:max_bytes(150000):strip_icc()/us-dollars-84594_1280-5c60728463b44c54a7443cd6a270481e.jpg)
Julia Kagan is a financial/consumer journalist and former senior editor, personal finance, of Investopedia.
Updated July 25, 2023 Fact checked by Fact checked by Vikki VelasquezVikki Velasquez is a researcher and writer who has managed, coordinated, and directed various community and nonprofit organizations. She has conducted in-depth research on social and economic issues and has also revised and edited educational materials for the Greater Richmond area.
An adhesion contract is an agreement that usually has non-negotiable terms and conditions. Generally, it's prepared by a party to a potential transaction that has the product or service sought by another party, the consumer. The former has the stronger bargaining position. The latter must accept the adhesion contract to obtain the product or service.
Adhesion contracts are also known as standard, standardized, or boilerplate contracts.
Adhesion contracts are often used for insurance, leases, vehicle purchases, mortgages, and other transactions where there is a high volume of customers who fit a standard form of agreement.
For instance, with an insurance contract, the company and its agent have the power to draft the contract, while the potential policyholder only has the right of refusal. In other words, the customer cannot counter the offer or create their own, new contract to which the insurer could agree.
It is important for consumers to read an adhesion contract carefully, as all the information and rules have been written by the other party.
Adhesion contracts are usually enforceable in the United States according to the Uniform Commercial Code (UCC). The UCC helps to ensure that commercial transactions take place under a similar set of laws across the country.
Although the UCC is followed by most U.S. states, it has not been fully adopted by some jurisdictions such as American Samoa and Puerto Rico. Louisiana stands alone among the 50 states in adopting only parts of the UCC.
The UCC has specific provisions relating to adhesion contracts for the sale or lease of goods. Contracts of adhesion are, however, subject to additional scrutiny and interpretation under state law.
Adhesion contracts started to become part of the U.S. legal system only after the Harvard Law Review published an article on life insurance contracts by Edwin W. Patterson in 1919. Subsequently, most courts accepted the idea of contract adhesion, due in large part to a Supreme Court of California case that supported adhesion analysis in 1962.
The specifics of the legality and enforceability of adhesion contracts have changed over time. The case law and interpretation may vary from state to state, but it is generally agreed that adhesion contracts are an efficient way to handle standardized transactions.
When used properly, adhesion contracts save companies and customers time and the expense relating to obtaining contract advice from attorneys. However, soome aspects of adhesion contracts pose problems.
For example, in certain cases, electronic adhesion contracts signed online have been challenged in court because contract details were so difficult to access and review. As a result, electronic adhesion contracts must provide the accessibility of contracts that a consumer would receive and read offline.
Often, courts won't enforce "browse-wrap" electronic contracts that require consumers to click through a number of links to find and read the various terms of a contract and agree to it. However, "click-wrap" electronic contracts that simplify this process by efficiently providing all the text and a click-to-accept method in one place typically are upheld by courts.
For a contract to be treated as an adhesion contract, it must be presented as a "take it or leave it" deal. This means that one party has no ability to negotiate with the party offering the contract.
Adhesion contracts are subject to scrutiny that usually comes in one of two forms:
Courts have traditionally used the doctrine of reasonable expectations to test whether an adhesion contract is enforceable. Under this doctrine, specific parts of an adhesion contract or the whole contract may be deemed unenforceable if the contract terms go beyond or don't match what the weaker party would have reasonably expected.
Whether a contract is reasonable depends on the prominence of its terms, the purpose of the terms, and the circumstances surrounding acceptance of the contract.
The doctrine of unconscionability has also been used in contract law to challenge certain adhesion contracts. It is a fact-specific doctrine arising from, again, equitable principles, and specifically, the idea of bargaining in good faith. Unconscionability shifts the focus from what the customer might reasonably expect to the motive of the supplier.
Unconscionability in adhesion contracts usually comes up if there is an absence of meaningful choice on the part of one party due to one-sided contract provisions combined with unreasonably oppressive terms that no one would or should accept.
Simply put, if the contract is exceptionally unfair to the signing party, it can be declared unenforceable in court.
Unconscionability is easier to argue if the supplier is making a significant profit from the agreement, especially if the amount of profit is tied to the weaker party's lack of bargaining power.
Some legal experts have pushed back on this approach as it has implications concerning the freedom of contract. That's the legal concept that people can freely determine the provisions of a contract without government interference.
You usually encounter them when you're arranging for airline tickets, insurance policies, mortgage loans, health care, or the purchase of an automobile.
Yes, generally speaking, because it standardizes contracts and makes transactions faster and easier to conduct. If consumers had to read every contract for every purchase they make or hire a lawyer to review them on their behalf, it's possible that far fewer transactions would take place. Despite that, it's important to understand the terms of any adhesion contract provided to you.
While you can't make changes to an adhesion contract, if you don't like what it states, you can turn it down and go elsewhere to make your purchase.
Adhesion, or standardized, contracts require that one party to a transaction, e.g., the consumer who wishes to purchase a product or service, agree to all terms and conditions prepared by the other party to the transaction, e.g., the supplier of the product or service.
They are typical in many types of consumer transactions. Nonetheless, be sure to read the adhesion contract that's offered to you carefully before signing it.
Article SourcesNon-negotiable can refer to a price or part of a contract that cannot be adjusted, or a financial product that cannot be transferred to a new owner.
Accord and satisfaction is a legal contract whereby two parties agree to discharge a claim for an amount other than the original amount of the claim.
Rent seeking is defined as any practice in which an entity aims to increase its wealth without making any contribution to the wealth or benefit of society
Economic equilibrium is a condition or state in which economic forces are balanced.Elasticity is an economic term that describes the responsiveness of one variable to changes in another. It commonly refers to how demand changes in response to price.
An equity-efficiency tradeoff arises when there’s a conflict between maximum productive efficiency and distributive equity.
Related Articles
:max_bytes(150000):strip_icc()/GettyImages-157191695-3960f54e95c74d108d13c9baf6c70abd.jpg)
:max_bytes(150000):strip_icc()/investing3-5bfc2b8e46e0fb0026016f32.jpg)
:max_bytes(150000):strip_icc()/rentseeking.asp-FINAL-f070abe454c14204b6f372cc30064838.png)
:max_bytes(150000):strip_icc()/economic-equilibrium.asp-final-4a338a075aa847faa6a2d5e55841ffec.png)
:max_bytes(150000):strip_icc()/elastic.asp-final-5d32f70716b9479da59b530d7dee764b.png)
We and our 100 partners store and/or access information on a device, such as unique IDs in cookies to process personal data. You may accept or manage your choices by clicking below, including your right to object where legitimate interest is used, or at any time in the privacy policy page. These choices will be signaled to our partners and will not affect browsing data.
Store and/or access information on a device. Use limited data to select advertising. Create profiles for personalised advertising. Use profiles to select personalised advertising. Create profiles to personalise content. Use profiles to select personalised content. Measure advertising performance. Measure content performance. Understand audiences through statistics or combinations of data from different sources. Develop and improve services. Use limited data to select content. List of Partners (vendors)
