What is an Adhesion Contract?

Whether or not we knew it by that name, many of us have signed at least one adhesion contract during our adult lives. A standard insurance policy is often considered to be an adhesion contract, as well as an apartment lease or a "End User's Licensing Agreement" (EULA). Even the agreement with a local dry cleaner or other professional service could be considered an adhesion contract.

Essentially, an adhesion contract is a take it or leave it arrangement between two parties, one considered much stronger than the other. The stronger party, for example an insurance company, generally provides a service or product that the weaker party wants or needs. Rather than negotiate each and every aspect of the agreement, the insurance company presents the customer with a standard contract filled with pages of legal language. The customer needs the insurance policy, so he may give the contract a quick glance or simply sign it in good faith.

From that point on, the customer is legally bound to the terms of the contract, even though he may not have had any input into those terms. This may not appear to be problematic for the weaker party, since he is receiving the promised benefit of insurance coverage. The same holds true for the signer of a EULA or a renter signing a standard lease. An adhesion contract is not necessarily a bad arrangement for the weaker party as long as the terms continue to be met.

The legal difficulty with this type of contract often begins when the stronger party appears to violate the terms of the contract. The language of the entire contract, including the fine print not examined by the weaker party, often protects the stronger party from any legal ramifications. An adhesion contract for an insurance company, for example, may have a clause prohibiting class action lawsuits. There may also be restrictions on where a lawsuit can be filed, or the customer may have unknowingly agreed to use a professional arbiter, not a judge. Clauses which protect the stronger party are quite common in this type of contract, which is why the weaker party needs to understand the entire document before signing.

Fortunately for the weaker party, American courts have formed strong opinions on legal enforcement of an adhesion contract. In general, the terms spelled out in the original contract are considered valid and binding, but the weaker party can argue that the terms are ambiguous or completely unconscionable. If the court agrees that a condition is ambiguous or impossible to enforce legally, then the weaker party may prevail in a court proceeding. This is why many entities which use standard contracts employ legal professionals to make sure their terms are considered legal and reasonable.