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Home  Contract Law  How to draft an e-commerce vendor agreement

 Contract Law
 Featured Student Assignments (LawSikho)

How to draft an e-commerce

vendor agreement
October 24, 2020
6486
 
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Image Source - https://rb.gy/upcaes

This article is written by Shruti Chaurasia, pursuing a  Diploma in Advanced
Contract Drafting, Negotiation and Dispute Resolution  from  Lawsikho.

Table of Contents
 Introduction 
 Objectives of drafting an e-commerce vendor agreement
 Information required before drafting the agreement
 Essential clauses that need to be covered in an e-commerce vendor
agreement
o Title of agreement
o Date of execution and effective date
o Names of the parties
o Recitals
o Statement of consideration
o Definitions
o Consideration and payment terms
 o Obligations of the vendor
o Company reserves the right
o Term
o Company not liable
o Termination and effects of termination
o Intellectual property rights
o Entire agreement 
o Limitation of liability
 Conclusion
 References

Introduction 
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; 

And 

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.”

 Recitals
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:

“Whereas:
  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:”

 Definitions
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:

“Consideration Clause.

 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

When the Vendor and the Company enter into this agreement, it becomes
important to transfer the vendor the right to upload product details,
descriptions, etc. But at all times there are some rights that the company
does not transfer to the vendor but instead reserves with itself. These rights
are incorporated under the ‘Company Reserves the Right’ clause. This right
includes the company’s right to block or delete any image(s), text, graphic,
uploaded on the online store by the Vendor as well as the right to display
appropriate disclaimers and terms of use. This clause can be framed as
follows:

“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.

 provide and display appropriate disclaimers and terms of use on the

Website.

 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.”

 Term
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.”

 Entire agreement 
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.”

Conclusion
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.etcokart.com/agreement/etco_agreement.pdf 

References
 
1. http://upcounsel.com/vendor-agreement-for-e-
commerce#:~:text=A%20vendor%20agreement%20for
%20e-commerce%20is%20a%20contract%20made,usually
%20on%20an%20ongoing%20basis 
2. https://www.legalbites.in/e-commerce-e-contract/
3. 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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