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The Hidden World of Adhesion Contracts: What You Need to Know

Not all contracts are open to negotiation, especially adhesion contracts. They are legally binding documents issued by one party and can only be taken as is.

Consumer-centered industries, such as SaaS providers, use a contract of adhesion to enter into agreements with clients. This sort of contract has become very common in insurance, mortgages, automobile purchases, and apartment leases.

The terms of the contract are drafted to streamline things, leaving little or no room for customization. The signing party has limited bargaining power since they only need to accept or reject it.

We’ll delve deeper to derive a simple adhesion contract definition, the practical use cases of these agreements, and how they affect business operations.

History of adhesion contracts

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Adhesion agreements were developed and used in France for many centuries. 

In 1919, a Harvard Law Review publication introduced them into American civil law. The article helped American courts understand the situations where adhesion contracts are enforceable or not. 

The concept became increasingly popular throughout the 20th and 21st centuries with the advent of digital contracts and “click-through” terms of use. 

Adhesion contracts have become recurring, non-negotiable agreements that clients, customers, and other business stakeholders must sign.

To this day, courts still scrutinize adhesion contracts closely, which is why businesses must involve a legal team when drawing one.

It’s generally understood that these contracts are legal, but America’s judicial system continues to ensure that both parties benefit from the agreement, although the rates are unequal.

Types of adhesion contracts

Think about every take-it-or-leave-it proposition you’ve made or received. That’s an adhesion agreement. 

Below are some everyday adhesion contract examples:

Non-disclosure agreements

A non-disclosure agreement, or NDA, restrains one party from disclosing or sharing confidential business information. NDAs are widely used in B2B and B2C interactions where trade secrets and secure data are required. 

They count as adhesion contracts since one party draws up the entire contract to issue to the other party for signing alone. The signing party can either sign or totally reject the contract. 

Many businesses collaborate with independent actors on several projects. To ensure the safety of transactions, they often ask freelancers to sign NDAs.

Terms and conditions

An app’s terms of use serve as legal protection for the company offering the product and the end users. It entails how the operation will affect both parties in terms of intellectual rights and data use. 

By consenting to a product’s T&Cs, you agree to use the product only as stipulated or indicated in the contract. This ensures safe, predictable uses while preventing harmful ones.

Rental agreements

These are boilerplate agreements that customers sign before gaining access to a vehicle, house, or rental property. When you check into a hotel, you’d be asked to consent to the check-out time, no-smoking policy, and so on.

The property owners have higher bargaining power and state all the terms of engagement within the contract. The other party only has to consider the agreement carefully and sign it.

Of course, some rental agreements are not as straightforward and wouldn’t be called adhesive contracts. In such cases, the renters can negotiate the terms attached and propose a different bargain.

Loan documents

Financial institutions issue loans to businesses and individuals regularly, but only after recipients sign contracts of adhesion. 

The agreements are drafted to protect the creditors and establish terms of repayment and consequences for defaulting.

Master service agreements

Master service agreements (MSA) are more broad, detailed contracts that cover the general terms of interactions between two parties. They’re designed to determine current and future activities, allowing for a prolonged working relationship.

A master service agreement permits little or no negotiation, so they are considered a type of adhesion contract. 

Companies should use contract lifecycle management best practices to ensure the terms are enforceable for as long as required.

Is a contract of adhesion enforceable?

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Like every contract, an adhesion agreement has its pros and cons. 

One glaring feature is that the contract seems unfair from the start since it leaves no room for customers to negotiate. They protect one of the parties efficiently while leaving the other with no options.

Despite the seeming power imbalance, these boilerplate agreements are admissible in court. Both consumers and contract issuers can benefit from knowing how the governments handle them. 

NDAs, loan agreements, and other standard-form contracts are enforceable under the Uniform Commercial Code (UCC). Laws like the Electronic Signatures Act (ESIGN) and The Uniform Transactions Act make clickwrap and sign-in agreements legally binding. 

If the author of the contract has substantial evidence that a breach has occurred, they can enforce the consequences. However, if the court decides that the terms are unreasonable or one-sided, courts may be inclined to favor the weaker party.

How can a contract of adhesion affect your business?

An adhesion agreement is cast in stone for a reason. 

They aid the smooth operation of a business and save time when dealing with high-volume clients. You can send the same contract to a lot of people without changing anything, which increases efficiency. 

Contracts of adhesion can reduce transaction expenses for your company. They transform bargaining, communication, and management costs into non-negotiable efforts, reducing the back-and-forth. The ease of signing up can contribute to closing sales faster.

Moreover, using these contracts for business is convenient. You don’t have to customize your terms to suit new clients. Everyone on both sides is subject to the same terms. The consistency with terms and conditions makes it easier to track complex legal documents in case of enforceability. 

Before drawing up an adhesion contract, it’s best to consult a legal professional. They can help you make essential considerations relevant to contractual laws.

Conclusion on Adhesion Contracts

In closing, adhesion contracts simplify business activity. The consumer who wants to purchase a product or service needs to agree to all terms and conditions stated by the issuer party, often the product supplier.

If the user doesn’t like the terms attached, they’re free to make a purchase elsewhere. Adhesion contracts make all sorts of business transactions possible: property leases, bank loans, app updates, software purchases, and so on.

If you’re looking up the contract of adhesion meaning, or you need to sign one, you need to understand the terms first.

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