Contract Disputes

What’s an Adhesion Contract?

There are many legal tools employed by businesses intended to make the running of the business smoother while still providing the business with legal protections. An adhesion contract is one such tool. You have likely signed an adhesion contract even without knowing it was an adhesion contract you were signing. A contract of adhesion is a standard form contract. One party drafts the language and there is no input from the person signing the contract. It is very one-sided which can make courts highly suspicious of their enforceability.

What’s an Adhesion Contract?

As previously stated, all of us have most likely signed an adhesion contract at one point or another. Common adhesion contracts include terms and conditions of services and both lease and rental agreements. Insurance documents you sign are likely going to be adhesion contracts as are installment contracts. A business puts standard adhesion contracts in place and uses them over the course of business so that they do not have to go through the time and effort that would be needed to make a uniquely crafted contract for each point of sale or business dealing. Thus, adhesion contracts can save a business a great deal of time and money.

To be clear, adhesion contracts, also referred to as “boilerplate agreements,” offers a business a number of benefits. When one standard contract is used in a number of consistently executed business dealings, a business can avoid a number of transaction costs. There is no need for the back and forth of bargaining for the most favorable terms. Communication needs are at a minimum. Since it is a standard form agreement, there is little cost of managing the execution of these agreements. They are also extremely convenient. A business knows that all parties who signed their standard adhesion contract are subject to the same terms. There is no need to track down individual and complex legal agreements to manage the terms of the contract and make sure each party is upholding their end of the deal.

As a standard form contract solely crafted by one party, however, the bargaining power of the contract creation is extremely one sided. Businesses should take care that the adhesion contracts they use are enforceable. Any adhesion contract that appears to be unconscionable or patently unfair to the signee is at great risk of being null and void. To determine whether an adhesion contract is enforceable, courts often employee the “reasonable expectations” test. With this test, the court will look to whether the terms of the agreement are what the weaker party in the agreement would have expected to be a part of the legally binding contract. To determine this, the court may look to whether the terms of the contract were clear and prominently displayed. The court may also look to the purpose behind the contract’s terms and the circumstances surrounding the execution of the contract. It is also likely that the court will look to the benefits received by the agreement’s signee as well as the obligations the agreement imposed on the signee by the contract.

Business Law Attorneys

If you are considering use of an adhesion contract in your business dealing, let the team of business law attorneys at Jones, Gregg, Creehan & Gerace help you draft one that is going to be legally enforceable. Contact us today.