When Are E-Marketplaces Liable for Undelivered Goods?

Introduction

Online consumers often purchase goods through marketplaces that host independent merchants, process orders, arrange payment, or assist with delivery. When the merchant fails to deliver the goods, consumers may ask whether the marketplace itself must refund the price or pay damages.

Under the Internet Transactions Act of 2023, an e-marketplace is not automatically responsible for every failure of an independent online merchant. The merchant is generally the primary party liable to the consumer. However, the platform may incur subsidiary liability when its own failure to comply with statutory duties contributes to the consumer’s loss.

Governing Law

Republic Act No. 11967, or the Internet Transactions Act of 2023, regulates internet transactions and assigns specific duties to e-marketplaces and other digital platforms. The law also applies to persons engaging in e-commerce who avail themselves of the Philippine market to the extent of establishing minimum contacts in the Philippines.

The Act distinguishes among the liability of the online merchant, the subsidiary liability of the platform, and the solidary liability that may arise when the platform fails to remove prohibited, unsafe, or dangerous goods after receiving notice.

Who Is Primarily Liable?

Under Section 25 of Republic Act No. 11967, the e-retailer or online merchant is primarily liable for indemnifying the online consumer in a civil action or administrative complaint arising from the internet transaction.

This means that the consumer should ordinarily proceed first against the merchant that offered, sold, or undertook to deliver the goods. The merchant’s primary liability is without prejudice to other penalties or liabilities that may be imposed under the Internet Transactions Act and other applicable laws.

If the e-marketplace and the online merchant are found to be the same entity, their liability is treated as one and the same. In that situation, the platform cannot invoke the distinction between marketplace operator and merchant to avoid responsibility.

When Does Subsidiary Liability Arise?

Section 26 of Republic Act No. 11967 provides that an e-marketplace or digital platform that facilitated the transaction may be subsidiarily liable to the online consumer if any of the statutory circumstances is present.

The first circumstance is the platform’s failure to exercise ordinary diligence in complying with its obligations under Sections 21 and 22 of the Act, when that failure results in loss or damage to the consumer.

The second circumstance is the platform’s failure, after notice, to act expeditiously in removing or disabling access to goods or services that infringe another person’s intellectual property rights or that are subject to a takedown order issued by an appropriate government agency.

The third circumstance exists when the online merchant has no legal presence in the Philippines and the platform, despite notice, fails to provide the merchant’s contact details.

Statutory Conditions for Platform Liability

The following conditions should be examined in assessing a claim against an e-marketplace:

• There must be an internet transaction facilitated by the e-marketplace or digital platform.
• The online merchant must ordinarily be the primary party liable for the consumer’s loss or damage.
• One of the statutory grounds under Section 26 must exist.
• The platform’s failure must be connected to the consumer’s loss or damage, particularly where the claim is based on lack of ordinary diligence.
• The recoverable amount is limited to the damages suffered by the consumer as a direct result of the transaction.

A consumer cannot establish platform liability merely by showing that the merchant failed to deliver the goods. The consumer must also show a statutory basis for holding the platform subsidiarily liable.

What Duties Must E-Marketplaces Perform?

Section 21 of Republic Act No. 11967 requires e-marketplaces to observe duties concerning the identification and presentation of online transactions. These include ensuring that transactions are clearly identifiable as e-commerce transactions and identifying the person or persons on whose behalf the transaction is made.

E-marketplaces must also identify promotional offers and make their conditions clear and accessible. As far as practicable, they must require online merchants to submit identifying and contact information before listing on the platform.

The required information includes the merchant’s name, a valid government identification or business registration documents, geographic address, mobile or landline number, and valid email address. The platform must also display relevant information concerning the goods or services, including the name or brand, price, description, and condition.

In performing these duties, the e-marketplace must observe ordinary diligence. Failure to do so may result in penalties under Section 29 of Republic Act No. 11967 and may support a claim for subsidiary liability under Section 26.

Ordinary Diligence and Its Importance

The Internet Transactions Act does not make the platform an insurer of every merchant’s performance. The platform’s liability depends on whether it performed the duties imposed upon it with ordinary diligence.

For example, a platform may face legal exposure if it allows a merchant to operate without obtaining reasonably required identifying information, displays materially incomplete merchant information, or fails to maintain an effective mechanism for reporting unlawful transactions.

By contrast, a platform may have a stronger defense where it required the merchant to submit the information required by law, made reasonable efforts to verify and maintain that information, and acted promptly upon receiving a valid complaint or government order.

Platforms That Do Not Retain Oversight Over the Transaction

Section 22 of Republic Act No. 11967 applies to other digital platforms that do not retain oversight over the consumption of the transaction. These platforms must provide an effective and responsive redress mechanism for online consumers and merchants to report users or information that may violate relevant laws.

They must also maintain, as far as practicable, an updated list of accounts used for e-commerce. Upon the issuance of a subpoena by a competent authority, the platform may be required to provide specific account information in an investigation based on a sworn complaint alleging that the platform was used in the commission of a crime or as a means to commit a malicious, fraudulent, or unlawful act, particularly where the complainant cannot ascertain the perpetrator’s identity.

Platforms covered by Section 22 must also take necessary precautions to protect consumer data in accordance with Republic Act No. 10173, or the Data Privacy Act of 2012. They must observe ordinary diligence in carrying out these obligations.

Effect of Notice to the Platform

Notice is significant under the Internet Transactions Act. In certain cases, the platform’s liability arises only after it receives notice and fails to act expeditiously.

For example, where goods or services infringe intellectual property rights or are covered by a government takedown order, the platform may incur subsidiary liability if it fails to remove or disable access after notice. Notice should identify the transaction, the merchant, the unlawful or dangerous item, the consumer’s injury, and the action requested.

A written complaint submitted through the platform’s designated reporting or redress mechanism is preferable. Consumers should retain proof of submission, automated acknowledgments, replies, screenshots, order records, payment receipts, and delivery communications.

Solidary Liability for Prohibited or Dangerous Goods

Section 27 of Republic Act No. 11967 imposes a separate and more serious consequence. An e-marketplace or digital platform may be solidarily liable when it fails, after notice, to act expeditiously to remove or disable access to goods or services appearing on its platform that are prohibited by law, imminently injurious, unsafe, or dangerous.

Solidary liability differs from subsidiary liability. Under subsidiary liability, the merchant remains primarily liable and the platform’s liability is secondary, subject to the statutory conditions. Under Section 27, the platform and the responsible merchant may be pursued as solidary obligors for the applicable liability, without prejudice to penalties under the Act or other laws.

Good-Faith Reliance on Merchant Information

Republic Act No. 11967 protects platforms that rely in good faith on the merchant’s representations, warranties, or submitted registration documents, even if those documents are later shown to be inaccurate, false, or untrue.

This protection is conditional. The platform must be able to show both good faith and that it exerted reasonable effort to ascertain and maintain the accuracy, authenticity, and truthfulness of the information or documents submitted by the merchant.

A platform that merely accepts information without any reasonable verification process may have difficulty relying on this protection, particularly where the circumstances should have indicated that the merchant or listing was suspicious.

Illustrative Scenarios

Scenario 1: Merchant fails to ship an ordinary product. The consumer pays for a lawful product, but the merchant does not ship it. If the platform properly obtained and displayed the merchant’s required information and complied with its statutory duties, the merchant is ordinarily the primary party liable. The platform is not automatically subsidiarily liable solely because the sale occurred through its website.

Scenario 2: Platform fails to collect basic merchant information. A platform permits an online merchant to list goods without obtaining reasonably required identity and contact information. The merchant disappears after taking payment, and the platform cannot provide contact details despite notice. The platform may incur subsidiary liability under Section 26, particularly if the absence of information contributed to the consumer’s loss.

Scenario 3: Platform ignores a government takedown order. A government agency orders the removal of a prohibited product, but the platform receives notice and does not promptly disable access. The platform may incur solidary liability under Section 27, aside from possible administrative penalties.

Scenario 4: Dangerous goods remain listed after notice. A consumer reports that a listed product is unsafe and supplies supporting evidence. The platform does not act expeditiously, and another consumer is injured. The platform may face liability under Section 27 if the statutory conditions are established.

Evidence Consumers Should Preserve

A consumer pursuing a complaint should preserve evidence showing the transaction, the merchant’s identity, the platform’s role, the failure to deliver, the loss suffered, and the platform’s response after notice.

• Order confirmation, invoice, and payment records;
• Merchant profile and contact details as displayed on the platform;
• Product listing, description, price, and promised delivery date;
• Messages with the merchant and the platform’s customer-support team;
• Refund requests, complaint tickets, and proof of notice; and
• Evidence of the consumer’s direct financial loss.

The claim should distinguish the amount paid for the undelivered goods from consequential damages, emotional distress, or other amounts that may require separate legal support. Section 26 limits the platform’s subsidiary liability to damages suffered by the consumer as a direct result of the transaction.

Practical Steps for E-Marketplaces

E-marketplaces should maintain documented procedures for merchant onboarding, identity verification, listing review, consumer complaints, takedown requests, government orders, and preservation of transaction records.

Platforms should also maintain responsive channels through which consumers and merchants can report unlawful conduct. The platform should document the date and substance of every report, the investigation conducted, the action taken, and the reason for any decision not to remove or disable a listing.

Terms of use should clearly identify the roles of the platform, the merchant, and the consumer. They should not, however, be drafted or implemented in a manner that defeats mandatory duties under Republic Act No. 11967 or other Philippine laws.

Conclusion

An e-marketplace is not automatically liable whenever an independent online merchant fails to deliver goods. Under Republic Act No. 11967, the merchant is generally primarily liable, while the platform may become subsidiarily liable if it fails to exercise ordinary diligence, fails to provide merchant contact details after notice, or fails to remove infringing goods or comply with a takedown order.

Separate solidary liability may arise when the platform, after notice, fails to act expeditiously against goods or services that are prohibited, imminently injurious, unsafe, or dangerous. Consumers should therefore document the transaction and the platform’s response, while platforms should maintain effective verification, redress, monitoring, and takedown procedures.

About Nicolas and De Vega Law Offices

 Nicolas and de Vega Law Offices is a full-service law firm in the Philippines.  You may visit us at the 16th Flr., Suite 1607 AIC Burgundy Empire Tower, ADB Ave., Ortigas Center, 1605 Pasig City, Metro Manila, Philippines.  You may also call us at +632 84706126, +632 84706130, +632 84016392 or e-mail us at [email protected]. Visit our website https://ndvlaw.com.