As consumers, we sign adhesion contracts to gain access to products or services without even knowing what they mean. Most B2B and B2C interactions are built on terms within a contract of adhesion.
So, how do these standardized agreements really affect consumer-driven businesses? This article will explain the pros and cons of using adhesion contracts in today’s business operations.
What are adhesion contracts?
Adhesion contracts are standard form contracts that one party uses to make a non-negotiable proposition to the other party.
Businesses use them to onboard clients at scale without altering their terms of agreement. This standardizes the exchange between both parties, as the buyer can either accept or walk away.
You’ve likely encountered several adhesion contracts, especially those for insurance, mortgages, vehicle purchases, and software purchases. They are legally binding, and courts decide the extent of enforceability.
Overview and working principle of adhesion contracts
Adhesion agreements are legal documents prepared to accommodate an infinite volume of customers that require a standard service. They originated in France but became popular in the United States in the early 1900s.
Adhesion contracts have become quite common for streamlining business negotiations. Instead of drafting a new contract for every incoming client, you can set up standard form contracts with non-negotiable terms.
As a general rule, the party that supplies the product or service prepares the agreement to be signed by the party that buys the product or service. The supplier wields all the bargaining power; the consumer only has the right to accept or refuse the offer.
They cannot counter the offer or create a new contract for the supplier to subscribe to. That’s just how it works.
Let’s consider an everyday use case. You want to create a personal account on an existing website or software. There’s always a little contract in a pop-up box requiring you to read through terms and conditions and click “I agree” at the end.
This is called a sign-in wrap contract. These adhesion contracts require users to electronically accept the software’s terms of use before granting them access to the product’s features. They are usually titled “Terms of Service” or “Terms and Conditions.”
An NDA is another popular adhesion contract example.
Non-disclosure agreements help to confine the signing party from disclosing established confidential data to unauthorized participants. Contract staff, ghostwriters, and new employees often need to sign an NDA before starting a new role.
Pros of adhesion contracts
Despite its limitations, adhesion contracts are quite popular. Adhesion contracts are useful in business transactions for several reasons:
Increased efficiency
Adhesion agreements are essential documents for convenience. The format stays the same, and you can send them to a lot of people at once and get them signed quickly.
They save both parties time as most users don’t always have to read the entire thing to grasp the terms of the contract. Only one party has the final input to make sure things move faster.
Less risk
Adhesion contracts are designed to protect companies from unforeseen legal liabilities. Businesses use it to legalize the use of intellectual property or consumer data to avoid lawsuits in the future.
Adhesion contracts also make consumers aware of the risks involved in transacting business with a supplier. They can decide to accept or reject the offer after considering what is involved.
Minimal costs
The cost of creating customized agreements, bargaining, and managing specialized contracts can be significant. If you’re running a business, you want to create a single, inexpensive process for executing business transactions.
Standardized contracts require minimal expenses to set up. They eliminate two-way contract negotiations that involve back-and-forth, lawyer consultations, and the cost of resolving conflicts.
Legally binding
In most US states, an adhesive invisible contract is enforceable under the Uniform Contract Code (UCC). Since it is admissible in court, it can be used as evidence or supplementary material during court proceedings.
The fact that these contracts are legally binding also makes them fair. Courts can dismiss adhesive agreements that put consumers in a vulnerable position or enforce consequences when parties default.
Cons of adhesion contracts
While adhesive contracts make business easier and smooth, there are a few downsides with these legal agreements. These include:
Non-negotiable
The static nature of adhesive contracts can be quite unnerving. Since little or no changes can be made to the contract, users just have to put up with the terms even when they’re unsatisfied.
This is often common with rental agreements and loan documents. In case of a breach of contract, consequences are outlined, and these terms cannot be negotiated.
Power inequality
In most adhesion contracts, the supplier holds a higher bargaining power because they draw up all the terms. The consumer only has to settle for the offer or go somewhere else.
Adhesion contracts do not allow for consumer input, so it’s easy to overlook necessary changes that could be made (since there is no opening for suggestions anyway).
Ambiguous in nature
Adhesion contracts are written in boilerplate contractual language, which can deter readers. You may be eager to skip to the bottom and sign “I Agree” because you barely understand the content.
People can be exposed to exploitative situations hidden in contracts with legal jargon. Before you sign anything, just make sure you clearly understand their terms and conditions.
When are adhesion contracts enforceable?
Adhesion contracts are far from perfect, and there might be confusion regarding their enforceability. Take an NDA, for example. The contract confers heavy responsibility and risk on the signer.
In case of a breach of contract, the supplier can decide to take legal action. However, the court may find unreasonable provisions within the contractual language and proceed to favor the defaulting party.
Courts may dismiss adhesion contracts for factors such as:
- Potential for foul play
- Lack of notice
- Unequal bargaining power
- Unreasonable expectations
Otherwise, when done correctly, a take-it-or-leave-it agreement is enforceable. They are easy to set up and coordinate.
You can create adhesion contracts using contract templates within document management software and integrate them into your workflows.
Final thoughts
Adhesion contracts have advantages and disadvantages in all scenarios. Understanding how the downsides affect your business while maximizing the advantages will help you get ahead faster.
You should consult a legal practitioner before preparing or signing an adhesion contract. This will ensure compliance with US laws regarding these types of agreements.