- Front Page
- Biz Tools
The Franchise Owner's most trusted news source
A "take it or leave it" standard form contract in which one party is able to dictate almost all the terms of the agreement to the other party. It is also known as contract of adhesion, adhesory contract, adhesive contract, adhesionary contract, take-it-or-leave-it contract and leonine contract. Adhesion contracts are commonly used for consumer contracts such as insurance, mortgages, automobile or online software usage.
Although courts almost never void franchise contracts of adhesion, they do pay close attention to contracts of adhesion with other groups for unconscionable terms.
Courts carefully scrutinize adhesion contracts and sometimes void certain provisions because of the possibility of unequal bargaining power, unfairness, and unconscionability. Factoring into such decisions include the nature of the assent, the possibility of unfair surprise, lack of notice, unequal bargaining power, and substantive unfairness. Courts often use the "doctrine of reasonable expectations" as a justification for invalidating parts or all of an adhesion contract: the weaker party will not be held to adhere to contract terms that are beyond what the weaker party would have reasonably expected from the contract, even if what he or she reasonably expected was outside the strict letter of agreement. – Cornell University Law School Legal Information Institute
Franchise adhesion contracts as consumer contracts: One legal scholar observes that contracts of adhesion are not the right tool for franchisees.
"Traditionally parties to commercial contracts were of equal bargaining strength, and only signed contracts that had genuinely been negotiated. The franchising contract challenges these assumptions. In franchising, the contract between the franchisor supplier and franchisee consumer conforms to 21st century consumer contract norms. These norms include the intrusion of the standard form into the domain of relational commercial contracts," writes Australian professor Jennifer Mary Buchan in her doctoral thesis Franchisor Failure: An Assesment of the Adequacy of Regulatory Response.
Franchisor attorneys often argue that franchisees are not consumers but are sophisticated business investors. But some scholars say that if that is the case then the contracts between the supposed franchisee sophisticated business investors is the wrong tool. Legal scholar Buchan points out that contracts of adhesion can be exited for consumers and investors, despite these consumers having a choice of signing or not signing an adhesory contract. She also points out that current practices allow consumers to return products for refunds should they not be satisfied with the product they buy under contracts of adhesion. However, no such consumer remedy exists for modern franchise owners.
Some courts have ruled franchise contracts are not adhesory because the franchisee candidate can choose to not sign it to become a franchisee: Robert Purvin, chairman of the American Association of Franchisees and Dealers writes in his book, The Franchise Fraud: How to Protect Yourself Before and After You Invest makes the case that caveat emptor has lost its legal savor for centuries in America. "The legal restraints on freedom of contract and freedom of the market have been enacted in an effort to blunt the tyranny of the marketplace when unequal bargaining strength is involved. In essence, our investor protection laws are intended to make the free market work the way we expect it to."
But attorney Purvin is quick to point out that franchise arrangements have been able to escape the Wild West approach of buyer beware. "Perhaps even more shocking, most law courts have held that franchise agreements are not adhesion contracts for the simple reason the franchisee had the choice "to sign" or "not to sign." By denying franchisees protection under two of our legal system's major doctrines of investor and consumer protection, franchising remains the only significant consumer industry where caveat emptor – in this instance, 'let the franchisee beware"—is still the law of the land."