Plaintiff Mortgage Plus, Inc., a Kansas mortgage lender, sought to utilize defendant's DocMagic, Inc.'s proprietary software and services to assist in the prepararation and management of loan-closing documents. DocMagic shipped a CD-ROM containing its software to Mortgage Plus, which subsequently installed the software. To complete the installation process, a Mortage Plus employee had to click through a window displaying a Software License and User Agreement. A forum selection clause contained in this agreement designated Los Angeles, California as the forum for “any cause of action arising under this Agreement.” Six years after first installing the software, Mortgage Plus sued DocMagic in Kansas state court for breach of contract and negligent misrepresentation on the grounds that the latter’s software failed to produce documents which met the standards of the federal Truth in Lending Act. The plaintiff removed the suit to Kansas federal court, which issued the current opinion. Mortgage Plus argued that the “click-wrap agreement” was not a binding contract but an unaccepted proposal for modification of the terms of an earlier, oral contract between the parties. In Klocek v. Gateway, this Court invalidated a “shrink-wrap” licensing agreement bundled with a computer sold to the plaintiff under Kansas’ implementation of Uniform Commercial Code § 2-207. (A shrink-wrap agreement is similar to a click-wrap agreement in that the seller asserts that its terms become binding upon some action necessary to use the product, here, opening the box. Also, the terms in both shrink-wrap and click-wrap agreements are not necessarily available to the buyer until after the product is delivered.) Although § 2-207 regulates contractual acceptances between two merchants, Comment 2 of the Kansas implementation at K.S.A. 84-2-207 protects consumers by providing that if there is an earlier binding contract between two parties and either one of the parties is not a merchant, then additional terms contained in a later written acceptance are not valid unless the other side expressly accepts them. The Court in Klocek found the plaintiff consumer orally offered to buy, and the defendant Gateway Inc. accepted by shipping the computer. The shrinkwrap agreement bundled with the computer thus purported to add additional terms to this contract for sale of goods. Because the plaintiff did not expressly agree to its terms, the court refused to enforce the shrinkwrap terms. Analogizing to this case, Mortgage Plus argued that its original offer with DocMagic occurred when the parties agreed on prices, and DocMagic accepted this offer when they shipped the CD-ROM containing DocMagic software.
The Court rejected plaintiff’s argument that there was an original contract between the parties because the plaintiff produced no evidence of the agreement. It then distinguished Klocek on the facts. Unlike the Klocek shrink-wrap contract, which was bundled with the product and required no acceptance, the click-wrap agreement required an employee for the plaintiff to “affirmatively click” the “Yes” button before software installation. Furthermore, the the U.C.C. provisions did not apply because the contract with DocMagic was primarily for document-processing services, without which the software was useless, and the U.C.C. only applies to sale of goods. The Court held that the click-wrap agreement was a valid and enforceable contract.
Plaintiff argued that the unspecified employee who installed the software did not have the ability to bind Mortgage Plus by his or her clicking of the Yes button. However, since the company used defendant’s software and services for six years, during which time it installed the software on at least three separate occasions, the plaintiff “ratified” the unauthorized agreement by its conduct. The Court also found sufficient consideration for the clickwrap agreement in the fact that Mortgage Plus agreed to pay DocMagic a fee in exchange for permission to install its software and to its services. Lastly, the Court held the plaintiff’s tort claims could be bound to the forum selection clause as well as the breach-of-contract claims because they arose from the same factual matter – i.e. whether DocMagic’s software operated properly – and the broad language of the forum selection clause encompassed both.
The breadth of this holding is uncertain. It upholds click-wrap contracts where the user must affirmatively click Yes, while leaving the holding in Klocek, a case rejecting a shrink-wrap contract, intact. It also suggests that the outcome might be different in a contract for goods rather than services, because the U.C.C. would apply.