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Accounting

Adhesion Contract: Definition, History, and Enforceability

Adhesion Contract: Definition, History, and Enforceability - File Photo Adhesion Contract: Definition, History, and Enforceability - File Photo

What exactly is a contract of adhesion?

An adhesion contract is an agreement that does not typically allow the terms and conditions to be negotiated. In most cases, it is prepared by a potential participant in a transaction who possesses the good or service that another potential participant, the consumer, desires. The former is in a better position to negotiate with the latter. For the latter to acquire the product or service, they need to accept the adhesion contract.

Contracts of adhesion are often referred to as standard contracts, standardized contracts, and boilerplate contracts.

Acquiring Knowledge of Adhesion Contracts

When many consumers may be accommodated by a standard type of agreement, such as insurance, leasing, the purchase of a vehicle, or a mortgage, adhesion contracts are frequently utilized.

For instance, in the case of an insurance contract, the ability to create the contract rests with the insurance company and its representative. At the same time, the prospective policyholder has the right to refuse the policy. In other words, the client is not permitted to make a counteroffer or to originate a new contract with which the insurer might concur.

Because the other party has penned all of the information and restrictions in an adhesion contract, customers must read the document cautiously.

Contract Law and Contractual Norms

According to the United States Uniform Commercial Code (UCC), adhesion contracts are typically valid and enforceable in the country. The UCC works to ensure that states all around the country adhere to the same legal standards when conducting business operations.

American Samoa and Puerto Rico are two examples of places in the United States that have not fully accepted the Uniform Commercial Code (UCC), even though most states in the United States use it.2 Out of the fifty states, only Louisiana has adopted certain provisions of the UCC, making it unique in this regard.

The Uniform Commercial Code has several clauses that specifically address adhesion contracts for purchasing or leasing commodities. However, because they are governed by state law, contracts of adhesion are subject to a higher level of scrutiny and interpretation.

The Origins and Development of Adhesion Contracts

After an essay on life insurance contracts written by Edwin W. Patterson was published in the Harvard Law Review in 1919, adhesion contracts did not start to become a part of the legal system in the United States until much later. The subsequent acceptance of the concept of contract adhesion by the majority of courts can be attributed largely to a case that was brought before the Supreme Court of California in 1962 that backed adhesion analysis.

The particulars of the legality and the ability of adhesion contracts to be enforced have evolved. The case law and interpretation may vary from state to state. Still, it is generally accepted that adhesion contracts are an effective method for managing standardized transactions.

When utilized appropriately, adhesion contracts enable businesses and their clients to reduce the time and money spent receiving contract advice from attorneys. However, some issues can arise from certain characteristics of adhesion contracts.

For instance, in certain situations, electronic adhesion contracts signed online have been contested in court because the contract contents were difficult to access and evaluate. This is because the contracts were signed online. Consequently, electronic adhesion contracts are required to give the same level of accessibility as traditional paper contracts that customers receive and read offline.

Possibility of Enforcing Contracts of Adhesion

A bargain must be presented as a “take it or leave it” proposition for a contract to be considered an adhesion contract. This indicates that one party cannot negotiate with the other, presenting the contract.

Contracts of adhesion are subject to investigation, which can typically take one of two forms:

Predictions that are in line with reality

The doctrine of reasonable expectations is the standard that the judicial system has traditionally utilized to determine whether or not a contract of adhesion is enforceable. According to this legal principle, particular provisions of an adhesion contract or the entire contract itself may be ruled unenforceable if the conditions of the agreement go beyond what the weaker party might have reasonably expected or don’t match those expectations.

The prominence of a contract’s provisions, the intent behind those terms, and the circumstances surrounding the acceptance of the contract all play a role in determining whether or not the contract terms are fair.

Unconscionable behavior

In contract law, the idea of unconscionability has also been used in the process of challenging specific adhesion contracts. It is a doctrine dependent on the case’s specifics and originates from equitable principles, more notably, the concept of bargaining in good faith. When something is excessive, the attention switches from what the customer could reasonably anticipate to what the supplier is trying to accomplish.

Unconscionability in adhesion contracts typically arises when there is a lack 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. In other words, no one would or should accept these terms.

To put it another way, if the court finds that one of the parties to the contract was treated in a grossly unjust manner, the agreement may not be upheld.

If the supplier is earning a considerable profit from the arrangement, it is easier to establish that the agreement is unconscionable. This is especially true if the amount of profit is connected to the weaker party’s lack of bargaining leverage.

Several legal authorities have criticized this method due to the ramifications that it may have regarding the freedom to contract. According to this principle of contract law, people can freely select the terms of a contract without interference from the government.

Where Might One Make Use of an Adhesion Contract?

In most cases, you will run into them when you are making arrangements for things like plane tickets, insurance policies, mortgage loans, medical care, or vehicle purchase.

Are There Any Advantages to Customers for Using Adhesion Contracts?
This is the case in most cases because it simplifies and standardizes contract terms and speeds up and streamlines business operations. Suppose customers were required to read every contract associated with every purchase they made or employ a lawyer to do it on their behalf. In that case, it is feasible that a significantly lower volume of business would be conducted overall. Despite this, it is essential that you fully comprehend the conditions of any adhesion contract that is offered to you.

What Consequences Will Result from My Refusal to Agree to an Adhesion Contract?

You won’t be able to modify the terms of an adhesion contract, but if you don’t agree with what it says, you can decline the deal and make your purchase elsewhere.

Conclusion

  • A “take it or leave it” agreement is referred to as an adhesion contract, and it stipulates that the party must either accept the deal or walk away.
  • Adhesion contracts aim to standardize the agreement between a buyer and a provider to make business transactions more straightforward.
  • Adhesion contracts can’t be overly favorable to one party, or they won’t be enforceable.
  • Ultimately, it is up to the courts to decide what provisions within an adhesion contract are acceptable.
  • The legal perspective on such contracts has developed and may vary from jurisdiction to country.

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