Synnex Corporation v. ADT Security Services, Inc.

Brief Fact Summary.

Plaintiff entered into an agreement with Defendant for a security system. The agreement contained an exculpatory clause that limited Defendant’s liability to ten percent of the annual service charge or $1000, whichever was greater. However, it stated that it would not be binding unless approved in writing by an authorized representative of Defendant. The agreement was signed by Defendant’s sales representative, not an authorized representative. Plaintiff’s insurance company brought a subrogation action in Plaintiff’s name against Defendant because intruders broke into Plaintiff’s warehouse and stole millions of dollars in equipment. The trial court ruled in favor of Plaintiff. Defendant appealed.

Synopsis of Rule of Law.

A party that performs according to a contract waives the right to condition acceptance of the contract on obtaining home-office approval.

Facts.

Synnex Corporation (Plaintiff) entered into an agreement with ADT Security Services, Inc. (Defendant) for a security system at Plaintiff’s warehouse. The agreement stated that it would not be binding unless approved in writing by an authorized representative of Defendant. The agreement contained an exculpatory clause that limited Defendant’s liability to ten percent of the annual service charge or $1000, whichever was greater. The agreement was signed by one of Defendant’s sales representative, but not an authorized representative. Defendant delivered, installed, and monitored the security system at Plaintiff’s warehouse, according to the agreement. Intruders broke into the warehouse and stole millions of dollars worth of equipment. Plaintiff’s insurance company paid Plaintiff’s claim and then brought a subrogation action in Plaintiff’s name against Defendant. The trial court held that, since an authorized Defendant representative had not signed the contract, Defendant could not rely on the exculpatory clause in the contract to limit its liability. The trial court entered a judgment for damages in favor of Plaintiff, and Defendant appealed.

Issue.

Whether a party that performs according to a contract waives the right to condition acceptance of the contract on obtaining home-office approval.

Held.

Yes. The trial court’s ruling is reversed and the case is dismissed. A party that performs according to a contract waives the right to condition acceptance of the contract on obtaining home-office approval.

Discussion.

A party may condition its acceptance of a contract on its home office’s approval of the agreement. If a party limits its acceptance in this way and fails to receive the approval, no binding contract is created. However, if the party reserving the right to home-office approval indicates its acceptance of the contract in some other way, for example by performing or partially performing according to the contract, then the party waives the right to obtain home-office approval, and a binding contact is formed. In this case, Defendant waived its right to condition acceptance of the contract on the signature of an authorized representative when it shipped, installed, and monitored the security systems at Plaintiff’s warehouse. The terms of the contract, including the exculpatory clause, are therefore binding on both parties.