Gavin Howe
A contract of adhesion, also known as a boilerplate or standard form contract, is a legally binding agreement between two parties where one party has significantly more power than the other in setting the terms. Adhesion contracts are generally in the form of a standardized contract form that is entirely prepared and offered by the party of superior bargaining strength to consumers of goods and services on a take-it-or-leave-it basis. Adhesion contracts are commonly used for matters involving insurance, leases, deeds, mortgages, automobile purchases, and other forms of consumer credit. Courts have traditionally used the doctrine of reasonable expectations to test whether an adhesion contract is enforceable and may consider factors such as procedural and substantive unconscionability when determining whether to strike down an adhesion contract.
| Characteristics | Values |
|---|---|
| Definition | A contract where the parties are of such disproportionate bargaining power that the party of weaker bargaining strength could not have negotiated for variations in the terms of the contract. |
| Other names | Standard form contract, boilerplate contract |
| Types | Browse-wrap, click-wrap, and sign-in-wrap |
| Examples | Insurance policies, mortgage loans, health care, automobile purchases |
| Enforceability | Adhesion contracts are generally enforceable in the United States according to the Uniform Commercial Code (UCC). However, they are subject to additional scrutiny and interpretation under state law. |
| Scrutiny | Courts may look at the doctrine of reasonable expectations, the prominence of terms, the purpose of the terms, and the circumstances surrounding acceptance of the contract. |
| Invalidity | Adhesion contracts may be invalidated if they are deemed unconscionable, excessively one-sided, or contrary to public policy. |
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What You'll Learn
Click-wrap and sign-in-wrap contracts
Click-wrap contracts require consumers to click "I agree" by means of an immediately available pop-up box. This is a type of electronic signature, which holds the same status as a "wet ink" signature under most e-signature laws. Click-wrap agreements are the most explicit of the three types of electronic adhesion contracts, as they require the user to actively assent to the terms. This makes them the most commonly enforced type of online agreement.
Sign-in-wrap contracts include a hyperlink, often labelled as "Terms of Service" or "Terms and Conditions", located by a sign-up button. Users must then electronically accept the terms by clicking "I accept" or "I agree" as the final step of the sign-up process. This is an example of a "sign-in-wrap" agreement, where the contract is accepted when the user performs another action, such as signing in or registering.
Courts generally enforce both click-wrap and sign-in-wrap contracts, although they will not do so if the terms are unlawful or unconscionable. Procedural unconscionability deals with the contract formation process and whether the bargaining process was deficient. Substantive unconscionability deals with the content of the contract and whether the nature of the contract terms is oppressive.
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Enforceability
Adhesion contracts are generally enforceable in the United States according to the Uniform Commercial Code (UCC). The UCC helps ensure that commercial transactions occur under a similar legal framework across the country. However, the UCC has not been fully adopted by some jurisdictions, such as American Samoa and Puerto Rico. Louisiana is the only state to have only partially adopted the UCC.
The specifics of the legality and enforceability of adhesion contracts have changed over time and vary from state to state. While adhesion contracts are generally considered enforceable, they are subject to additional scrutiny and interpretation under state law. Courts have a long history of striking terms from these contracts or voiding them entirely when the terms are deemed egregious.
Courts may invalidate adhesion contract clauses deemed unconscionable, excessively one-sided, or contrary to public policy. Unconscionability in adhesion contracts usually arises when there is an absence of meaningful choice on the part of one party due to the other party's superior bargaining power. Procedural unconscionability deals with the contract formation process and whether the bargaining process was deficient. Some factors of procedural unconscionability include duress, fraud, undue influence, and fine print. Substantive unconscionability deals with the content of the contract and whether the terms are oppressive. Factors of substantive unconscionability include inflated prices, unfair disclaimers, and clauses that contravene public policy.
Courts have also used the doctrine of reasonable expectations to test whether an adhesion contract is enforceable. Under this doctrine, specific parts of an adhesion contract or the entire contract may be deemed unenforceable if the terms go beyond or do not align with what the weaker party would have reasonably expected. Whether a contract is reasonable depends on the prominence of its terms, the purpose of the terms, and the circumstances surrounding the acceptance of the contract.
Courts generally enforce click-wrap and sign-in-wrap contracts, which require consumers to click "I agree" or "I accept" to accept the terms. On the other hand, courts usually do not enforce browse-wrap contracts, which require consumers to click through multiple links to access and agree to the terms.
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Unconscionability
Adhesion contracts, also known as contracts of adhesion, are typically used for transactions involving insurance, leases, deeds, mortgages, automobile purchases, and other forms of consumer credit. They are usually enforceable in the United States according to the Uniform Commercial Code (UCC), although some states have not fully adopted it.
Adhesion contracts are often in the form of a standardized contract form that is entirely prepared and offered by the party with greater bargaining power, leaving the other party with no opportunity to negotiate more favourable terms. This gives rise to the concept of unconscionability, which shifts the focus from what the customer might reasonably expect to the motive of the supplier.
Some factors that indicate procedural unconscionability include duress, fraud, undue influence, and fine print. On the other hand, factors of substantive unconscionability include inflated prices, unfair disclaimers, immoral clauses, and contracts that contravene public policy. Unconscionability is easier to argue if the supplier is making a significant profit from the agreement, especially if it is tied to the weaker party's lack of bargaining power.
Courts have the jurisdiction to interfere with adhesion contracts when they are void as against public policy or are unconscionable. They may strike terms from these contracts or void the contract entirely when the terms are deemed egregious and unfair to the weaker party.
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Standardised transactions
Adhesion contracts are commonly used for standardised transactions involving insurance, leases, deeds, mortgages, automobile purchases, and other forms of consumer credit. They are generally in the form of a standardised contract form that is entirely prepared and offered by the party of superior bargaining strength to consumers of goods and services.
Adhesion contracts are usually enforceable in the United States according to the Uniform Commercial Code (UCC). The UCC has specific provisions relating to adhesion contracts for the sale or lease of goods. Contracts of adhesion are, however, subject to additional scrutiny and interpretation under state law.
The specifics of the legality and enforceability of adhesion contracts have changed over time. Case law and interpretation may vary from state to state, but it is generally agreed that adhesion contracts are an efficient way to handle standardised transactions. When used properly, adhesion contracts save companies and customers time and the expense of obtaining contract advice from attorneys.
Courts have traditionally used the doctrine of reasonable expectations to test whether an adhesion contract is enforceable. Under this doctrine, specific parts of an adhesion contract or the whole contract may be deemed unenforceable if the contract terms go beyond or don't match what the weaker party would have reasonably expected. Whether a contract is reasonable depends on the prominence of its terms, the purpose of the terms, and the circumstances surrounding acceptance of the contract.
With the rise of the internet, many business transactions now take place without face-to-face interaction, and adhesion contracts are especially prevalent in the electronic commerce field. There are three types of electronic adhesion contracts: browse-wrap, click-wrap, and sign-in-wrap. Browse-wrap contracts may require consumers to click through multiple hyperlinks to read and agree to the terms and conditions. Therefore, courts usually do not enforce browse-wrap contracts because of the procedural unconscionability of these buried terms. On the other hand, courts generally enforce click-wrap and sign-in-wrap contracts.
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Consumer protection laws
Adhesion contracts, also known as form or boilerplate contracts, are typically used by businesses providing goods and services to consumers. They are drafted by a party in a position of power, and the other party has no negotiating power. Adhesion contracts are usually in the form of a standardized contract form that is entirely prepared and offered by the party with superior bargaining strength. The consumer is faced with the contract on a "take-it-or-leave-it" basis, with little to no ability to negotiate more favourable terms. Adhesion contracts are commonly used for matters involving insurance, leases, deeds, mortgages, automobile purchases, and other forms of consumer credit.
Courts have several tools to protect consumers from unfair adhesion contracts. One such tool is the doctrine of reasonable expectations, which allows courts to invalidate clauses of a contract if they are outside the reasonable objective expectations of the party who did not draft the contract. Courts may also look at whether the provisions are written in clear, unambiguous terms when determining whether to strike down an adhesion contract. This is based on the doctrine of unconscionability, which deals with both the contract formation process and the content of the contract. Procedural unconscionability considers factors such as duress, fraud, undue influence, and fine print, while substantive unconscionability looks at whether the nature of the contract terms is oppressive, including inflated prices, unfair disclaimers, and clauses that contravene public policy.
In addition to these doctrines, some common challenges to adhesion contracts include mandatory arbitration clauses, forum selection clauses, and limitations on damages. Courts may also require key terms to be placed together on the first page of a contract to ensure that consumers are aware of important provisions. While adhesion contracts are generally enforceable in the United States according to the Uniform Commercial Code (UCC), they are subject to additional scrutiny and interpretation under state law, which may vary from state to state.
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Frequently asked questions
A contract of adhesion, or adhesion contract, is a legally binding agreement between two parties where one party has significantly more power than the other in setting the terms. This type of contract is usually in the form of a standardised contract form that is entirely prepared and offered by the party of superior bargaining strength to consumers of goods and services. Adhesion contracts are commonly used for matters involving insurance, leases, deeds, mortgages, automobile purchases, and other forms of consumer credit.
There are three types of electronic adhesion contracts: browse-wrap, click-wrap, and sign-in-wrap. Browse-wrap contracts may require consumers to click through multiple hyperlinks to read and agree to the terms and conditions. Click-wrap contracts require that consumers click "I agree" by means of an immediately available pop-up box. Sign-in-wrap contracts include a hyperlink, often labelled as "Terms of Service" or "Terms and Conditions", located by a sign-up button.
Adhesion contracts are generally enforceable in the United States according to the Uniform Commercial Code (UCC). However, the specifics of the legality and enforceability of adhesion contracts have changed over time and can vary from state to state. Courts may consider the bargaining power of the parties in relation to the benefit the signee gets from the agreement, as well as the terms themselves, when determining enforceability. Adhesion contracts that hide terms or are unclear may be invalidated as a violation of the reasonable expectations test.
