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An Overview of Adhesion Contracts and Clauses

Signing contracts is a regular part of our daily lives. They are essential written agreements by which we agree to exchange products, services, or rights with another party. These can include individuals or businesses. Some contracts are as simple as signing a credit card receipt, while others are more complicated, like when you sign a loan agreement.

Although you probably did not know it at the time, chances are you have signed at least one adhesion contract in your life. Think back to the end-user licensing agreements you have to click on each time you want to download software. Or, in some cases, your mortgage loan documents, car loan documents, or insurance contracts—these are all adhesion contracts or at least contain adhesion clauses.

What Is A Contract of Adhesion?

It is simply a contract that is drafted by one party that is usually holding the greater bargaining power over the other party with weaker bargaining power, such as the person who is seeking to borrow the money. Such larger parties can include a bank that is loaning money, who sets the terms.

Because of the disparity in the bargaining positions of the two parties, the weaker party must “adhere” to the contract and its provisions. They forfeit the opportunity to negotiate or change the terms of the deal. Adhesion contracts favor the stronger party when one has something that the other wants and could not otherwise get it easily.

Obviously, adhesion clauses are good business for the creator of the contract since with their bargaining power, they can get away with a lot without negotiating on items that the other party would probably balk at and walk away from. They are not as beneficial to the weaker party because they must essentially take the deal or leave it, without any negotiation of the terms or exclusion of the more disadvantageous provisions, such as requiring arbitration.

Example Of Adhesion Contract

Horror writer Stephen King mentions in his memoirs that he signed such a contract with Doubleday Publishing, called the Author Invest. He refers to it as a “boilerplate,” which is another term for adhesion agreements. The terms gave him a maximum amount of royalties that he could earn every year from his books. This amount was $50,000, equivalent to an average annual income.

Why was this investment fund unfavorable? Any extra money was put into an investment fund that Doubleday owned, and King’s family could be taxed on it if he died. The IRS would also demand payments on the money, despite the fact that the publishing company ran it.

These terms were acceptable when King was a debut author because he was not expected to become a bestseller and had a family to support. In time, however, he called the contract exploitative due to earning millions worth of dollars in royalty and having access to none of it. King, through his agent, said that he wanted out of it. Doubleday only released him if he agreed to give them one last book. When he did so, they released him and he went to Viking. To this day, he considers the deal unfair in how it benefited Doubleday.

Are they illegal?

While adhesion contracts are not illegal per se—see their proliferation even today as evidence of this—courts are still examining these contracts very carefully to ensure that the party with the better bargaining power does not use that power to bind the other party into unfair, unenforceable, or unconscionable agreements. Courts may strike or otherwise excise adhesion clauses that have this result and in some cases, a judge will scrap the entire contract all together.

Furthermore, electronic contracts are relatively newer compared to paper ones. You may see them on social media or on freelancing sites. However, courts have mandated that, for them to be valid, they have to match paper equivalents.

Benefits Of An Adhesion Contract

Proponents of adhesion contracts (also known as standard form contracts or boilerplate contracts) argue that these types of contracts are good as they are streamlined, provide uniformity, and cut down on negotiations that otherwise draw out deals and increase costs. Critics argue that these contracts in some cases have been taken so far out of the realm of being close to a two-sided agreement, that the entire contract itself is unreasonable.

Adhesion Contracts And Clauses

Not all adhesion contracts/clauses look alike. More recent examples are terms and conditions of use of digital platforms such as Twitter or Instagram. If you want to play, you have to agree to their terms and conditions. These phrases act essentially like a contract between you and the provider.

One spectacular example of adhesion clauses are non-disparagement clauses in agreements with consumers. These clauses essentially mean that you cannot speak or act in such a way that you would damage an individual or their business. Non-disparagement clauses can be used in settlement agreements between businesses and former employees, and they may also be used on online platforms.

Consider Yelp, where anyone can write anything about a business. Although these reviews may help businesses, negative reviews can also have a huge – if not bigger – impact on said businesses. And while Yelp does reserve the right to monitor them after timely events and controversies, businesses who are reviewed can also respond, to provide damage control or customer service.

Next, let’s consider a dentist who was maligned on Yelp. This dentist then proceeded to sue the individual who left the disparaging comments citing a non-disparagement clause in the contract of service with the dentist. (Yes, this really happened.)

Fortunately, non-disparagement clauses are now prohibited in contracts with consumers under federal law, but you get the picture. Courts generally consider them non-enforceable in the case of anonymous complaints online, because proving if the defendant made the claim would violate agreements regarding user data. The plaintiff would have to prove, beyond a shadow of a doubt and within legal means, that the defendant disparaged them.

Not all adhesion contracts or clauses are as blatant or defeatable as these are, but it is still worth educating yourself about them so that if you do find a particularly egregious example, you know exactly what it is and what to do. The fine print within any agreement can prove to be an obstacle to a regular person. When you can identify unfair clauses, then you can protect yourself as well as your business.

Improve Your Contract Terms With Trembly Law

What if you find such an example or just need advice on your own contracts? Call the Trembly Law Firm, whose attorneys are well-versed in contract law, and protect business owners from contracts like this every day. If you want to form an adhesion contract, we can find enforceable clauses.

Our attorneys are trained to comb through agreements and to help you negotiate better deals. Contact us today to get started on your law review!

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