Business: Contracts of Adhesion
Contracts of adhesion are agreements where a party in a position of relative power such as an insurance company or larger corporation agrees to do work with a consumer or business using a non-negotiable contract.
Sales and customer service professionals tend to call these documents “standard” contracts and lawyers informally refer to them as “boilerplate” agreements. In the US including Florida, most individuals and businesses frequently sign contracts of adhesion. Many of these contracts today are electronically signed, a method of execution already widely used in the adhesion contracts found in e-commerce and software license agreements.
Using standard contracts makes it easy for salespeople to transact quickly and more often. However, they have a greater chance of including unfair and unconscionable clauses. A matter which we will explore below.
An unconscionable clause refers to language in a business agreement that defies the Doctrine of Reasonable Expectations. That is the assumption that a reader may reasonably expect a contract to mean or contain certain fair terms and conditions. The Doctrine of Reasonable Expectations applies even if the contract explicitly reflects the opposite of the reader’s expectations. Clauses outside the realm of “reasonable expectations” are said to be unfair or unconscionable.
When disputes occur, courts tend to carefully scrutinize contracts of adherence for unconscionable clauses. This is because contracts of adhesion usually favor large powerful entities at the expense of those that may be smaller and less powerful.
Here are several unfair or unconscionable characteristics that are often found in contracts of adhesion:
Buried or Confusing clauses
When the wording in an adhesion contract is unclear or included in an unexpected place in the contract, it is said to be “buried” or “confusing” in nature. This could be a tactic to take advantage of the weaker party in the agreement and would certainly be viewed as such by a court.
Differing Text From Printed Version
This occurs when the party issuing the adhesion contract presents a different version in electronic format for e-signature. This may be either an honest mistake or a form of open deception. Either way, differing printed and electronic contracts run contrary to the letter and spirit of the 2000 Electronic Signature Act.
The adhesion contract could be considered too unclear to read if it contains clauses in small fonts (eg fine print), text in similar color to background, blurriness or tight spacing. Courts do not look kindly on these methods to downplay or obscure objectionable information.
Lack of notice
Changes in status, cancellations/terminations and similar transitions and actions should occur only when sufficient notice is given. This is generally true in business contracts, but particularly the case in contracts of adhesion. Courts view sudden (ie no warning) actions to terminate, fine or repossess the assets of consumers and small businesses as unfair. This is true even if the contract explicitly states that these actions could be taken at short notice and without warning.
“When disputes occur, courts tend to carefully scrutinize contracts of adherence for unconscionable clauses.”
Avoiding the Pitfalls of Adhesion Contracts
Adhesion contracts may have their place in lower-stakes, non-essential agreements that do not present a great risk to your business continuity or finances. However, beware of agreeing to an adhesion contract without first reviewing it. To protect your business, it is best practice to have a qualified legal professional review all of your contracts and ensure that your statutory rights and the best interests of your business are being protected. At South Florida Law, PLLC we have years of experience in drafting and reviewing business agreements. Are you faced with signing a contract of adhesion? Contact us today for us to review the document so that you avoid binding your business to terms that may not be in your best interest. Our number is (305) 900-8885 and our contact form can be accessed by clicking here.