What is Adhesion Contract
In an adhesion contract, one party has substantially more power than the other in creating the contract. For a contract of adhesion to exist, the offeror must supply a customer with standard terms and conditions that are identical to those offered to other customers. Those terms and conditions are not negotiable.
BREAKING DOWN Adhesion Contract
An example of an adhesion contract is an insurance contract. In an insurance contract, the company and its agent has the power to draft the contract, while the potential policyholder only has the right of refusal; he or she cannot counter the offer or create a new contract to which the insurer can agree. Before signing an adhesion contract, it is imperative to read it over carefully, as all the information and rules have been written by the other party.
Adhesion contracts are usually enforceable in the United States since the Uniform Commercial Code is followed by most American states and has specific provisions relating to adhesion contracts for the sale or lease of goods. Contracts of adhesion are, however, subject to special scrutiny.
History of Adhesion Contracts
Adhesion contracts as a concept originated in French civil law, but did not enter American jurisprudence until the Harvard Law Review published an influential article by Edwin W. Patterson in 1919. Subsequently, most American courts adopted the concept, helped in large part by a Supreme Court of California endorsed adhesion analysis in 1962. See Steven v. Fidelity & Casualty Co., 58 Cal. 2d 862, 882 n.10 (1962) (explaining history of concept).
Enforceability of Adhesion Contracts
For a contract to be treated as an adhesion contract, it must be presented as a "take it or leave it" deal, giving one party no ability to negotiate because of their unequal bargaining position. Adhesion contracts are subject to scrutiny, which can come in a number of ways:
- If the terms are unreasonable for the person receiving (not writing) the contract, and if the contracting parties were on an unequal basis, such a contract is not enforceable. Whether a contract is reasonable in its expectations depends on the prominence of the terms, the purpose of the terms and the circumstances surrounding acceptance of the contract.
- Section 211 of the American Law Institute's Restatement (Second) of Contracts, which has persuasive, though non-binding, force in courts, provides:
- Where the other party has reason to believe that the party manifesting such assent would not do so if he knew that the writing contained a particular term, the term is not part of the agreement.
- The doctrine of unconscionability is a fact-specific doctrine arising from equitable principles. 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, together with unreasonably oppressive terms that no one would reasonably accept.