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Adhesion Contract: Definition & Example

Instructor: Jessica Schubert

Jessica is a practicing attorney and has taught law and has a J.D. and LL.M.

After you finish this lesson, you will have an understanding of adhesion contracts. Not only will you review when adhesion contracts can be used, but you will also explore several examples.

Definition

Imagine you are going to buy a house. You first need to borrow money from a bank. After you fill out many different forms and paperwork, the bank is ready to give you a loan. You receive a loan document which includes your responsibilities and the bank's responsibilities with respect to borrowing the money. This document is a standard form and you simply review the material and sign where necessary. This type of contract is called an adhesion contract.

An adhesion contract is an imbalanced contract where one of the parties has all of the power. Adhesion contracts are also frequently called standard form contracts or boilerplate contracts because they are never changed. In other words, the contract is basically a 'take it or leave it' agreement because there is no bargaining or negotiating at all. In the example above, the bank would be the party in power, since it is lending you the needed money.

Adhesion contracts are used in many different industries. Some types of industries where adhesion contracts are utilized include property leases, deeds, mortgages, insurance matters, car purchases and other types of situations where one party needs to borrow money or property to complete a transaction.

Examples

Let's say you are going on a trip. When you get to your destination, you need to rent a car. At the car rental agency, you review and select the type of car you would like. Thereafter, you are presented with a contract for the rental of the car. The contract is two pages and contains all sorts of information about who is responsible for different aspects of the car and the operation of the car. You do not like the part of the contract that indicates you are liable for all dents on the car when you return it; however, the rental agent indicates these provisions are in black and white and cannot be changed. The rental company has the upper hand in the matter, and you have no ability to negotiate any of the provisions. This agreement is known as an adhesion contract. You must either sign the contract or do business elsewhere.

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