Wachter Management Co. v. Dexter & Chaney, Inc.
144 P.3d 747 (2006)
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Rule of Law:
Under the Uniform Commercial Code (UCC), when a contract for the sale of goods is formed upon the signing of a written proposal, a subsequent shrinkwrap license agreement containing additional terms constitutes a proposal to modify the contract. Such a modification only becomes part of the contract if the party receiving the proposal expressly assents to the new terms; merely opening and using the goods does not constitute express assent.
Facts:
- Wachter Management Company (Wachter), a construction management company, entered into negotiations with Dexter & Chaney, Inc. (DCI), a software company, for the purchase of a software system.
- On October 15, 2003, DCI issued a written proposal to Wachter detailing the software, price, maintenance, and training.
- The proposal did not contain an integration clause or mention any additional terms that might be required in a separate license agreement.
- On October 17, 2003, an agent for Wachter accepted DCI's offer by signing the proposal at Wachter's office in Kansas.
- DCI subsequently shipped the software to Wachter.
- Enclosed with the software was a 'shrinkwrap' license agreement stating that by opening the sealed disk package, the user agreed to be bound by its terms.
- This agreement included a forum selection clause requiring any legal disputes to be resolved in the state courts of King County, Washington.
- Wachter opened, installed, and used the software but later encountered significant problems with its performance.
Procedural Posture:
- Wachter Management Company sued Dexter & Chaney, Inc. in the District Court of Johnson County, Kansas (a trial court).
- DCI filed a motion to dismiss the action for improper venue, based on the forum selection clause in its software license agreement.
- The district court denied DCI's motion to dismiss, finding the provision in the shrinkwrap agreement to be an unenforceable additional term.
- The district court certified its ruling for an interlocutory appeal.
- The Kansas Court of Appeals (an intermediate appellate court) granted DCI's request to file the appeal, making DCI the appellant and Wachter the appellee.
- The Kansas Supreme Court (the highest state court) transferred the matter to itself on its own motion before the Court of Appeals issued a ruling.
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Issue:
Does a forum selection clause contained in a shrinkwrap software license agreement, which is delivered after the parties have already formed a contract by signing a written proposal, become an enforceable part of the contract under the Uniform Commercial Code?
Opinions:
Majority - Rosen, J.
No. A forum selection clause in a shrinkwrap license agreement delivered after contract formation is not an enforceable part of the contract without the buyer's express assent to the modification. The court determined that the transaction for computer software constituted a sale of goods, making it subject to the Uniform Commercial Code (UCC). A contract between DCI and Wachter was formed when Wachter signed DCI's written proposal, as this constituted a clear offer and acceptance under UCC § 2-204. The shrinkwrap license agreement, which arrived with the software after the contract was already formed, was therefore a proposal to modify the existing contract under UCC § 2-209. Citing precedent such as Step-Saver Data Systems, Inc. v. Wyse Technology, the court reasoned that a material modification requires express assent. Wachter's action of opening and using the software was merely performance of the pre-existing contract and did not constitute express assent to the new terms. The court rejected the 'layered contracting' approach of cases like ProCD v. Zeidenberg, distinguishing them on the basis that, in this case, a formal, negotiated contract was established before the new terms were presented.
Dissenting - Luckert, J.
Yes. The choice of venue provision should have been enforced. The dissent argues that the majority mischaracterizes the license agreement as a post-contract modification. The original proposal letter from DCI explicitly stated that it 'includes modules and licenses,' which put Wachter on notice that a license agreement with additional terms was part of the offer. By signing the proposal and subsequently opening and using the software rather than rejecting it, Wachter accepted all terms of the offer, including those in the license. Alternatively, the dissent views the transaction as a 'layered contract,' where formation was not complete until Wachter accepted the license terms by its conduct. DCI, as the offeror, was entitled to specify that opening the package constituted acceptance. Wachter's conduct of opening the software, after being notified that doing so meant acceptance, was sufficient to show its agreement to the license terms.
Analysis:
This decision reinforces a significant split in authority regarding the enforceability of terms in shrinkwrap and clickwrap agreements, often referred to as the 'Battle of the Forms' in a modern context. By adopting the reasoning of the Third Circuit in Step-Saver over the Seventh Circuit's 'layered contracting' approach in ProCD and Hill, the Kansas Supreme Court champions a more traditional view of contract formation. This ruling establishes that when a formal offer and acceptance create a contract, subsequent terms sent with the product are merely proposals for modification requiring express assent. The decision serves as a caution to sellers that to ensure enforceability, all critical terms, such as forum selection or arbitration clauses, must be included in the initial contract documents or explicitly incorporated by reference before acceptance.
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