Definition of "Contract of Adhesion"

The definition of contract of adhesion or, as it is also known, an adhesion contract is explained as an agreement between two parties where one party has more power than the other when the terms of the contract are set. These kinds of contracts of adhesion are used when the party with more power gives its customers the same standard contract. The customer can not alter these contacts, the customer can not make amendments or addendums to the contract, they can either sign it or not. The terms and conditions specified in a contract of adhesion are not open for negotiation, and they are also known as standard contracts or boilerplate contracts.

What is a Contract of Adhesion, and Who uses it?

The term may seem intriguing, but the contract of adhesion is the most common type of contract that any individual may come across in their daily lives. They are used in insurance, vehicle purchases, leases, mortgages, telecommunication subscriptions, and other types of transactions where a company deals with large numbers of customers. Adhesion contracts are enforced in the US through the Uniform Commercial Code (UCC), and most states, with the exception of Louisiana, adhere to the set of rules and regulations.

When dealing with a mortgage, the customer must accept all the terms and conditions specified within the agreement signed. The customer can not write their own contract or come with a counteroffer that the financial institution could agree to. These adhesion contracts should demand the full attention of the customers as the terms and conditions are all written down by the other party.

How are Adhesion Contracts Enforced?

Contracts that are considered adhesion contracts have to be seen as a “take it or leave it” option for customers. Two forms of scrutiny are applied in court to verify if an adhesion contract is enforceable or considered null and void.

  1. Reasonable expectation

The terms and conditions specified in a contract of adhesion are expected to be within reason. If these terms and conditions go beyond what the customer reasonably expects from the contract, the contract is deemed unenforceable. The purpose of the terms, the prominence of the terms, and the way in which the contract was accepted are all taken into account to determine whether the contract is enforceable.

  1. Unconscionability

If the terms and conditions of a contract of adhesion include oppressive terms that, as the one-sided contract provisions block them, leave the customer unable to fight back, the contract is considered unenforceable. Simply put, if the contract had exceptionally unfair terms imposed on the customer and the customer can’t change or influence them due to the way the contract is written (by one party), the contract can be considered unenforceable.

image of a real estate dictionary page

Have a question or comment?

We're here to help.

*** Your email address will remain confidential.
 

 

Popular Insurance Terms

Method of selling insurance directly to insureds through a company's own employees, through the mail, or at airport booths. The company uses this method of distribution rather than ...

Insurance for private pleasure boats. Coverage is not standard, but is generally broken down into insurance for yachts, including sailboats; boats with inboard motors under marine ...

Same as term Line Limit: maximum amount of a specified type of insurance coverage, according to underwriting guidelines, that an insurance company feels it can safely underwrite on a ...

Same as term Convention Examination: audit of the convention blank (NAIC Statement Blank) every third year as to all of the financial activities of a company; company claim practices; and ...

Same as term Occurrence Basis: coverage, in liability insurance, for harm suffered by others because of events occurring while a policy is in force, regardless of when a claim is actually ...

Legislation that redefined life insurance and raised taxes on life insurance companies. Among the provisions were new rules for some life insurance products, including a definition of ...

Includes rate of return, how long the annuity's interest rate is guaranteed, loads (front, middle and back), financial ranking of the insurance company offering the annuity, the monthly ...

Gross yield minus total costs (expenses). ...

Phrase used to describe a method of annuity payout that guarantees a specified number of years, regardless of whether an annuitant remains alive. ...

Popular Insurance Questions