By Anna Savino – Post Bar Clerk
Form contracts are used in a majority of business transactions today. Unfortunately, many business owners and consumers who sign form contracts do not read the terms before signing the form contract or even sign the form with a misconception of what the terms actually propose.
These form contracts are also known as contracts of adhesion. An adhesion contract is a standardized contract, which is imposed and drafted by a party with superior bargaining power and offers the contract on a “take it or leave it” basis. Most form contracts have been carefully drafted so that the contract is certain and unambiguous. The contract is enforceable, which binds the signatory to every provision contained therein.
Form contracts are very common with larger businesses that provide one particular good or service or a limited number of goods and services. They offer an efficient and resourceful mechanism to distribute the goods and services to a large number of consumers since the seller offers the same goods or services. Form contracts reduce transaction costs for a seller by eliminating the need to negotiate the details of a contract. Form contracts can be beneficial for both parties of the transaction if the seller correctly and accurately advises the consumer of the provisions of the contract and advises them to read over or have an attorney read over the provisions. However, form contracts can be used to trick or take advantage of smaller businesses and consumers because of the unequal bargaining power between the parties.
Sometimes form contracts are drafted so carefully where the more favorable or more “important” terms such as the price and quantity, are outlined on the front. The terms that benefit the seller are then slipped into the less visible, fine print clauses that are less likely to be read or understood by consumers. In many cases, the consumer may not even see or know that they entered into a contract until performance is required. In some cases, the seller knows and takes advantage of the knowledge that consumers will not read or make decisions based on these unfair terms.
Small business owners and consumers should know how important reading the contract is to ensure they are receiving a fair bargain. Many of these contracts contain provisions that are not drafted in favor of the consumers. In fact, most of the provisions are completely one-sided and favor the company providing the service, leaving all the risk on the consumer. The contract may even contain a provision for a long-term commitment or could even automatically renew for another lengthy term. The sellers are trying to obtain business and some will say and do everything they can to get consumers to sign a form and trap them into a binding contract.
Once the consumer signs the contract and is bound by the contract, they will either have to perform the terms as written or pay a cancellation fee. The fees can be harsh because they are meant to keep consumers bound to the contract. Consumers may have to pay these cancellation fees, even if the seller does not perform at all. Whether the consumer read the form contract or how the seller represented the form contract is not a defense and the contract is enforceable. The signatory of the contract is responsible for every provision contained on the form contract.
If consumers do not perform and they do not pay the cancellation fees, the seller may sue for breach of contract. The signatory of the form contract probably did not realize that the contract provides a binding arbitration clause, so an arbitrator will hear the dispute and the consumer will not get their day in court.
Consumers and businesses alike need to be aware of the form contracts and should negotiate, or at the very least read all the terms before they sign any form from sellers. Consumers should not be afraid to negotiate terms and know that if the seller is not willing to negotiate, they can take their business elsewhere. Consumers may believe that other businesses are more expensive, but the reality is although these other businesses may provide higher up front costs, the consumer may be spending more in the long run.