Resellers are parties that find buyers for your product, either at a wholesale level or to the end-user / consumer. When engaging a reseller it is vital to put a Reseller Agreement in place so that the terms of your arrangement are clear.
A Reseller agreement is a binding contractual agreement used to govern the sale, marketing and support for a product in a retail network. A comprehensive reseller agreement will protect you from potential liability claims, potential disagreement between parties or unwanted costs.
In this article we discuss important considerations, key terms of the reseller agreement, and its operation.
What happens to lost or damaged goods?
Whilst this is a rare occurrence, there may be a situation where a supplier fulfils a reseller’s order, but the goods may become lost (e.g. a container falls off of a ship whilst at sea). Under the reseller agreement, a risk of loss or damage clause will define that liability for the goods passes to the reseller once the items are received by the transport provider (as selected by the Supplier).
At what point does the ownership or title to the goods pass to the purchaser?
Title to goods should not pass to the Reseller until payment is received in full. If the reseller on-sells the goods without payment, the Supplier should be entitled to repossess the goods (as governed by a default and repossession clause), even if they have been on-sold to a third party.
What happens if there is a change in the control of the companies involved?
Sometimes there may be a significant change in ownership or sale of business of the company operating as a reseller. In this circumstance, the agreement should state that the supplier has the right to terminate the agreement. If the supplier decides not to terminate and continues with the agreement, it is prudent to ask for director guarantees from the new entity to ensure the obligations under the reseller agreement are fulfilled. It is also important for your agreement to provide for a right to terminate should the reseller become insolvent or cease to operate a business.
A change of name for the business should not impact the operation of the existing agreement.
Why is indemnity and liability important?
Indemnity and liability clauses protect the supplier from losses, claims, liabilities and costs. [1] The clause must be drafted, with a narrow focus, to suit the specific circumstances of the agreement.
For example, the clause should indemnify the supplier from responsibility for death or injury to personnel, damage or destruction to property and third party claims. The agreement should also limit liability for the supplier’s breach of warranty in relation to the product (e.g. limiting to replacement or cost of goods).
Other important clauses in reseller agreements are:
Relationship
It is imperative that you define the relationship between supplier and reseller in the agreement, as otherwise the reseller may be deemed to be acting as an agent of the supplier (meaning that a reseller could contract on the supplier’s behalf).[2] For example, the agreement should specifically state that there is no agency relationship, to avoid doubt as to the nature of party dealings.
Price
A reseller agreement should define the price at which goods are to be sold to the reseller. This should be specified in a price list, as featured in a Schedule or Annexure to the agreement. The price clause should also specify that the supplier is entitled to amend its pricing, and any notice requirements (e.g. 60 days prior written notice must be provided to the reseller).
Confidential Information
When entering into a reseller agreement, there will often be circumstances where information that is normally confidential (e.g. product specifications) to the supplier will be disclosed to the reseller. It is imperative that both parties take reasonable steps to ensure confidential information is protected, not disclosed to a third party without prior written consent and destroyed once no longer required.
Termination / Breach
A termination or breach clause will specify the reasons under which a party may terminate the agreement. For example, if the reseller breaches the terms of the agreement (does not fulfil payment), this clause will give you grounds to terminate. You should also specify that the agreement may be terminated by mutual consent of both parties.
Footnotes
1. Sunbird Plaza Pty Ltd v Maloney [1988] 166 CLR 245.
2. See George & Courtier Pty Ltd v Terrey [1996] NSWCA 206.
Other Resources
Reseller Agreement Template – Protect your Business without spending a fortune in legal fees.