Adhesion contracts and unconscionability

Definition

Standard form contract or boilerplate contract commonly called “Adhesion Contract” drafted by one party having greater bargaining power and the other party having lesser bargaining power signs it. Thus the second party is incapable of any amendments or negotiation regarding the provisions of the contract. More common use of adhesion contracts are in insurance agreements, vehicle purchase, lease etc.

Overview

In an Adhesion contract one party, such as a seller (who is conducting a big amount of business), has far more bargaining power than the other. On the other hand, because the consumer has less bargaining power, he or she is forced to accept the terms that are presented. As a result, adhesion contracts help firms run more smoothly.

An adhesion contract is one in which one party has significantly more influence than the other in determining the contract’s terms. To be considered a contract of adhesion, the offeror must provide a customer with standard terms and conditions that are identical to those provided to other consumers. Those terms and conditions are non-negotiable, which means the contract’s weaker party must accept it as is rather than asking for sections to be added, withdrawn, or amended. Contracts for adhesion are sometimes known as boilerplate contracts or basic contracts.

Consumers have been vulnerable to adhesion contracts since the beginning of the industrial revolution, or in other words, since the mass-production economy began. In today’s digital and technology-driven era, the use of adhesion contracts has expanded dramatically since numerous online services and items are available in the market, and in order to use them, one must accept the user agreement with the terms specified by the service provider.

Adhesion contracts are frequently used in insurance, leasing, automobile purchases, mortgages, and other transactions involving a large number of consumers who are all bound by the same agreement. In an insurance contract, the company and its agent have the ability to form the contract, while the potential policyholder has merely the right of refusal; the customer cannot reject the offer or establish a new contract that the insurer will accept. Because the other party has written all of the information and restrictions in an adhesion contract, it is critical to approach it with caution. 

Even if there are qualms when discussing the bargaining power of adhesion contracts, it is critical to understand why they are necessary. The installation of adhesion contracts is required for the simplicity of doing business and to reduce the risk element. It is the transaction costs involved, not the drafter’s bargaining power, that are important from an economic standpoint. Consider negotiating each and every provision with each consumer when purchasing an airline ticket or downloading antivirus software; such discussions would be time-consuming and expensive.

History

Adhesion contracts have their origins in French civil law, but they did not penetrate American jurisprudence until Edwin W. Patterson’s significant article on the issue was published in the Harvard Law Review in 1919. Most American courts eventually adopted the approach, aided in part by a 1962 Supreme Court of California judgement that upheld adhesion analysis.

The legality and enforceability of adhesion contracts, like most areas of contract law, has evolved over time. Although case law and interpretation may differ from state to state, adhesion contracts are widely accepted as a cost-effective means to conduct conventional transactions. When done correctly, adhesion contracts save companies and customers time and money in terms of legal assistance. However, the legislation governing adhesion contracts is always changing. Digital adhesion contracts signed online, for example, have been challenged in court for hiding clauses or making certain sections difficult to see, thus a digital adhesion contract must now be as near to a paper contract as possible.

Interpretation

The interpretation used in such contracts differs from that used in general contracts, because general contracts are entered into after negotiation between parties with an equitable semblance of bargaining power, primarily to protect the weaker party, and to ensure that unfair or unconscionable terms are not enforced. 

Because of the higher burden on the weaker party, adhesion contracts are interpreted more strictly. The distinction between consent to be contractually bound and assent to the contract’s terms is crucial in contract interpretation because it cannot be ascertained whether the consent granted is genuine.

Doctrine of unconscionability

The notion of unconscionability turns the focus toward the supplier’s motivation in a contract. If the supplier makes a big profit from the deal, it’s simpler to claim that it’s unconscionable, especially if the profit is linked to the weaker party’s lack of bargaining leverage. Some legal experts have criticised this method because it has consequences for contract freedom—the legal principle that people can freely select the terms of a contract without interference from the government.

Aishwarya Says:

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