A legally binding contract with a convention between two parties within which one party has all the bargaining power and uses it to his/her favor.
How does an adhesion contract work?
An individual sets an adhesion contract with someone or something with stronger bargaining power, typically a business that pulls up the agreement. Therefore the party with the weaker bargaining power is usually a consumer who needs specific goods or services. The other party usually cannot adapt to the terms and conditions of the contract.
We almost always use adhesion contracts for insurance, rent, vehicle purchases, loans, and other businesses where many customers will fall into some agreement. In an insurance contract, the corporation and its agent have the facility to outline the contract, while the potential insurance policy only has the proper refusal; the customer cannot counter the offer or create another contract to which the insurer can agree. It's essential to carefully go over an adhesion contract, as the opposite party writes all the knowledge and rules.
These are standard contracts during several transactions, like house rent, buying of cars, insurance coverages, loans, etc. In essence, the party that wrote the contract has superiority because the buyer has no room to barter terms. Most of the contracts that customers sign are adhesion contracts.
Example of an Adhesion Contract
An example of an adhesion contract is often a contract form that gives goods or services to consumers. People often tag it as a "take it or leave it" condition without giving the customers privilege or opportunity to barter terms that might benefit their interest. When this happens, the customer won't be ready to obtain their desired products or services unless he/she agrees or suits the formed contract.
Supposing a Mr. King gets into a hard time finding a reasonable place to live. Later, he finally finds an area near the capital city but must comply with a non-negotiable contract. The contract involves a clause that doesn't allow him to live with friends or relations and doesn't allow music playing within the neighborhood.
It would leave Mr. King with no choice but to sign the agreement because of the pressure he faces with the possibility of not finding housing. Here, the owner has higher bargaining power, and Mr. King is being put on an exceedingly "take it or leave it" basis, making it an adhesion contract.
Significance of an Adhesion Contract
Below are some of the significances of an adhesion contract.
- Adhesion contracts are focused on standard printed forms and routine language.
- They are wont to supply mass demands for goods and services.
- They draft it for an indefinite number of individuals rather than one person.
However, the contracts go with several refunds, and the shortage of bargaining parity between the two parties to the adhesion contract is important. The party that complied with the contract gives up the bargaining power it typically has under the normal model of contract formation.
An adhesion contract vs. Unconscionable Contract
An adhesion contract is a form contract that's is standardized and usually initiated by one party with stronger bargaining power so that the other party will have no option other than to either sign the contract or reject it. In essence, the weaker party won't have a chance to barter the terms of the contract. For instance, once you download an app, you must comply with the terms and conditions of the app before using it. It implies you're facing an adhesion contract.
An unconscionable contract refers to a contract that's so unfair courts don't normally enforce it if an individual is forced to sign a contract or lacks an opportunity to review it. That is, if an individual signs an unconscionable contract, a court won't force him to suits its terms.
History of Adhesion Contracts
An Adhesion contract originated as an idea in French civil law but didn't enter American study until the Harvard Law Review published an article on the topic by Edwin W. Patterson in 1919. After that, most American courts adopted the notion and were aided in large part by a Supreme Court of California case that officially approved adhesion analysis in 1962.
As with most aspects of the study, the passage of time has constituted the lawfulness and enforceability of adhesion contracts. The law and interpretation behind it may vary from state to state, but many assert that adhesion contracts are a good idea to manage standardized businesses. Adhesion contracts save companies and customers time and money in legal advice after they do it properly. Hence, the theory around adhesion contracts is usually changing.