Nirvana International, Inc. v. ADT Security Services, Inc.

District Court, S.D. New York
881 F. Supp. 2d 556 (2012)

ELI5:

Rule of Law:

When an offeree has knowledge of all terms of an offer, fails to communicate rejection of those terms, and accepts the benefits of the offeror's performance, the offeree's conduct constitutes acceptance of all terms, including those on an unsigned portion of the agreement.

Facts:

Nirvana International, Inc. ('Nirvana'), a jewelry store, contracted with ADT Security Services, Inc. ('ADT') for the installation of an alarm system.
The multi-page contract presented to Nirvana's owner, Amit Sharma, contained a 'LIMITATIONS ON LIABILITY' clause on page 6 of 6, capping ADT's liability at $1000.
The first page of the contract, which Sharma signed, stated that additional terms and conditions were on the accompanying pages.
On May 17, 2010, Sharma informed ADT's representative that he needed to review the terms on pages 4-6 before agreeing to them and did not sign or initial the acceptance block on page 6.
Sharma later decided the terms were unacceptable but never communicated this rejection to ADT.
On June 8, 2010, Sharma allowed ADT to install the alarm system and subsequently began paying the monthly monitoring fee.
On December 4, 2010, burglars broke into Nirvana's store, the ADT alarm system failed to activate, and approximately $2.4 million in merchandise was stolen.
After the burglary, ADT produced a copy of the contract that appeared to have Sharma's forged signature on page 6.

Procedural Posture:

Nirvana International, Inc. sued ADT Security Services, Inc. in the U.S. District Court for the Southern District of New York for breach of contract, negligence, gross negligence, and forgery/fraud.
ADT filed a motion to dismiss the complaint based on the contractual limitation of liability clause.
Nirvana filed an amended complaint.
ADT re-filed its motion to dismiss the amended complaint for failure to state a claim upon which relief can be granted.

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Issue:

Does a party accept all terms of a contract, including a limitation of liability clause on an unsigned page, by knowingly accepting the benefits of the service after having a reasonable opportunity to review and reject those terms?

Opinions:

Majority - McMahon, District Judge.

Yes, a party accepts all terms of a contract by knowingly accepting the service's benefits after a reasonable opportunity to reject the terms. Under the doctrine of acceptance by conduct, as articulated in the Restatement (Second) of Contracts § 69, an offeree's silence and inaction operate as acceptance when they take the benefit of offered services with a reasonable opportunity to reject them and with knowledge of the offer's terms. Here, Sharma knew about the limitation of liability clause, did not communicate his rejection to ADT, and accepted the benefits of the contract by allowing ADT to install the alarm system and paying for the service. This conduct manifested his assent to all terms of the offer, making the unsigned limitation of liability clause binding. The alleged forgery of Sharma's signature is legally irrelevant because his acceptance was already implied by his conduct.

Analysis:

This decision strongly affirms the contract law principle of 'acceptance by conduct' or 'implied acceptance.' It clarifies that a party cannot silently harbor objections to known contractual terms while simultaneously accepting the benefits of performance; such action will be construed as acceptance of the entire agreement. The ruling emphasizes that objective manifestations of assent (like accepting services) are more legally significant than subjective, uncommunicated intent (like deciding not to agree). For future cases involving standard form contracts, this precedent reinforces that offerees have an affirmative duty to reject terms they find unacceptable before accepting performance, or they risk being bound by them, regardless of a missing signature.

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