What Is a Contract of Adhesion?

A contract of adhesion is a standard form contract—often called a “boilerplate contract.” The terms are drafted by just one party without input from the signee. The party drafting the document is usually a business with significant power and a Legal team to help it create the contract. The signee is usually a consumer with considerably less bargaining power. Due to this discrepancy in bargaining power, certain steps must be followed to ensure that an adhesion contract is enforceable.

When you properly maintain your records, your company can manage these signed agreements to help ensure enforceability. Acceptance methods like clickwrap give you the tools you need to easily create an agreement and track it through every stage of the contract lifecycle. To help, we will provide information about what a contract of adhesion is and how to make sure they are enforceable.

An adhesion contract is a legal agreement that is drafted by one party, but not the other. This means that the party signing the agreement had no chance to bargain for the agreement’s terms. Instead, it is a “take it or leave it” situation. The consumer is presented with a contract, they have a chance to read it, and they must then choose to sign it or not. There is no middle ground. The consumer takes the provisions “as is” or they choose not to agree.

This situation occurs because the parties are at opposite ends of the bargaining-power spectrum, meaning the business that created the agreement has all the power. It developed the agreement and all of its terms. It decided what was best for it and expects its consumers to follow the agreement. This discrepancy in bargaining power can significantly impact the enforceability of an agreement if it is not properly drafted. 

Common adhesion contracts

Adhesion contracts typically occur when a company wants high-volume contract acceptance for terms that are identical for all users. Common contracts of adhesion include, but are not limited to:

• Terms and conditions
• Leases and rental agreements
• Mortgages
• Automobile purchases
• Consumer credit applications
• Insurance documents
• Installment contracts
• End-user license agreements

Adhesion contracts have been around for centuries and were first formalized in French civil law. They entered American law through a Harvard Law Review article in 1919. This concept helped American courts understand when contracts of adhesion should be enforced and when they should not. 

Most American courts have adopted the concept of an adhesion contract in varying ways. While many courts scrutinize them closely, their increasing use has significantly changed this area of American jurisprudence. Adhesion contracts have grown in popularity and use throughout the 20th and 21st centuries. This is especially true because of the rise of digital contracts and “click-through” agreements. 

The legality of adhesion contracts has changed significantly over time and continues to evolve. It is now generally agreed that adhesion contracts may be enforceable when properly formulated and managed. Courts have often considered the bargaining power of the parties in relation to the benefit the signee gets from the agreement. 

Other courts look to the terms themselves for a determination of “unconscionability” and reasonableness. This ever-changing landscape of law makes clear that adhesion contracts are here to stay, but certain steps must be taken to ensure they remain enforceable.

Adhesion contracts come with many benefits that can streamline your contract management process. They tend to speed up this process and create significant benefits to efficiency, such as:

1. Economic efficiency

A standard contract with non-negotiable terms reduces any need for contracts to be specified to a particular consumer. This saves significant employee time and contract management efforts. Terms do not change between parties, so there is no need to redline, negotiate back and forth, or create unique contract provisions.

2. Fewer transaction costs

Your company can greatly reduce its transaction costs by using contracts of adhesion. They reduce bargaining, communication, and management costs by making them uniform and non-negotiable. You can also save on enforcement costs, as the agreements are the same between a variety of parties.

3. Convenience

Maintaining consistency throughout contracts is simply more convenient. You don’t have to worry about which party was subject to which specific terms. Instead, they are all subject to the same terms. This greatly reduces the headache of tracking and managing complex legal agreements.

While there are several benefits to adhesion contracts, there are also certain disadvantages that must be taken into account. 

1. Unequal power terms

By their very nature, contracts of adhesion create a disproportionate power balance in favor of the contract’s drafter. The contract will be subject to significant scrutiny by any court if a business wants to enforce it. This doesn’t mean the contract will necessarily fail, but that the proper steps must be taken to ensure it is enforceable.

2. Risk for customers

Due to the “take it or leave it” nature of a contract of adhesion, the customer carries the risk of agreeing to the terms of the agreement. A business will draft terms that protect and benefit it. Customers may feel they have no choice but to sign if they want to use the product, service, or another benefit of signing the agreement.

3. Potential unenforceability

Standardized contracts may be unenforceable if a court deems them unconscionable. When a contract of adhesion is improperly drafted or managed, this can create a risk that a court will refuse to enforce the agreement against a consumer. This disadvantage can be handled through proper contract lifecycle management.

Adhesion contracts are enforceable—when they are done correctly. Due to the unequal bargaining power associated with a form contract, the agreement must meet certain criteria to remain enforceable. Courts will scrutinize adhesion contracts closely to determine if they are unconscionable or unfair. To do this, many courts use a “reasonable expectations” test to determine whether the agreement is enforceable.

The reasonable expectations test

The reasonable expectations test asks whether specific parts of an adhesion contract—or the entire contract—are unenforceable. It looks to whether the terms are what the weaker party would have reasonably expected to be a part of the contract. A contract’s reasonableness will depend on:

• The prominence and clarity of its terms
• The purpose behind the terms
• The circumstances surrounding the acceptance of the contract
• The benefits to the signee and the obligations it imposes.

Adhesion contracts that hide terms or are unclear may be invalidated as a violation of the reasonable expectations test.

Unconscionability test

The unconscionability test is often used to challenge the enforceability of standardized contracts. Unconscionability arises when any meaningful choice is absent for one party due to one-sided contract provisions. By their nature, adhesion contracts are one-sided. Therefore, additional steps must be taken to ensure that the signee’s rights are protected and the agreement is not unconscionable.

Unconscionability is a concept that continues to evolve, but courts typically look for certain factors:

• Contract language or phrasing that non-lawyers may not understand
• Imbalance in the obligations imposed on the signee
• The exploitation of those who are uneducated, illiterate, or underprivileged
• Extreme inequality in bargaining or economic power
• Contract provisions inconsistent with a signee’s reasonable expectations
• The potential for unfair surprise
• Lack of good faith
• Lack of notice

While adhesion contracts receive strict scrutiny under this test, they are upheld in many cases. An effective agreement, such as a clickwrap agreement, can standardize contracts in a way that is clear and done in good faith. 

Clickwrap agreements are contracts of adhesion. However, they are still enforceable when they are managed correctly. A clickwrap agreement is an online agreement users accept by clicking a button or checking a box that says “I agree.” They don’t get a chance to change or negotiate the terms. They can either agree or choose not to. By definition, this makes clickwrap agreements contracts of adhesion.

Clickwrap agreements are especially useful for standardized many-signer agreements. They streamline contract acceptance and limit risk to a business without impacting the customer experience. Companies commonly add clickwrap agreements to:

• Signup pages
• Login pages
• Checkout flows
• User agreements
• Terms and conditions

Are clickwrap agreements legally enforceable?

Laws like the Electronic Signatures Act (ESIGN) and The Uniform Electronic Transactions Act (UETA) make clickwrap agreements legally enforceable. To ensure their enforceability under these laws, contracts should conform to clickwrap best practices: 

• Require each user to affirmatively and unambiguously assent to the online terms
• Provide conspicuous notice of online terms
• Get consent again any time that terms are modified
• Maintain excellent records to show who agreed to the terms 
• Capture screenshots of what the screen looked like at the time the consumer agreed to the terms.

Adhesion contracts continue to be an integral part of digital contracting. They are increasingly popular but often face significant scrutiny by courts. Effective contract management can help you create, modify, and track digital contracts of adhesion that meet best practices and provide you with many advantages to your business. You can streamline your contract process and save significant amounts of time and money by creating an enforceable contract from the very beginning.

Ironclad’s contract lifecycle management software is specifically designed to help you compete in the digital world. Request a demo and see what we can do to help you.