Unenforceable clickwrap. National Auto Lenders, Inc. v. Syslocate, Inc. (2010)

Clickwrap held unenforceable.
National Auto Lenders, Inc. v. Syslocate, Inc. (2010)

Regina Rakipova

Syslocate, Inc. provides Global Positioning System (GPS) tracking units. The GPS units allow customers to track location of vehicles via the Syslocate website.

National Auto Lenders, Inc. provides indirect lending services for car buyers. NAL purchases installment contracts from retail car dealers and takes liens on the cars that are subject to the loans. In the event of default, NAL repossesses a vehicle. To track and locate the cars NAL uses GPS units.

NAL purchased GPS tracking units from Syslocate, however, many of them turned out to be defective. Consequently, NAL could not locate and repossess the cars on default, which caused NAL losing approximately $ 2.5 million in damages.

Two parties started negotiating a settlement for NAL’s losses. During the negotiations Syslocate began posting a series of clickwrap agreements on its website. First, Syslocate amended the online agreement, adding language which limited Syslocate’s liability for defective GPS units and, thus, effectively limited NAL’s ability to recoup its losses. Subsequently, Syslocate introduced a new clickwrap agreement which, among other things, required a combination of mediation and arbitration to settle all disputes involving the Syslocate GPS units. NAL couldn’t access the website to track and locate its vehicles without clicking through the Syslocate agreement.

Upon learning about these new online terms, NAL executives instructed the entire staff not to login to the website. NAL also notified Syslocate that only three specific NAL executive officers were authorized to enter into contracts on behalf of the company, including any online agreements. Despite this, two lower-level employees of NAL subsequently accessed the Syslocate website to track vehicles and clicked through the revised agreement.

NAL sued Syslocate and sought a preliminary injunction ordering Syslocate to continue providing NAL with tracking service without requiring NAL to accept the amended terms. Syslocate filed a motion to dismiss in favor of binding arbitration based on the terms of the online clickwrap agreement. NAL resisted such motion by claiming that the new terms had been accepted by employees who lacked authority to bind the company. NAL also stated that its executive officers were unaware of the revised clickwrap agreement existence until Syslocate filed its motion. Syslocate claimed that the employees who clicked through the agreement had apparent authority to do so. In the alternative, Syslocate argued that even if the agreement had been initially accepted by unauthorized individuals, NAL ratified the acceptance of the terms by continuing to perform under it.

The court denied defendant’s motion and agreed with the plaintiff. The court ruled that there was no apparent authority to bind the plaintiff because NAL had made it clear that only certain executives were authorized to bind the company to such terms, so for Syslocate it would be unreasonable to believe otherwise. The court ruled that there had been no ratification of the agreement either. Ratification of an unauthorized act occurs only when a principal is fully informed of it and demonstrates the intent to adopt it. Syslocate failed to provide the evidence that NAL’s executives were aware of the revised agreement and approved it. The agreement disappeared from the Syslocate website after NAL’s employees clicked through to accept it and NAL’s executives learned of it only in the course of litigation. Therefore, NAL had no knowledge of the agreement and demonstrated no intent to adopt the unauthorized actions of its employees. Accordingly, NAL did not ratify the online agreement.

As a result, the clickwrap agreement was held not binding.

For more cases check Are clickwrap agreements held enforceable by American courts?

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