Contract of Adhesion: definition changing?

The classic definition of a "contract of adhesion" may be changing.

The definition remains in wide use, though now often improperly conflated with unconscionability:

1. Standardized form contract
2. Prepared by stronger party
3. Signed by weaker party
4. No opportunity for purchaser to negotiate terms.
5. An odd addition is the Colorado court which held that a contract is not adhesory where the desired services could be obtained elsewhere, a problematic distinction reminiscent of the "tying" argument, and which would make most franchise contracts non-adhesory, Jones v. Dressel, 582 P.2d 1057 [1978]

To say that a contract is adhesory should be descriptive, not perjorative.

One might argue that an adhesory contract requires a heightened level of scrutiny when judicial enforcement of its terms are sought against the weaker party. Nevertheless, an adhesory contract is simply a type of contract which has become common in modern commerce, and there is an economic efficiency argument which may be made in favor of adhesory contracts.

In recent years however, courts have often used the term "adhesory" as a synonym for "unconscionable." In addition, we have seen plaintiffs bringing suit on the grounds that their Franchise Agreement is (gasp!) a contract of adhesion.

The Second Circuit is particularly influential in the area of commercial litigation. Now, jurists of the 2d Circuit have begun to imply that "adhesory" is a dirty word. An early example which suggests that adhesion may occur when there is unequal bargaining power but that there is a further step to render it "unenforceable" is Aviall v. Ryder (1996):

A court will find adhesion only when the party seeking to rescind the contract establishes that the other party has used “high pressure tactics” or “deceptive language” or that the contract was the product of a gross inequality of bargaining power...

Typical contracts of adhesion are standard-form contracts offered by large, economically powerful corporations to unrepresented, uneducated, and needy individuals on a take-it-or-leave-it basis, with no opportunity to change any of the contract's terms....

To be considered an unenforceable contract of adhesion, the contract also must inflict substantive unfairness on the weaker party, because its terms are not within the reasonable expectations of that party, or because its terms are unduly oppressive, unconscionable, or contrary to public policy...

A court may refuse to enforce an agreement only if the contract is the product of procedural unfairness and suffers from one of the enumerated substantive defects. If either feature is absent, the court will enforce the contract, and even if both features are present the court's only remedy is non-enforcement, not reformation. [internal cites omitted, emphasis added]

Note that the elements which render the contract "unenforceable" are ones which would be generally applicable regardless of the adhesory nature of the contract.

By 2004, the SDNY ruling in G&R Moojestic Treats v. Maggiemoo's Internl. made this statement regarding the MaggieMoo franchise agreement:

The Franchisee Plaintiffs' arguments that the forum selection clause is unconscionable and that it is a contract of adhesion may be taken together.

"An unconscionable bargain is one which no man in his senses and not under delusion would make on the one hand, and ... no honest and fair man would accept on the other." [cite omitted]

The fact that the Franchise Agreement was presented on a take it or leave it basis and was not subject to negotiation renders it neither a contract of adhesion nor unconscionable.

"Taken together" ??!!

No, the concepts are distinct. It may or may not be "unconscionable", but it is certainly a "contract of adhesion" if the term is to be useful in conducting a legal analysis, or a new term will have to be invented to take the place of this heretofore perfectly neutral word.

One court succinctly captured the new conflation which has eviscerated "adhesion" as a useful concept:

In order to establish adhesion, a plaintiff must show fundamental unfairness in the process by which the contract was formed, as well as in the substantive terms of the contract, Kopple v. Stonebrook Fund Mgmt, 2004 WL 5653914 (NY County Supreme)

There was a time when "contract of adhesion" meant something reasonably specific. Virtually all Franchise Agreements are contracts of adhesion, but few of them would be deemed to meet the legal standard of unconscionability.

Franchisees should not assume that all jurists are so addled; zees seeking to have the Franchise Agreement voided would be well advised to base their claim on principles such as procedural and substantive unconscionability.

Conversely, franchisors should not waste a lot of effort denying that the FA is adhesory, but rather properly note that contracts are not void merely by virtue of any allegedly adhesory nature.