Adhesion contracts, often characterized by pre-drafted terms and unequal bargaining power, present unique challenges when involving minors or legally incompetent individuals. These agreements raise questions about fairness, enforceability, and the legal protections necessary for vulnerable parties. This article examines the critical principles of full disclosure, consent, and unconscionability while incorporating a discussion of the Baby Act and its implications for contracts involving minors and incompetent individuals.
Adhesion Contracts: A Comprehensive Analysis
An adhesion contract is a standardized agreement drafted by one party (typically the stronger party, such as a corporation) and presented to the other party (the weaker party) on a “take-it- or-leave-it” basis. Examples include software licensing agreements, terms of service, and insurance policies. Adhesion contracts are not inherently unenforceable but are subject to heightened judicial scrutiny to ensure fairness and transparency.
In the context of adhesion contracts, full disclosure generally requires that the terms of the contract be clear, conspicuous, and adequately communicated to the adhering party. The following principles and cases provide guidance on what constitutes full disclosure and the consequences of failing to provide it:
Boilerplate Disclosures: Boilerplate disclosures in adhesion contracts are highly suspect because they may not adequately communicate the specific risks or terms relevant to the adhering party’s situation. Courts consider the full circumstances of the parties, including their relative bargaining power and the context of the transaction, to determine if the disclosure was sufficient. In re Seare, 493 B.R. 158 (2013)[1].
Conspicuousness and Clarity: While clear and conspicuous language alone may not suffice, contractual provisions that undermine the strong expectations of the weaker party may necessitate attention to their language and a reasonable explanation of their implications. For instance, in Wheeler v. St. Joseph Hospital, 63 Cal.App.3d 345 (1976), and Penilla v. Westmont Corp., 3 Cal.App.5th 205 (2016), it is crucial to address such provisions.
Material Information: Omitting material information from an adhesion contract can be considered unconscionable, particularly when it involves the forfeiture of crucial consumer protections. For example, in OConner v. Agilant Solutions, Inc., 444 F.Supp.3d 593 (2020), such omissions can lead to legal consequences.
Specific Disclosures: In certain contexts, such as securities offerings, comprehensive and adequate disclosure is required, encompassing detailed information about the issuer, the business, and the securities being offered. This includes procedures for prospective purchasers to inquire and receive responses, as well as mechanisms to obtain additional information for verification purposes (3 AAC 08.515).
Reasonable Expectations: Adhesion contracts must not infringe upon the reasonable expectations of the adhering party. For instance, arbitration provisions that impose exorbitant fees or are not prominently displayed may be deemed unenforceable, as exemplified in Penilla v. Westmont Corp., 3 Cal.App.5th 205 (2016).
Case-Specific Requirements: The required information for disclosure can vary depending on the specific context. For instance, in the context of legal services, a boilerplate disclosure may not adequately inform a client about the potential risks associated with unbundling legal services, as highlighted in In re Seare, 493 B.R. 158 (2013).
Full Disclosure
Full disclosure mandates that the drafting party provide comprehensive information regarding the terms and consequences of the agreement. This ensures that the other party has ample time and opportunity to review the contract and comprehend its implications.
In adhesion contracts, full disclosure requires that the terms be unambiguous, conspicuous, and adequately communicated to the weaker party. This entails ensuring that the weaker party is cognizant of and consents to the terms, particularly those that may deviate from their reasonable expectations or impose substantial obligations.
Conspicuousness and Clarity
The terms must be clearly written and conspicuous. For instance, in Bruni v. Didion, the court recognized that the judicial reference provision was “clearly written, entirely capitalized, and easily comprehensible.” Bruni v. Didion, 160 Cal.App.4th 1272 (2008)[1]. Similarly, in Allan v. Snow Summit, Inc., the court emphasized that the release provisions were prominently displayed, utilizing large, bold type, and that the notice was “plain and unambiguous.” Allan v. Snow Summit, Inc., 51 Cal.App.4th 1358 (1996)[2].
Awareness and Understanding
While clarity and conspicuousness are crucial, the weaker party must also be made aware of the terms. In Wheeler v. St. Joseph Hospital, the court held that where a contractual provision would adversely affect the strong expectation of the weaker party, it may be necessary to draw their attention to the provision’s language and provide a reasonable explanation of its implications. Wheeler v. St. Joseph Hospital, 63 Cal.App.3d 345 (1976)[3], Nagrampa v. MailCoups, Inc., 469 F.3d 1257 (2006)[4].
Opportunity to Review and Consent: The weaker party must have a reasonable opportunity to review the terms and provide informed consent. In Berkson v. Gogo LLC, the court held that proof of specialized knowledge based on the background of the potential buyer or adequate warning of adverse terms by the design of the agreement page or pages should be required before adverse terms are enforced. (Berkson v. Gogo LLC, 97 F.Supp.3d 359 (2015))[5].
Additionally, in Nagrampa v. MailCoups, Inc., the court emphasized that courts will not enforce provisions limiting the duties or liabilities of the stronger party unless plain and clear notification of the terms and an understanding consent is provided. (Obstetrics and Gynecologists William G. Wixted, M.D., Patrick M. Flanagan, M.D., William F. Robinson, M.D. Ltd. v. Pepper, 101 Nev. 105 (1985))[6].
Avoiding Procedural Surprise: The terms should not be concealed within a lengthy printed form or written in complex legal jargon that renders them incomprehensible. In Longboy v. Pinnacle Property Management Services, LLC, the court elucidated that surprise arises when the allegedly unconscionable provision is concealed within a lengthy printed form or employs intricate language that impedes comprehension (Longboy v. Pinnacle Property Management Services, LLC, 718 F.Supp.3d 1004 (2024))[7].
Reasonable Expectations: The terms of the contract should not be so restrictive as to defeat the reasonable expectations of the weaker party. In Obstetrics and Gynecologists William G. Wixted, M.D., Patrick M. Flanagan, M.D., William F. Robinson, M.D. Ltd. v. Pepper, the court held that an adhesion contract can be enforced even if it falls within the reasonable expectations of the weaker party and is not unduly oppressive. Obstetrics and Gynecologists William G. Wixted, M.D., Patrick M. Flanagan, M.D., William F. Robinson, M.D. Ltd. v. Pepper, 101 Nev. 105 (1985).
Consent: Defined
Consent in contract law requires mutual assent—a meeting of the minds between the parties. This is demonstrated through the offer, acceptance, and understanding of the terms. However, in adhesion contracts, the imbalance of power often raises questions about whether consent was genuinely given.
In the context of adhesion contracts, full disclosure and consent are critical concepts that determine the enforceability of such contracts.
Full Disclosure:Full disclosure in adhesion contracts means providing all the necessary information to the non-drafting party so they can make an informed decision. This includes knowledge of risks involved and available alternatives. The term “informed consent” implies that a person’s consent is based on a full disclosure of the facts needed to make the decision intelligently (20 Ill. Adm. Code 1905.20)[1].
Consent and Assent:Consent in adhesion contracts is often called into question due to the standard form, small print, and the disadvantageous position of the accepting party, which is further emphasized by the potentially unequal bargaining positions of the parties Aguillard v. Auction Management Corp., 908 So.2d 1 (2005))[2], Sutton Steel & Supply, Inc. v. BellSouth Mobility, Inc., 971 So.2d 1257 (2007))[3]. The key issue is whether the non-drafting party truly consented to the terms. If the non-drafting party did not consent to the terms in dispute or if their consent was vitiated by error, the contract or provision may be rendered unenforceable (Ameriprint, LLC v. Canon Solutions America, Inc., Not Reported in So. Rptr. (2021))[4], (Ameriprint, LLC v. Canon Financial Services, Inc., Not Reported in So. Rptr. (2021))[5].
Key Points on Consent:
Standard Form and Small Print: These elements can call into question whether the non-drafting party truly consented to the terms Aguillard v. Auction Management Corp., 908 So.2d 1 (2005)) [2], Sutton Steel & Supply, Inc. v. BellSouth Mobility, Inc., 971 So.2d 1257 (2007))[3].
Disadvantageous Position: The non-drafting party’s consent is further questioned if they are in a disadvantageous position compared to the drafting party Aguillard v. Auction Management Corp., 908 So.2d 1 (2005))[2], Sutton Steel & Supply, Inc. v. BellSouth Mobility, Inc., 971 So.2d 1257 (2007))[3].
Unequal Bargaining Positions: An unequal bargaining position is evident when the contract unduly burdens one party in comparison to the burdens imposed upon the drafting party and the advantages allowed to that party Aguillard v. Auction Management Corp., 908 So.2d 1 (2005))[2], Sutton Steel & Supply, Inc. v. BellSouth Mobility, Inc., 971 So.2d 1257 (2007))[3].
Error Vitiating Consent: If the non-drafting party’s consent was vitiated by error, the contract or provision may be unenforceable Aguillard v. Auction Management Corp., 908 So.2d 1 (2005)) [2], Sutton Steel & Supply, Inc. v. BellSouth Mobility, Inc., 971 So.2d 1257 (2007))[3].
Legal Standards:
Louisiana Civil Code Article 1927: A contract is formed by the consent of the parties established through offer and acceptance. Consent may be indicated orally, in writing, or by actions that clearly indicate consent under the circumstances (LSA-C.C. Art. 1927)[6].
Case Law: Courts often look at whether the non-drafting party had a reasonable opportunity to examine the terms before adhering to the contract Berkson v. Gogo LLC, 97 F.Supp.3d 359 (2015))[7]. The enforceability of adhesion contracts depends on whether the terms are beyond the reasonable expectations of an ordinary person or are oppressive or unconscionable Wheeler v. St. Joseph Hospital, 63 Cal.App.3d 345 (1976))[8].
Full Disclosure in Adhesion Contracts Legal Framework
Federal regulations mandate that creditors provide disclosures in writing and in a format that allows the consumer to retain and review the document before signing (12 C.F.R. Pt. 1026, Supp. I, Part 2)[1]. This provision ensures that consumers can make informed decisions without undue pressure.
Judicial Interpretation
Courts have emphasized that full disclosure must enable the receiving party to make a meaningful decision. For example, in Miles v. Werle, the court held that while no absolute standard for adequacy exists, disclosure must provide sufficient information to allow for an informed decision (Miles v. Werle, 977 S.W.2d 297 (1998))[1].
Application in Government Contracts
In government contracts, full disclosure is equally critical. Contractors are required to disclose potential conflicts of interest, and failure to do so can result in disqualification or termination of the contract (48 C.F.R. 1509.505–70)[2].
Consent: The Role of Capacity and Assent Capacity to Consent
Legal capacity refers to the ability of a party to understand the nature and consequences of entering into a contract. Minors and incompetent individuals often lack this capacity, rendering their contracts voidable.
Mutual Assent
Mutual assent requires both parties to agree to the same terms. In adhesion contracts, the imbalance of power may undermine this requirement, as the weaker party often has little choice but to accept the terms as presented.
Special Protections for Minors and Incompetent Individuals The Baby Act and Voidability of Contracts
Under the Baby Act, contracts entered into by minors or incompetent persons are generally considered voidable, not void. This distinction means that the contract is valid until the minor or incompetent person actively disaffirms it. The primary purpose of this rule is to protect vulnerable individuals from their lack of experience, judgment, or understanding, as well as from exploitation by others.
In adhesion contracts, the Baby Act generally refers to laws that protect minors by allowing them to disaffirm contracts they entered into before reaching the age of majority. This protection is based on the principle that minors lack the capacity to fully understand and consent to contractual obligations, thus making their contracts voidable rather than void (Matullo v. Sky Zone Trampoline Park, 472 N.J.Super. 220 (2022))[1].
Application of the Baby Act:
Voidable Contracts: Contracts entered into by minors are typically voidable at the minor’s discretion. This means that minors can choose to disaffirm the contract either before reaching the age of majority or within a reasonable time afterward Cherdak v. ACT, Inc., 437 F.Supp.3d 442 (2020))[2].
Disaffirmance: The right to disaffirm is a legal protection for minors, allowing them to avoid contracts that they entered into due to their lack of judgment and experience Cherdak v. ACT, Inc., 437 F.Supp.3d 442 (2020))[2].
Exceptions: Some exceptions exist where minors may be estopped from disaffirming a contract if they induced the other party to enter into the contract by fraud (Off the Wall & Gameroom LLC v. Gabbai, 301 So.3d 281 (2020))[3]. Additionally, contracts for necessaries (e.g., food, clothing, medical care) are generally not voidable Cherdak v. ACT, Inc., 437 F.Supp.3d 442 (2020))[2].
Effect on Minors and Incompetents:
Minors: Minors have the right to disaffirm contracts to protect themselves from their own improvidence and the designs of others. This right is conferred by law to shield minors from their lack of judgment and experience (Off the Wall & Gameroom LLC v. Gabbai, 301 So.3d 281 (2020))[3].
Incompetents: Similar protections apply to individuals deemed incompetent, as they are also considered to lack the capacity to fully understand and consent to contractual obligations Creech ex rel. Creech v. Melnik, 147 N.C.App. 471 (2001))[4].
Full Disclosure and Consent/Assent:
Full Disclosure: This term generally refers to the obligation to provide all relevant information to the other party in a contract, ensuring that they are fully informed before consenting to the agreement.
Consent/Assent: In the context of contracts, consent or assent refers to the agreement of the parties to the terms of the contract. For minors, this consent is often scrutinized due to their lack of capacity to fully understand the implications of the contract (Matullo v. Sky Zone Trampoline Park, 472 N.J.Super. 220 (2022))[1].
To demonstrate that a contract is voidable under the Baby Act, the plaintiff must prove the following elements:
- Minor or Incompetent Status:
The plaintiff must establish that the individual was a minor or legally incompetent at the time the contract was made. For minors, this is straightforward, requiring proof of age. For incompetents, evidence of a mental condition that impaired their ability to understand the contract’s nature and consequences is necessary (Ga. Code Ann., § 13-3-24)[1].
- Lack of Capacity:
The plaintiff must show that the individual lacked the mental ability to comprehend the terms and implications of the agreement when it was made (New York Life Insurance Company v. Mitchell, 1 Wash.3d 545 (2023))[2].
- Disaffirmance:
The minor or incompetent person must actively disaffirm the contract. This action can occur during their minority or within a reasonable time after reaching adulthood or regaining competence. Disaffirmance can be explicit, such as a formal declaration, or implicit, such as actions inconsistent with the contract’s terms (Jones v. Dressel, 40 Colo.App. 459 (1978))[3].
- Exceptions:
Certain contracts are binding even if entered into by a minor or incompetent person. These include:
- Contracts for necessaries, such as food, clothing, and shelter.
- Situations where the minor misrepresented their age or engaged in business as an adult, potentially estopping them from disaffirming the contract (Dillon v. Burnham, Hanna, Munger & Co., 43 Kan. 77 (1890))[4].
Voidability in Practice
Courts carefully evaluate whether the individual acted within a reasonable timeframe to disaffirm the agreement. For minors, this period typically extends until shortly after they reach the age of majority. Incompetent individuals may disaffirm upon regaining competence.
Unconscionability: A Critical Check on Adhesion Contracts Defining Unconscionability
Unconscionability arises when a contract is so one-sided that enforcing it would be unjust. Courts evaluate both procedural and substantive elements:
- Procedural Unconscionability: Refers to unfairness in the formation process, such as hidden terms or lack of negotiation.
- Substantive Unconscionability: Focuses on whether the terms themselves are overly harsh or one-sided.
Judicial Application
Courts consider both procedural and substantive unconscionability when determining enforceability. In James v. National Financial, LLC, the Delaware court invalidated a payday loan agreement where the terms were excessively unfavorable to the borrower (James v. National Financial, LLC, 132 A.3d 799 (2016))[3].
Key Factors in Determining Voidability
To void an adhesion contract, the plaintiff must demonstrate the following:
- Lack of Genuine Consent: Proving that consent was undermined by factors like coercion or error (Aguillard v. Auction Management Corp., 908 So.2d 1 (2005))[3].
- Unconscionability: Establishing both procedural and substantive unfairness (Bradley v. National Collegiate Athletic Association, 464 F.Supp.3d 273 (2020))[2].
- Disparity in Bargaining Power: Highlighting power imbalances that prevented meaningful negotiation (Stelluti v. Casapenn Enterprises, LLC, 203 N.J. 286 (2010))[3].
- Economic Compulsion: Demonstrating financial pressure that forced agreement to unfavorable terms (Vitale v. Schering–Plough Corporation, 231 N.J. 234 (2017))[4].
- Violation of Reasonable Expectations: Showing that the contract terms violated the weaker party’s reasonable expectations, a concept often linked to substantive unconscionability (Bruni v. Didion, 160 Cal.App.4th 1272 (2008))[5].
Government Contracts and Public Policy
Adhesion contracts in government contexts are subject to additional scrutiny due to their public nature. Full disclosure and consent remain critical, with contractors required to disclose potential conflicts of interest under federal regulations. Failure to comply can lead to disqualification or other penalties (48 C.F.R. 1509.505–70)[2].
Conclusion: Balancing Fairness and Enforceability
Adhesion contracts are a cornerstone of modern commerce, but their fairness and enforceability depend on adherence to principles of full disclosure, mutual consent, and protections for vulnerable parties. The Baby Act plays a crucial role in safeguarding minors and incompetent individuals, allowing them to disaffirm unfair agreements while providing exceptions for necessities and situations involving misrepresentation.
By ensuring transparency and equity, courts and contracting parties can uphold the integrity of contractual relationships while protecting the rights of vulnerable individuals.
