Shaken & Stirred - Influential Brand Profiling and Positioning

The Legality of Adhesion Contracts: What Makes Them Stick?

Adhesion contracts are a fact of modern life—they’re unavoidable. But understanding how they work and what your rights are can help you navigate them with confidence.

From insurance policies to lease agreements and from customer credit to online terms and conditions, you’ve likely encountered one of these standard-form agreements.

While they offer convenience and efficiency to businesses, do you really have a choice when faced with a contract of adhesion? Are adhesion contracts actually legal and enforceable?

In this article, we’ll explore the legal scope of adhesion contracts and examine the factors that make them legal and enforceable.

How does an adhesion contract work?

Understanding the definition of an adhesion contract is essential to understanding how it works. An adhesion contract is a pre-drafted agreement in which one party (typically a business) sets the terms and presents them on a “take it or leave it” basis to another party (usually a consumer). This means that the consumer has little or no opportunity to negotiate the terms.

Imagine signing up for a new gym membership. The employee hands you a lengthy contract and says, “Sign this to activate your membership and access the gym’s facilities.” 

The contract is full of complex legal terms outlining everything from your responsibilities to the gym’s liability and various fees involved. As you read through it, you realize that these terms are non-negotiable—you either sign the contract or there’s no gym membership.

In this situation, the gym is the drafting party, and you’re the adhesive party. The gym created a contract favoring their interests, and you, the consumer, are left with no option but to accept the contract “as is” or walk away. 

For these contracts to be legally enforceable, they must not only comply with general contract laws but also pass tests of fairness, avoiding excessive or oppressive conditions.

What are the factors influencing legality?

Now that we know how adhesion agreement works, here are six key factors that influence the legality of adhesion contracts: 

1. Fairness and conscionability

Courts carefully examine adhesion contracts to ensure their fairness, factoring in the agreements’ substance and the circumstances of formation. They consider whether the contract is excessively one-sided and harsh to the extent that it shocks the court’s conscience. 

If the weaker party has no realistic choice or negotiating power and the terms significantly favor the stronger party (e.g., liability waivers for negligence), the contract may be unconscionable. 

For instance, the gym contract releasing the gym from all liability (if accidents happen) due to its negligence may count as an unfair term. Only a court’s careful examination can render the contract null and void.

So, while courts generally support freedom of contract, they will intervene in cases of extreme unfairness and abuse of bargaining power to prevent exploitation.

2. Transparency of terms and conditions

Clear and transparent contracts are more likely to be legally binding, as they show a commitment to fairness and openness. Courts require companies to disclose all essential terms and conditions, including:

  • Key obligations and responsibilities of both parties
  • Payment terms and conditions
  • Liability and warranty provisions
  • Termination clauses
  • Dispute resolution mechanism

By ensuring clear disclosure, they can gain their customers’ trust, maintain a positive reputation, and avoid disputes. On the other hand, hidden or obscure terms can render a contract illegal or unenforceable. 

3. Balance of power between parties

The greater the power disparity, the more likely courts are to question the contract’s enforceability. 

For instance, a large corporation imposing standardized terms on individual consumers who lack bargaining power and negotiation opportunities is a classic adhesion contract example. This significant advantage prompts the court to review such contracts more closely.

In contrast, unfairness will decrease when both parties have relatively equal bargaining power and the adherent has some realistic ability to negotiate or walk away. 

The core idea is that the more overpowered the weaker party, the more justification courts have for reviewing the terms for fairness.

While some power imbalance is natural in most adhesion contracts, courts aim to prevent abuse by upholding a reasonable degree of voluntary consent.

4. Public policy implications

Although adhesion contracts are legally valid, courts closely scrutinize them due to their one-sided, take-it-or-leave-it nature. 

Judges can refuse to enforce any term that violates public policy, consumer protection laws, or basic fairness principles. Even without a specific legal breach, courts can still void terms they find to be extremely unfair or harmful to society.

This strict scrutiny exists because adhesion deals can be coercive and exploitative, especially when large companies force them on consumers with no bargaining power. 

5. Opportunity to review

When both parties are aware of their commitments and expectations, they can fulfill their obligations successfully. However, some contracts can be problematic due to their secretive nature, earning them the label “adhesive invisible contracts.” 

In such cases, courts carefully assess whether the parties had a reasonable opportunity to review and understand the terms before agreeing. 

This assessment is important because if the terms were presented at the last minute without sufficient time for review, especially in complex or hidden formats, courts tend to deem them unenforceable. 

However, providing the contract well in advance gives the adhesive party adequate time to read, understand, and agree to the terms, increasing its chances of enforcement.

Benefits of adhesion contracts

Despite the one-sidedness, adhesion contracts provide the following benefits:

  1. Efficiency and standardization: With adhesion contracts, businesses can offer the same terms to all customers, streamlining operations and reducing transaction costs. This is especially useful in industries such as banking, telecommunications, and consumer retail.
  2. Consistency: Adhesion contracts offer all customers the same terms and conditions, reducing disputes and confusion over who agreed to what.
  3. Convenience: These contracts are often used in customer transactions, making it easier for individuals to enter into contracts without needing legal expertise.
  4. Legal enforceability: The contract of adhesion meaning holds water in many jurisdictions. Despite being non-negotiable, these contracts are legally enforceable if they are within the law and not excessively unfair. This provides a clear legal foundation for both parties in case of a dispute.
  5. Simplicity: Adhesion contracts simplify complex transactions by providing a clear and straightforward agreement, making them more accessible and understandable to a broader range of people.
  6. Focus on core offers: By using standardized contracts, companies can focus on improving their core products and services rather than expending resources on tailoring contract terms for individual transactions.

Regardless of how unfair or one-sided adhesion contracts may appear, they are enforceable as long as they meet specific legal requirements. 

With our PDF editor and e-signature software, adding your digital signature to accept the terms of an adhesion contract is straightforward.

If you’re dealing with an adhesive contract and have concerns or questions, don’t hesitate to consult a legal professional.