What Is a Contract of Adhesion?

A contract of adhesion is a legal agreement where one party holds the bulk of the power and can dictate the terms on a take it or leave it basis. The disadvantaged party may be able to challenge the contract in court in the event of a dispute, on the grounds that he could not negotiate a fair contract because of the circumstances. This type of contract is not inherently illegal, and in fact the basic boilerplate contracts seen in wide use in a number of settings are often adhesion contracts.

In a contract of adhesion, one party operates at a disadvantage because of the circumstances. An example might be an insurance agreement, where the customer needs insurance, but the insurance company does not necessarily need the customer. The insurer can dictate very restrictive terms and the customer has the choice of accepting the contract with the terms to get the insurance, or rejecting it and trying to get insurance elsewhere.

This type of legal agreement often occurs in settings where the disadvantaged party is essentially forced to accept the contract to access a needed product or service. Lease agreements are another common example of a contract of adhesion, where the landlord needs a renter less than the renter needs a home or business space. In this type of contract, only one party really has negotiating power.

Restrictive basic contracts allow companies to do large volumes of business because they do not need to negotiate the terms of every single agreement in detail with each customer. Many customers routinely accept such contracts and do not experience ill effects as a result. In other cases, a contract of adhesion can become a problem, and the case may go to court. The court can rule in the favor of the disadvantaged party if it feels the contract is unfair.

Before signing a legal contract, it is advisable to read it and understand the terms. In the case of a contract of adhesion, it may help to ask a lawyer about the terms to determine if they are reasonable, if slightly unfair. Attorneys can also provide advice on how a challenge to the contract might hold up in court. If it includes a clause allowing for negotiation, such as a clause allowing a customer to opt out of something within a set period of time, as often seen on credit card contracts with interest rate increases, the court will usually reject the legal challenge.