Contract of Adhesion: Definition, Example and Related Terms
What is a Contract of Adhesion ?
This type of contract is usually drafted by the party with more power (usually a business) and the other party (usually a consumer) has no ability to negotiate the terms and conditions of the contract. They can only 'adhere' to them, meaning they can either accept the contract as is, or reject it, but they cannot change its terms.
This is why such contracts are also known as 'take it or leave it' contracts or 'standard form' contracts. Examples of adhesion contracts include insurance policies, rental agreements, and service agreements among others. These contracts, while convenient, may sometimes be unfair to the weaker party.
Therefore, some jurisdictions have laws to protect the rights of the weaker party. For instance, if a court finds that a contract is an adhesion contract, and the terms are unfair, the court can declare those terms, or the whole contract, unenforceable.
Example(s)
Scenario Description Imagine you are a small business owner and you decide to use a popular cloud-based software for your business operations. The software company provides you with a lengthy terms of service agreement. You, as the small business owner, do not have the power to negotiate the terms of this agreement. This is a Contract of Adhesion, as you must either agree to the terms as they are presented, or not use the service at all. Consider a situation where you are an entrepreneur and you want to sell your products on a major online marketplace. The marketplace has a set of terms and conditions for sellers that you must agree to in order to list your products. Here, the marketplace has all the power to dictate the terms of the contract, and you, as the entrepreneur, have no room to negotiate these terms. This is another example of a Contract of Adhesion.