A Brief Introduction to Adhesion Contract
An adhesion contract is signed between a business and a consumer. The purpose of this contract is to make the business efficient and save time and money for the parties. The terms include the transaction details and liquidated damages clause.
The party that drafts the contract is in a position of power and uses this power to make the other party sign the contract as it is. The other party (which in most cases is a consumer of a service or a product) has no bargaining power and has to sign the contract as it is. The consumer has no choice but to sign the contract in most cases because he needs access to the service or product that he is purchasing or renting.
These contracts are also called ‘standard form contracts’ or boilerplate contracts.’
Adhesion contracts are valid and enforceable in most cases unless they are unconscionable to the consumer. This basically means that the contract should not be extremely unfair or take advantage of the consumer.
Who takes the Adhesion Contract – People Involved
An adhesion contract is used mostly in consumer situations such as airplane tickets, hotel rentals, insurance contracts, etc. The parties involved in this contract are usually a business and a consumer. The consumer has to sign the agreement as it is and is not given any power to bargain the terms laid out in the contract.
Purpose of the Adhesion Contract – Why Do You Need It?
The purpose of the adhesion contracts is to help a business have a standard form contract that it can make all its consumers sign. It is not possible for a business to draft and negotiate a separate contract with each of its consumers. If this were the case, the cost of doing business would be incredibly high, and each transaction would take a very long time to complete. In routine situations such as downloading new software or purchasing a plane ticket, adhesion contracts save time and money for the business and the consumer. It is very convenient for the business to have one contract that it can offer to all its consumers without any differentiation. These contracts are practical and efficient, and they streamline commercial transactions.
Contents of the Adhesion Contract
An adhesion contract is drafted by the business only. The consumer does not have the power to change or modify any of the provisions of the agreement. This contract usually contains all the terms and conditions which will be applicable to the parties. It will lay out how the transaction between the parties will be conducted and state the duties and responsibilities of the parties. The contents depend on the purpose for which it is being used.
The business has the final say regarding all the terms of the contract. There are certain clauses in such a contract that cause concern that it may be unfair to the consumer. One is the ‘mandatory arbitration clause.’ By signing this clause, the consumer agrees that all disputes arising out of the contract will be settled by arbitration, and the consumer does not have the right to approach the court for any matter arising out of this contract. The remedies available through an arbitration process are generally considered to be more limited than those available in a court of law. Whether or not a mandatory arbitration clause is upheld or not will depend on how the court reads the provisions of the agreement.
Another clause that may cause concern is the ‘liquidated damages clause.’ This clause places a limit on the damages that the consumer may be liable to receive or may be liable to pay in case of a dispute. This may be considered unfair as it limits the number of damages that the consumer may receive.
The contents of the contract should be such that it must be within the reasonable expectations of the consumer and not over and above it. In some cases, the courts have refused to enforce contracts that are extremely unfair to the consumer.
How to Draft the Adhesion Contract
Follow these steps while drafting adhesion contracts:
- The business will decide what standard clauses to include in the contract with the help of a lawyer.
- The contract must take into account every situation and possible outcome and provide for it in the contract. It should outline the entire transaction.
- The agreement must lay down what acts or omissions will amount to a breach of the contract and must provide remedies for them.
- Ensure that the contract is not unfair to the consumer. If the terms of the agreement are such that they are deemed to take advantage of the consumer, it will be liable to be set aside by the court. For example, if there is an extremely unfair penalty laid down for default in loan payments that are hidden in fine print in a loan agreement, the court has ruled that the agreement was not mutual and has set it aside.
- Once drafted, it is made available to the consumers to sign, or it will be put up on the website of the business.
- It is advisable that the entire contract is made available to the consumer before they sign it.
Benefits and Drawbacks of the Adhesion Contract
The following are the benefits and drawbacks of having adhesion contracts:
- A huge benefit of this contract is that it saves a lot of time and money for the parties by precluding the need to draft and negotiate a new contract in every situation.
- It is also practically impossible for a business to enter into individual contracts with all of its consumers. That is why standard form contracts are necessary. Otherwise, business transaction costs would be extremely high.
- A major drawback of this type of contract is that most people do not read these standard form contracts, and they are often written in the fine print and complicated legal language that a common man may not understand. This leads to a person signing an agreement where he does not have adequate knowledge of the terms of the agreement.
- Even if the consumer does not agree with a particular clause in this contract, there’s nothing he can do to modify it or negotiate it. This, in many cases, leads to the acceptance of unfair terms as the consumer has no other choice.
- The party that drafts the contract exploits the fact that is it more powerful than the other party to make them sign the contract. The other party signs the contract despite having no bargaining power. Hence the consent given to the contract by the other party is questionable.
What Happens in Case of Violation?
Generally, adhesion contracts have a clause that talks about the actions to be taken in cases of breach of clauses. When breaches take place, generally, the non-breaching party can serve a notice on the breaching party, asking them to address the breach within a certain specified time period. If the breaching party ignores the notice provided and does not remedy the breach, the non-breaching party can take certain steps that will be provided for in the agreement itself. A mandatory arbitration clause is present in most agreements and states that in cases of breach, the matter shall be resolved by arbitration. The clause mentions where can the arbitration proceedings take place, i.e., the seat of arbitration, the language of the proceedings, and the manner in which the arbitrators shall be appointed.
Alternatively, any other form of dispute resolution, such as mediation or negotiation, may also be mentioned in the agreement.
The agreement should also mention that all disputes arising out of the agreement will be subjected to the exclusive jurisdiction of a specified court.
In conclusion, an adhesion contract is a contract that provides a standard form of contract that a business can make all of its consumers sign. This helps to make the business efficient and streamlined. It is very useful in situations where a business has to enter into contracts with all of its consumers, and it is not possible to negotiate a separate contract with each one of them. Having this contract is very convenient for both the business as well as the consumer. However, care must be taken to ensure that the contract is not one-sided and is not unfair to the consumer. If a contract takes unfair advantage of the consumer, it will be liable to be set aside by the courts as such a contract is unconscionable. The contract should be such that it is balanced and fair to both parties and provides equal remedies to both parties in case of a dispute.