Have you ever seen this brief legal ditty? Sure you have. And whether you know it or not, you likely accept contracts containing this language on a weekly, maybe even daily basis.

Ever valet park your car or use the services of your local dry cleaner; or, maybe you have attended an amusement park? Well then, without signing anything, you have just entered into an “adhesion contract”.

Adhesion contracts are contracts between two parties that do not allow for negotiation — it’s take it or leave it! However, can you realistically leave it? What would your options be anyway? Should you park your car elsewhere or take your clothes to a different cleaner? Won’t you just be faced with the same issue there? And what about that pocket size agreement? Will it really limit their liability? I mean really, who can even read that boilerplate it’s so small?!

And how about the long-form adhesion contract that you actually sign; a residential lease agreement, for example? Were you afforded the opportunity to negotiate its terms or, did the landlord stand in a position of such superior bargaining power that you signed it, knowing also that it would not be any different down the street?

Theoretically, the common debate relating to contracts of adhesion have reasonably focused on whether or not courts should enforce them. On the one hand, they undeniably fulfill an important role of efficiency in the marketplace. These standard form agreements can substantially reduce transaction costs by eliminating the need for buyers and sellers to negotiate the terms of every sale of goods or services. However, they may also consequently result in unjust terms being agreed to by the accepting party. Few would disagree that it is simply unfair for the seller to avoid all liability or to unilaterally give themselves the right to terminate the agreement.

So then, are these contracts enforceable?

In common law jurisdictions, these standard form agreements are treated like any other contract and a signature or other manifestation of acceptance and intent to be legally bound will bind the acceptor. This reality, however, has caused for many common law jurisdictions to develop special rules that govern such situations. As a general rule, courts in these jurisdictions will interpret the standard form agreement contra proferentem which, literally means — ‘against the proffering person.’

Most of the United States, however, follows the Uniform Commercial Code which, similar to the common law jurisdictions mentioned above, has provisions relating specifically to standard form contracts and; when a standard form contract is found to be a contract of adhesion, it is given special scrutiny.

For a contract to be treated as a contract of adhesion, it must be:

1. Presented on a standard form and on a “take it or leave it” basis; and
2. Give the consumer no ability to negotiate because of their unequal bargaining position.

Next, the “special scrutiny” may be performed in a number of ways, a few of which are:

1. If the term was beyond the reasonable expectations of the “adhering” party, the court can find it to not be enforceable; or
2. Under the equitable principles of the Doctrine of Unconscionability, unconscionability may be found and the contract held unenforceable when there is an “absence of meaningful choice on the part of one party due to the one-sided contract provisions, together with terms which are so oppressive that no reasonable person would make them and no fair and honest person would accept them.” (Fanning v. Fritz’s Pontiac-Cadillac-Buick Inc.)

So…the good news is: recourse may be available for the underdog!

The bad news is: both parties will have to expend time and money for a court to determine if the adhesion contract is enforceable.

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This entry was posted on Monday, September 6th, 2010 at 8:30 am and is filed under Business & Corporate Law, Contract Law, Real Property Law. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.

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