This article is written by Shruti Chaurasia, pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution from Lawsikho.
Today, buying and selling of goods online have become an integral part of everyday life. Typically, E-commerce is the process of transaction of goods and services over the internet. Some of the examples of e-commerce platforms are Amazon, Flipkart, Shopify, Myntra, Ebay, Quikr, etc. These business entities generally have a list of registered vendors who list their products on these websites to sell or provide services to the customers. In a supply chain vendors are the party that provides goods and services to the companies or consumers in exchange for payment. A vendor can be both a supplier as well as a manufacturer of goods. Some of the types of e-commerce vendors are dropshipping vendors, wholesalers, and manufacturers. To set up and operate an online store it needs software and services which are also provided by e-commerce vendors.
An E-Commerce Vendor Agreement is an agreement between an online store owner and the supplier for sale and purchase of goods and services. For a binding contract, the essential terms of the contract, the offer made, the acceptance, and the relevant consideration have to be established. This article lays out an overview of the important factors of drafting an e-commerce vendor agreement.
Objectives of drafting an e-commerce vendor agreement
The purpose of entering into an agreement is to mainly rule out the possibilities of disagreements and build healthy relations between the parties to the contract. The objective of drafting an e-commerce vendor agreement are:
- To have a single definition for important terms which reflects an equal mindset of the parties and is interpreted in the same manner as was intended to be communicated by them.
- To create legally applicable rights and obligations and avoid legal issues.
- To describe roles and responsibilities.
- To create a road map for business relationships.
Information required before drafting the agreement
In order to draft a good agreement, it is necessary to collect certain information from the parties to the agreement. This information helps insert clauses with mutual understanding and consent of both the parties which in turn minimizes chances of future disputes. Answer to these following queries would help in meeting the objective of the agreement:
Who are the parties to the agreement?
What arrangement are they intending to agree upon?
When will the agreement come into effect?
What are the roles, responsibilities, and liabilities distributed between the parties?
What are the obligations of the Vendor?
What rights are reserved with the company?
When are the parties intending to terminate the agreement and the effect of termination?
What is the mutually agreed dispute resolution process?
Essential clauses that need to be covered in an e-commerce vendor agreement
Title of agreement
The first part inserted in any agreement is its title, it signifies the nature of the agreement between the parties. In this instance, the title of the agreement would be ‘The E-Commerce Vendor Agreement’. This title makes it clear that the present agreement is entered between a vendor and an online shop owner and governs the relationship between them.
Date of execution and effective date
There are two important dates in an agreement. First is the date on which the parties sign the agreement, being the date of Execution. Second is the date on which the agreement comes into effect, which is known as the Effective date. The terms and conditions of the agreement become applicable from the Effective Date. The effective date and execution date may or may not be the same. The date can be put in two ways:
Dated October 8, 2020
Dated as of October 8, 2020
The first format is used when the execution effective date of the contract is the same. The second format is used when the parties reach an agreement but do not sign it on the same date. The use of “as of” signifies that the representations and warranties made by the parties are true as of the date when the agreement is made and which may not be true for the day when the agreement came into force. When no effective date is mentioned in the agreement it becomes effective on the day when the last signatory to agreement signs the contract.
Names of the parties
At the start of the agreement the parties to the agreement that is the vendor’s and online shop owner’s names and addresses are inserted. This identifies the parties and binds them to the agreement. “Names of Parties” clause can be worded as:
“ABC Pvt. Ltd., a company incorporated under the Companies Act, 2013 having its registered office at ___, through ___________its duly Authorised Representative (hereinafter referred to as “Vendor“) of the First Part;
XYZ Pvt. Ltd., a company incorporated under the Companies Act, 2013 having its registered office at _____ , through ___________ its duly Authorised Representative (hereinafter referred to as “Company“) of the Second Part.”
The circumstances under which the vendor and the company have entered into the agreement and background information of the agreement are mentioned in the initial clauses of the agreement. Recitals are the first clause in the agreement that mentions the intentions of the parties entering into the contract. It starts with the term “Whereas”. Here is an example of Recitals in the e-commerce vendor agreement:
- Vendor is engaged in the business of ________________________.
- Company owns “Website Name” located at the following URL: ____ (“Website”) and has many registered users to whom Company offer various services.
- Vendor is desirous of setting up an online store on the Website and has offered to sell its products through the said online store, Company has agreed to create the said online store upon according to the terms and conditions agreed between the parties herein.”
Statement of consideration
After the last line of the recitals, there is a short paragraph that states the contracting parties have agreed to offer their services in return for the consideration promised. It can be worded as follows:
“NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, the Parties agree as follows:”
There are certain technical terms used in the agreement whose accurate interpretation is important. In the Definitions clause, these terms which are used throughout the agreement are defined. When any dispute arises concerning the meaning of specific provisions, this clause is always referred back to. There are two ways of defining terms in the agreement:
- First- ‘This e-commerce vendor agreement (the “Agreement”) is entered into on…’
- Second- In the definitions clause itself, that is, ‘”Vendor” shall mean the entity incorporated or otherwise more specifically described hereinabove, which sells its products through the Online Store and more particularly described in the attached “Form”.’
The second method is the most preferred.
Consideration and payment terms
To form a legally valid contract, it is necessary to have a consideration made by one in return for the service offered by the other party. A consideration clause consists of the amount agreed to be paid, mode of payment. In an e-commerce vendor agreement, it states the amount and the manner in which the vendor will pay the company as a signup fee, collection of payment during the delivery of the vendor’s products, amount of deduction made by the company before transferring the payment to the vendor, etc. A sample “Consideration” clause is as follows:
- The vendor shall make an advance payment of ____ as the Sign-up fees for the creation of an Online Store on the Execution date.
- The Company shall have the right to collect the Payment on behalf of the Vendor in respect of the Orders received through the Online Store. The Company shall charge the service charges to the Vendor at the rate of __% per item in consideration of the services rendered by the Company under the Agreement.
- The Company shall pay the Vendor an amount recovered minus the sum of shipping charges, service charges, and shipment cost in respect of approved order(s) through the Online Store. The shipment cost will be levied at Rs. __/- per transaction.
- In the event an order is reversed due to Quality Issue, Damaged product, Wrong Item delivered or the Item Not delivered, Vendor agrees that the Company shall levy the Service charges, plus a penalty of the service charge of the product up to a maximum limit of Rs __ and the said charges shall be deducted from the amount due and payable to Vendor.
- The Company shall reimburse the Vendor for payment of the sale proceeds in the following manner:
Obligations of the vendor
There is an obligation on an e-commerce vendor to put product description, images, disclaimer, delivery timelines, price and such other details that are not unlawful or violate the IP of any third party. If the vendor puts anything unlawful or objectionable on the company’s website, it will defame the company’s name and may invite legal charges against the company as well. This clause covers all these aspects to make sure the vendor is performing within the legal framework. It also states the time period within which the delivery of goods shall be made to the company on receipt of order. This can be worded as follows:
“The Vendor shall:
- Through the interface provided by the Company on the creation of Vendor’s Online Store, the Vendor shall upload the product images, description, delivery timelines, disclaimer, price, and such other details for the products displayed and offered for sale through the said online store.
- Vendor shall ensure not to upload any description, image, graphic, text that is unlawful, objectionable, obscene, opposed to public policy, vulgar, or is in violation of intellectual property rights of any third party.
- The vendor shall only upload the product description and image for the product which is offered for sale through the Online Store and for which the said Online Store is created.
- The vendor shall provide a correct, full, true description and accurate of the product to enable the customers to make an informed decision.
- Vendors shall be solely responsible for the quantity, quality, merchantability, guarantee and warranties in respect of the products offered for sale through their online store.
- On receipt of the approved order, the Vendor shall dispatch and deliver the products within a period of __.
- In respect of the orders for Products placed through the Online Store, the Vendor shall submit proof of dispatch to the satisfaction of Company within __ hours of the request made by the Company.”
Company reserves the right
“Company reserves the right:
- Vendor agrees and acknowledges that the Company, at all times during the continuance of this Agreement, shall have the right to:
- block or delete any image(s), text, graphic uploaded on the online store by the Vendor without any prior intimation to the Vendor in the event the said image(s), text or graphic is found to violate any law, breach of any of the terms of the Agreement, terms and conditions of the Website. In such an event, the Company shall without any prior intimation or liability to the Vendor have the right to forthwith remove the online store of the Vendor.
- discontinue or terminate the said service to the Customer or the End user as the case may be, without having any liability to refund the amount to the Vendor to forthwith block, remove or close the online store of the Vendor and furnish such details about the Vendor and/or its customers upon a request received from the Legal or Statutory Authorities or under a Court order if the Company is of the belief that the services are being utilized by the Vendor or its Customer in contravention of the terms and provisions of this Agreement.”
The duration of the Agreement is specified in the term clause. Once the parties decide the nature of the agreement and the rights and obligations incurred on them, it is important to define the period for which such rights and obligations shall be in existence. A sample “Term” clause is as follows:
“This Agreement shall commence from Effective Date and shall continue to be in effect for a period of __ unless terminated earlier. (“Term”)”
Company not liable
As the agreement deals with the selling of goods and services, there can be situations when a third party may impose a claim for the damage, expiry, misrepresentation, etc of the products. The ‘Company not liable’ clause states that the Company shall not be liable to any third party for the services of the Vendor. A standard ‘Company not liable’ clause is as follows:
“Company not liable:
- The Company shall not be held liable or responsible for any loss, injury or damage to the Vendor, or any other party whomsoever, arising on account of any transaction under the Agreement or as a result of the Products being in any way defective, damaged, in an unfit condition, violating or infringing any laws, intellectual, regulations, property rights of any third party.
- The Vendor shall be solely liable for any damages, claims or allegation arising out of the Products offered for sale through its online store including but not limited to the quantity, quality, merchantability, price, use for a particular purpose, or any other related claim and shall not hold the Company liable for any such claims and damages.
- The Company shall not be liable for any damages or claims arising out of any misrepresentation, negligence, or misconduct by the Vendor or any of its representatives.”
Termination and effects of termination
Usually, the agreement terminates on the expiry of the term. However, there are situations in which the agreement can be legally terminated before the expiry of the term. The termination clause states such situations under which the parties can terminate the agreement. The right to terminate the agreement is granted to both the parties. A sample termination clause on behalf of the Company can we stated as follows:
“The Company shall have the right to terminate the Agreement in the event:
- The Vendor fails to make payment of the agreed consideration, by giving a written notice of __ hours,
- The Vendor commits a material breach of any obligations, representation, warranty, covenant, or term of this agreement and the same is not rectified after the Company gives a written notice of __ days.
- If an insolvency Petition is filed against the Vendor.
- If the Vendor infringes a third party rights including intellectual property rights.
The Agreement may be terminated by either party giving the other party a prior 30 days written notice. “
The effect of the termination clause is either drafted along with the termination or is followed by the termination clause. It states the steps that parties are under obligation to follow upon the termination of the agreement. A sample clause is as follows:
“Effect of Termination:
- In the event of expiry termination of the Agreement, the Company with immediate effect shall remove the Links and shall discontinue displaying the Products on Online store. The Company by virtue of termination of this agreement shall not be liable for any loss or damages incurred by the Vendor.
- During the notice period both the parties shall be bound to perform its obligations incurred under the agreement and this sub-clause shall survive the termination of this agreement.”
Intellectual property rights
This is a very important clause that protects the right, title, and interest of the vendor as well as the company concerning their respective trademarks and logos. It mentions that the use of the trademark and logo on the website does not mean that any right with respect to the trademark and logo is transferred to the other party. It can be stated as:
“It is expressly agreed between the Parties that each Party shall retain all interest, right, and title in their respective trademarks and logos (“Intellectual Property”) and that nothing contained in the Agreement, nor the use of the Intellectual Property on the advertising, publicity, promotional or other material in relation to the Services shall be construed as giving to any Party any interest, right, and title of any nature whatsoever to any of the other Party’s Intellectual Property.”
The aim of this clause is to warrant that all the terms and conditions governing the right and obligations of the parties are set out in a single contractual document, which supersedes all prior negotiations and agreements made before contracting the present agreement. This clause aims to prevent the contracting parties from relying on the representations made by them during the time of negotiations. At the time of negotiations, various terms keep changing until the final agreement is made, this clause prevents the parties from claiming something different than that is agreed in the present agreement. A sample entire agreement clause may be stated as:
“The Agreement contains the entire and final agreement and understanding between the Parties and is the complete and exclusive statement of its terms. The Agreement supersedes all prior agreement and negotiations, whether oral or written, in connection therewith.”
This clause is inserted as a matter of routine but its interpretation becomes very important when the parties have entered into multiple agreements before contracting the e-commerce vendor’s agreement.
Limitation of liability
The Limitation of Liability clause is one of the best ways to ensure the financial and legal protection of the Agreement. It is very important to explicitly draft the liabilities clause to protect the parties from liability in certain situations and to monitor the amount of damages that can be claimed by the other party. A sample Limitation of Liability clause is:
“Except in case of breach of contract, under no circumstances, will either party be liable to the other party for lost profits, or for any incidental, indirect, consequential, exemplary or special damages arising from the subject matter of the Agreement, regardless of the type of claim and even if that party has been advised of the possibility of such damages, such as, but not limited to loss of revenue or anticipated profits or loss business, unless such loss or damages is proven by the aggrieved party to have been deliberately caused by the other party.”
Like any other agreement E-commerce Vendor agreement also needs a valid consideration in return for the services offered. This agreement is made between an e-commerce vendor and an online shop owner. There are many clauses like the name clause, recitals, parties clause, term and terminations clause, etc. which are part of any basic agreement and also forms part of this agreement. Clauses like obligation of Vendor, Company reserves rights are some of the clauses that are common only in such kind of vendor’s agreements. It is always suggested to include provisions that are mutually agreed between the parties to have a healthy business relation.
A sample e-commerce vendor agreement:
- https://www.aapkaconsultant.com/blog/vendor-agreement-format-for-e-commerce-in india/#:~:text=A%20Vendor%20Agreement%20is%20an,be%20performed%20by%20the%20vendor
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