ensures consistent customer experiences and simplified compliance management for businesses operating across different regions.

Drawbacks of Adhesion Contracts

While adhesion contracts offer benefits, they also come with significant challenges that can disadvantage consumers, including: 

Limited Negotiation Power

Consumers have virtually no ability to modify terms in adhesion contracts, creating fundamental power imbalances. This limitation can lead to unfair conditions, where buyers are forced to accept provisions they disagree with or would normally reject in a negotiated agreement.  For essential services like utilities or housing, consumers may have no practical alternative but to accept potentially unfavorable terms.

Favors the Drafting Party

Businesses naturally draft contract terms that protect their interests, often including clauses that limit liability, restrict consumer rights, or create one-sided obligations.

Common examples include mandatory arbitration clauses that prevent class-action lawsuits, auto-renewal terms that make cancellation complicated, and broad liability waivers. Without careful review, consumers may unwittingly agree to terms that significantly favor the company over their own interests.

Risk of Unenforceability

Courts may invalidate adhesion contract clauses deemed unconscionable, excessively one-sided, or contrary to public policy. This uncertainty creates legal risks for businesses when drafting and enforcing agreements. 

Provisions that courts have historically scrutinized include those that prevent negative reviews, impose excessive penalties, or hide key terms in dense legal language. Legal standards for enforceability vary by jurisdiction and continue to evolve as consumer protection laws develop.

Are Adhesion Contracts Enforceable?

Given those kinds of constraints, are these kinds of contracts enforceable?

Generally speaking, adhesion contracts are considered enforceable under the Uniform Commercial Code (UCC), which means they are valid by default in most U.S. states. That doesn’t guarantee enforceability, though.

Courts consider several factors to determine whether standard-form contracts are enforceable. Unreasonable provisions that are 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.

Courts recognize the potential for misuse in these agreements and have established certain protections for the weaker party, such as: 

• Doctrine of Unconscionability: Courts can invalidate or modify terms that are deemed unconscionable, meaning they are excessively unfair or one-sided.
• Interpretation Against the Drafter: In cases of ambiguity, courts often interpret the terms against the party that drafted the contract.
• Consumer Protection Laws: Various laws and regulations exist to protect consumers from unfair terms in adhesion contracts, such as the Magnuson-Moss Warranty Act for consumer product warranties.

Contract management software can help businesses maintain compliance with changing regulations across their entire contract portfolio while ensuring their contracts meet enforceability standards through:

• Clear language: Using straightforward terms improves understanding and legal standing.

• Reasonable terms: Contract AI can help you write provisions that maintain fairness between parties.

• Conspicuous presentation: Important clauses should be highlighted, not hidden in fine print.

• Opportunity to review: Providing adequate time to review documents strengthens enforceability.

Use Icertis to Effectively Manage Contracts of Adhesion

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. Improve your contract management process with Icertis.

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, schedule a free, no-obligation CLM demo.

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