Adhesion Contracts – What are they?

Adam Keilen Business/Corporate Law

A contract of adhesion is a standard form drafted by one party, usually a party with stronger bargaining power, and signed by the other party, usually a party with weaker bargaining power. Adhesion contracts most often involve a consumer who needs goods or services, and the consumer is required to adhere to the contract as a perquisite for the good or service – in other words, there is no opportunity to negotiate or modify the terms. Common examples include contracts for: mortgages, leases, ski tickets, cell phone agreements, auto purchase agreements, deeds, and credit card agreements.

Why does it matter? Michigan law is unique. Most state courts look very carefully at adhesion contracts, and in some cases, the court will void certain provisions due to unequal bargaining power, unfairness, and unconscionability. In some cases, the court may apply the “doctrine of reasonable expectations,” meaning the court will invalidate parts of the contract so that it reflects what the customer would have reasonably expected in the agreement. When making revisions, most courts consider:

  • The way the contract was formed;
  • Lack of notice;
  • The parties’ bargaining power;
  • Unfair surprise; and
  • Substantive (the terms of the agreement) unfairness.

However, in Michigan, regardless of whether a contract is adhesive, the court will not revise the language. In Michigan, contracts are interpreted as written. Rory v Continental Insurance Co, 473 Mich. 457 (2005).

The take away. In Michigan, there is no adhesion contract rule, so Michigan courts will not analyze the reasonableness of contract terms. Michigan courts will enforce the contract as written, so know what is in it before you sign it.

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