Understanding Contracts of Adhesion

We tend to think that business contracts are the product of back and forth negotiation, where both sides hammer out language and terms that are mutually acceptable to them. While that can happen in many kinds of business agreements, often, there is a different kind of business contract: one that is truly a “take it or leave it” proposition.

The Adhesion Contract

This is called an adhesion contract. It is a situation where a contract is presented and the other side can accept it or reject it—but can’t negotiate the contract’s terms. In today’s age where so many contracts are digital, giving the offeree no chance to alter, stroke out, amend, or suggest contractual language, adhesion contracts are becoming more and more common.

An adhesion contract often has another aspect to it: an imbalance of power between the parties.

When Are They Void?

Not every contract that meets these requirements or parameters, will automatically be deemed unenforceable. We sign adhesion contracts all the time, in online forms and residential leases, as well as insurance contracts, and those are often held to be enforceable.

Rather, to see whether an adhesion contract truly is unfair and thus unenforceable, courts will look at things like reasonability—that is, whether something in an adhesion contract would be out of what would be normally expected to be included in such a contract.

So, for example, if a typical terms of service contract to utilize software contained some bizarre provision or some overly punitive provision that one wouldn’t ordinarily associate with these kinds of agreements, the agreement’s validity could be challenged in court. This is why parties that draft adhesion contracts, shouldn’t put “surprises” in the contracts, or hidden, “poison pill” provisions in them.

And if there is anything that may be unexpected or out of the ordinary, the language should be bolded and set aside from other text.

Unconscionability Matters

Adhesion contracts are also related to unconscionability, or contracts that are so one sided that they tend to go against public policy.

Where a contract is “take it or leave it,” and the terms are so one sided so as to violate public policy, a court may find the agreement to be unenforceable. Oppressive terms that favor only one side, along with the inability to negotiate, may end up being unenforceable if challenged.

As a general rule, businesses should avoid adhesion contracts if the contract is for something that the other side desperately must have, and there is no other choice.

So, for example, an insurance contract can be adhesion; there are often plenty of other options for the consumer to choose if he or she doesn’t like and wants to reject your adhesion contract.

Whereas, a contract for medical services or nursing homes, may be very unique, and the other side may not have as much bargaining power, making an adhesion contract more likely to be invalidated.

Call the West Palm Beach business litigation attorneys at Pike & Lustig today, to review your business contracts for legality and enforceability.

Sources:

legal.thomsonreuters.com/blog/contract-of-adhesion/

irmi.com/term/insurance-definitions/contract-of-adhesion