Business Law 11th Edition by Kenneth Clarkson,Roger LeRoy Miller,Gaylord Jentz,Frank Cross

Exercise 19

Mortgage Plus, Inc. v. DocMagic, Inc.
United States District Court, District of Kansas, 2004. __ F.Supp.2d __.
• Background and Facts In 1997, Mortgage Plus, Inc., a mortgage lender in Kansas, asked DocMagic, Inc., a California firm, for software to prepare and manage loan documents and for document preparation services. DocMagic sent Mortgage Plus a CD-ROM containing the software, which had to be loaded onto a computer. Before it could be installed, however, a window displayed a "Software License and User Agreement" on the screen. The agreement asked, "Do you accept all terms of the preceding License Agreement If you choose No, Setup will close." A click on a "Yes" button was needed to continue. The agreement also included a clause designating California as the venue for the resolution of any disputes. To prepare loan documents, the software asked for certain information, which it used to create a worksheet. The worksheet was e-mailed to DocMagic, which completed the documents and returned them via e-mail. Over the next six years, Mortgage Plus borrowers filed claims against the firm, alleging that the firm had made mistakes that cost the borrowers $150,000 to resolve. Mortgage Plus filed a suit in a federal district court against DocMagic, alleging that its software failed to produce documents that met certain legal requirements. The defendant filed a motion to transfer the suit to a federal court in California based on the clause in the click-on agreement.
WAXSE, Magistrate J. [Judge]
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Mortgage Plus argues the purported license agreement is invalid, as it improperly attempts to supplement and/or modify the terms of the parties' original contractual agreement. In support of this argument, Mortgage Plus maintains that prior to the subject license agreement, Mortgage Plus and DocMagic negotiated and entered into a contract whereby Mortgage Plus agreed to pay specific amounts to DocMagic in exchange for document preparation services. Mortgage Plus submits that when DocMagic shipped the software necessary to utilize these services, the parties entered into a binding contract and that neither during these negotiations nor in the resulting agreement did the parties discuss a venue where a potential dispute between the parties would have to be filed and resolved.
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* * * Mortgage Plus argues it is not bound by the Software Licensing Agreement because the license was not an "agreed-to" modification of the original agreement between the parties. The Court is not persuaded by this argument.
First, Mortgage Plus has failed to present evidence to establish existence of the phantom "original contract," including but not limited to the date the contract was formed, the terms and conditions of the contract (other than pricing) or documents memorializing the agreement. The Court cannot find the software licensing agreement improperly altered the terms and conditions of the original contractual agreement when there is no evidence that an original contractual agreement ever existed.
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Mortgage Plus next contends that even in the absence of an original agreement, it simply was not aware of and never accepted any version of the Software Licensing Agreement. In support of its contention, Mortgage Plus states * * * a click-wrap agreement consisting of a window entitled "Software Licensing Agreement" appearing prior to installation of software cannot be construed as a legally binding contract * * *.
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A license is a form of contract and is objectionable on grounds applicable to contracts in general. By the terms of the license here, installation and use of the software with the license attached constituted acceptance of the license terms. The license was "bundled" with the DocMagic software, meaning that the software required users to accept the terms by clicking through a series of screens before they could access and subsequently install the software. This type of license is known as a "click-wrap" license agreement. Such agreements are common on Web sites that sell or distribute software programs. The term "click-wrap" agreement is borrowed from the idea of "shrinkwrap agreements," which are generally license agreements placed inside the cellophane "shrinkwrap" of computer software boxes that, by their terms, become effective once the "shrink-wrap" is opened. Courts have found both types of licenses valid and enforceable. * * * [Emphasis added.]
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* * * [I]t is undisputed between the parties in this case that Mortgage Plus had to affirmatively click the "Yes" button in assenting to the Software Licensing Agreement as a prerequisite to installing the DocMagic software. It further is undisputed that the software would not be installed if Mortgage Plus did not accept the terms and conditions of the Software Licensing Agreement. Plaintiff had a choice as to whether to download the software and utilize the related services; thus, under the specific facts presented here, installation and use of the software with the attached license constituted an affirmative acceptance of the license terms by Mortgage Plus and the licensing agreement became effective upon this affirmative assent. The Court finds the click-wrap agreement here is a valid contract.
• Decision and Remedy The court concluded that the software licensing agreement was a valid contract because a user had to agree to its terms before the software could be installed and used. The forum-selection clause was thus enforceable, and the court ordered the suit to be transferred to a federal district court in California.
• What If the Facts Were Different Suppose that the individual who clicked on the "Yes" button and installed the software was not authorized to do so. Would the result have been different
• The E-Commerce Dimension If DocMagic had e-mailed the forum-selection clause to Mortgage Plus and Mortgage Plus had not responded, could the "silence" be construed as an acceptance of the clause Explain your answer.