What Are Adhesion Contracts?
If you are a business, you probably see some benefit in the uniformity of contracts. Having to negotiate each and every contract with every provider, contractor, supplier, or customer can be tedious, time consuming and lead to confusion. A uniform contract that applies to everyone ensures that your business knows what to expect and what’s expected of you and whoever is signing the other side of the agreement.
These are called adhesion contracts. Adhesion contracts are simply contracts that are non-negotiable. You either sign or you don’t sign, but there is no “back and forth” between the parties to negotiate terms or conditions.
You sign adhesion contracts every day. Website terms of service, insurance or loan contracts, and leases, are often “one size fits all,” or “take it or leave it,” meaning you take the contract as it is or walk away. In many cases, the party drafting the contract has more power—that is, they are offering a service or product of some sort that you need (think of a mortgage, insurance contract or the purchase of a vehicle). But they may not need you as much as you need them.
Courts May Be Critical of Adhesion Contracts
As a general rule, courts disfavor adhesion contracts—but that doesn’t make them illegal. In fact, there is nothing inherently illegal with adhesion contracts. The problem comes if there is some dispute between the parties with respect to a term of condition in the contract, in which case the non-drafting party will always get the benefit of the doubt.
Adhesion contracts can also make problems in contracts even worse than they would ordinarily be. For example, assume that a term was especially punitive or potentially unfair. For example, a provision that one party can terminate the contract at any time, for any reason, with or without notice.
Normally, a court would say this is fair, as both parties had the chance to negotiate the agreement, but opted to do nothing about this onerous term. But with adhesion contracts, a court may be more likely to declare that provision, or the contract itself, invalid, given the disparate bargaining power of the parties involved.
Contracts that try to waive a party’s legal rights, or override a statute that would otherwise give a party rights, may be seen as unfair if the contract is one of adhesion. Provisions that have important language buried in 4-point font type, may be seen as unfair. Essentially, contracts of adhesion may give life to unfairness or unconscionability arguments, that ordinarily would not have legal merit.
You certainly can use adhesion contracts in your business. Just be mindful to draft it in a way that doesn’t look like one party is getting all the rights and benefits, and the other side is getting none.
We can help you review your business contracts and agreements. Call the West Palm Beach business litigation lawyers at Pike & Lustig to help you with your business law problem.