02 June 2010

Enforceability of Vendor On-Line Terms After Written Contract Execution

National Auto Lenders, Inc. (NAL) purchases installment contracts from retail car dealers in Florida, thus enabling indirect consumer loan purchases for cars. NAL contracted with SysLOCATE to purchase over 2,000 GPS units to track vehicles covered by its loans on SysLOCATE's website SysLOCATE makes available to its customers. Unfortunately, many of these units turned out to be defective, thus frustrating NAL's ability to locate and repossess vehicles of owners in default. While the parties were trying to resolve their dispute, SysLOCATE changed the terms of its online click-accept access contract that would have effectively limited NAL's ability to recoup its losses, and that would require binding arbitration as a means of resolving disputes. NAL's executives, upon learning of these new on-line terms, instructed SysLOCATE that only certain named individuals have authority to bind NAL to the terms of any contract, including any online click-accept agreement.

Despite this, two NAL lower-level employees subsequently click-accepted the terms of SysLOCATE's online agreement. After NAL filed a lawsuit against the successor-in-interest to SysLOCATE, the latter predictably filed a motion to dismiss in favor of binding arbitration. NAL resisted such motion by arguing that these two lower-level employees lacked apparent authority to bind NAL to the new online terms containing the binding arbitration clause.

In National Auto Lenders, Inc. v. SysLOCATE, Inc. (S.D. Fla. Feb. 10, 2010), the district court agreed with NAL and denied the defendant's motion. The court ruled that the two lower-level individuals at NAL lacked apparent authority because NAL made clear that only certain executive level personnel have authority to bind the company to such terms. The court stated, "The reliance of a third party on the apparent authority of the principal's agent must be reasonable and rest in the actions of or appearances created by the principal ...." (citations omitted).

Vendors frequently deliver products, technologies or services online, even if the original contract between the vendor and the customer is a traditional written – and usually heavily negotiated – document. As a result of the SysLOCATE decision, vendors may soon start seeing language in these written agreements clarifying who within the customer's organization has authority to bind the customer to subsequent online terms, so as to avoid any possibility for the vendor to alter the terms of the written agreement via subsequent (and perhaps inadvertent) acceptance of vendor online terms. Unless the vendor implements a mechanism to ensure that only such authorized customer personnel assent to the online terms, the vendor may find itself unable to enforce such terms against the customer altogether.