This article is written by G Krishna Chaitanya , Keshav memorial college of law , 3rd year BA LLB student during an internship at LeDroit India .
KEY WORDS
1.Adhesive Contracts
2.Commercial Contracts
3.Bargaining Power
4. E-contract
5.Unconscionability
INTRODUCTION
A contract of adhesion, commonly known as an “adhesion contract,” is a type of agreement where one party sets the terms, and the other party has little to no opportunity to negotiate them. These contracts are typically offered on a “take it or leave it” basis, with the stronger party—usually a business or organization—drafting the terms that the weaker party must accept to enter into the agreement. Adhesion contracts are frequently used in consumer transactions, such as insurance policies, leases, or service agreements, where standard terms apply uniformly to a large number of customers. While they offer efficiency by simplifying transactions, they can also raise fairness concerns, particularly if the terms are excessively one-sided or hidden in fine print.
HISTORY
1. Early origin : Adhesion contracts have been around for ages ,but these contracts become more common as business expands . Adhesion contracts were first introduced in French civil law .Then they later entered American law when Edwin W.Patterson’s article on life insurance contracts was published in the Harvard Law Review in 1919 .Adhesion contracts have evolved over the years to come into legality and enforceability . In the early 17th -19th centuries standardized contacts emerged in maritime and transportation industries.
2. Legal evolution : At starting enforcing of adhesion of contracts were not sure by courts because they could be unfair and unequal to the weaker side party .In courts the judges noticed that if only a one party in contract having more powers and more bargaining power ,they might slip in term that were unfair or even against the law .
3.Rise of Consumerism : There was a massive difference and big difference in the buying of the stuff by the people during the 20th century . To speed up the deals companies turned to standardized contracts and made things simpler . It leads to lots of adhesion contracts like insurance ,software licenses and credit cards .
4. Legal Challenges and Protections : To protect the people from bad contracts courts came up with new ideas like “unconsciousability” .These laws often make companies tell important consumers stuff and might cancel contracts with sneaky or unfair or illegal terms .
ENFORCEABILITY OF ADHESIVE OF CONTRACT
1Fair matters : Firstly, most courts look at whether the contract is fair to both parties . If there is an unfair or unequal or bad deal for the one side party ,the court might object to the enforceability of the contract .
2.Public Policy : Sometimes the terms and conditions of a contract might go against the welfare of the public . It means the terms may be bad or unfair for the public . For example if a contract asks someone to do something illegal ,like selling or buying drugs the court won’t enforce it . Generally public policy must be useful and provide safeguards for everyone .
3.No Tricks Allowed : The consent of entering into contract must be voluntary by the party the court also looks at this . If one side used tricks or lies to get the other side to sign the contract .For example If someone threatens to hurt you if u don’t sign a contract .There must be fair consent .
4.Clear and Unambiguous Language :Courts generally make sure that the language or the content of the contract’s terms should be appropriate and clear and must not be offensive . the language used must not be vague ,ambiguous or complex to the extent that it could mislead or confuse the adhering party; the court may invalidate or interpret it against the drafting party .
CHARACTERISTICS OF CONTRACT OF ADHESION
- It has Unequal bargaining power.
- Imbalanced rights and obligation
- Consist of standardized terms .
- Limited or no negotiation of rules and regulations.
APPLICATION OF ADHESION CONTRACT
1.Consumer Transactions : When you buy or sign up for services ,you often have to agree to a certain list of rules and regulations or conditions. These are adhesion of contracts. Usually Companies make all the rules ,and you have to either agree to them or you don’t get to have the services or their stuff.
2 . Financial Services : Generally these adhesion contracts are the most favorite type of contracts to banks and credit companies .So usually when you open an account or get a credit card ,there are a list of rules , so you can’t alter any of the sentence or the terms in it . If you agree with the services or the things you can use it .
3 .Insurance Policies : The most classic adhesion contracts are Insurance contracts .Whether its health insurance or car insurance ,or home insurance the terms and conditions are already prior set by the insurance company .
4.Employment Agreement : When you start a certain new job , you usually have to sign a set of papers that contains rules and regulations of a company .These can also be an adhesion contract ,mainly when you are in a lower level position or working for a big reputed firm .
5.Real Estate Transactions : In real estate most there are adhesion contacts while buying or selling a house and involves signing them. For example you are renting an apartment ,your lease probably lays out all the rules and regulations .
ISSUES WITH ADHESION OF CONTRACT
1.Unfair Terms
2.Potential for exploitation
3.Limited resources for weaker party
4.Lack of Transparency
EXAMPLES OF CONTRACTS OF ADHESION
1.Insurance policies
2.Software licenses
3.Online terms and conditions
4.Credit card agreements
5.Employment contacts
PROTECTION AGAINST UNFAIR ADHESION CONTRACTS
1.Read contracts Carefully
2.Seek Professional Advise
3.Understand your Rights
4.Negotiate when Possible
5.Consider Alternative Providers
LAW AND REGULATIONS
1.Indian Contract Act ,1872 : Sections 14, 15 and address unfair contracts.
2.Consumer Protection Act , 1986: It protects consumers from unfair trade practices .
3.Competition Act ,2002: prohibits unfair business practices .
4.Information Technology Act 2002: Regulates electronic contracts .
Sector -specific Regulations:
1.Banking : Reserve Bank of India (RBI) provides guidelines on unfair contract terms .
2.Insurance :Insurance Regulates and Development Authority (IRDAI) regulations.
3.E-commerce :Consumer protection (E-Commerce )Rules, 2020.
LANDMARK CASES
1.Central Inland Water TransportCorp.Ltd.v.Brojo Nath Ganguly (1986).
https://sites.google.com/view/landmarkcases/home
2.State of West Bengal v. M/S. Kesoram Industries Ltd. (2004): Held that unfair contracts can be struck down.
https://sites.google.com/view/landmarkcases/home
3. Delhi Development Authority v. Skipper Construction Co. (P) Ltd. (1996): Emphasized the importance of good faith in contracts.
In conclusion, adhesion contracts play a vital role in modern transactions, offering efficiency and uniformity in dealings between businesses and consumers. While they streamline processes by providing standardized terms, they can sometimes disadvantage the party with less bargaining power. Therefore, it is crucial for those entering into such agreements to thoroughly review the terms and understand their rights. Legal frameworks often provide protections to ensure that these contracts are not unfairly one-sided, balancing the need for efficiency with the need for fairness in contractual relationships.There are unfair terms and conditions to both parties in agreement
REFERENCES
- https://www.emerald.com/insight/content/doi/10.1108/CASE.IIMA.2020.000036/full/html
- https://www.taylorfrancis.com/chapters/edit/10.4324/9780429328442-6/industry-west-bengal-left-front-regime-srikumar-bandyopadhyay-partha-pratim-basu
- https://heinonline.org/HOL/LandingPage?handle=hein.journals/ijlj7&div=38&id=&page=
