This article is written by Samridhi Gupta of 4th Semester of UPES, Dehradun, an intern under Legal Vidhiya
ABSTRACT
Contracts are legally binding agreements between two or more parties that outline the terms and conditions of their relationship. These agreements can cover a wide range of transactions and interactions, from simple to complex. Contracts are used in various contexts, including business, employment, real estate, and personal transactions. Talking about tenders and tendering, [1]Tendering is essentially the method through which an entity or an individual seeking specific goods or services invites potential parties to present proposals or bids for providing those goods or services. This formal invitation is commonly known as a Request for Tender. The entity initiating the process is referred to as the buyer, while the party responding to the invitation is termed the supplier. In this structured system, the buyer outlines their requirements, and potential suppliers submit proposals or bids to fulfill those needs. There is also a special type of contract that is auction sales, [2]An auction sale is a public event where potential buyers can compete by placing bids for items on sale. The items are ultimately sold to the buyer who offers the highest bid, which is the price they are willing to pay. Typically, there are four main participants in an auction: the auctioneer, who oversees the process; the bidders, who place their bids; the seller, who provides the items for sale; and the buyer, who successfully places the highest bid and acquires the goods. In this article we will study about agreements, contracts and its 2 special types.
KEYWORDS
Agreement, Contracts, Tender, Auction, Request for tender
INTRODUCTION
An agreement is a broader term that refers to a mutual understanding or arrangement between two or more parties. It is a general concept that encompasses a wide range of situations, from casual and informal arrangements to formal and legally binding contracts. While all contracts are agreements, not all agreements necessarily rise to the level of being legally binding contracts. The key distinction lies in the enforceability of the terms.
Here are some types of agreements:
1. Informal Agreements: These are non-binding, often verbal agreements made in casual or social settings. For example, agreeing to meet a friend for lunch is an informal agreement.
2. Formal Agreements: These are more structured and may or may not be legally binding. Formal agreements can be written or verbal, but they are characterized by a clear understanding of the terms. A formal agreement might include terms and conditions that the parties intend to honor.
3. Legally Binding Contracts: These are agreements that meet the legal requirements for enforceability. They typically involve an offer, acceptance, consideration, legal capacity, legality of purpose, and mutual assent. If any of these elements are lacking or if the agreement is tainted by fraud, duress, or undue influence, it may not be enforceable as a contract.
4. Memorandum of Understanding : This is a formal agreement between parties that outlines the terms and details of their understanding, often used in business or government settings. While an MOU is generally not intended to be legally binding, it can signal a commitment to future negotiations or actions.
5. Letters of Agreement: Similar to an MOU, a letter of agreement is a written document outlining the terms agreed upon by the parties. It may or may not be legally binding, depending on the language used and the intent of the parties.
TENDER
A tender refers to a written proposal extended to contractors or suppliers, inviting them to undertake a specified project or provide materials within a predetermined time frame. The tender document, also known as Request for Tender, outlines details such as the quantity of items to be supplied, work specifications, completion deadlines, contractual conditions, and includes plans and drawings. Requests for Tenders are often advertised in newspapers, covering various fields like construction, engineering, or specific goods supply.
Interested parties respond to the RTF by submitting their bids, and the most appealing offer is chosen and awarded the tender. It’s important to note that a tender document, or RTF, cannot serve as the Letter of Acceptance because it lacks the capacity to legally bind a contractor to fulfill the assigned
Work. To address this, both parties involved typically enter into a formal contract of tender. This contract obliges the contractor to complete the assigned work in accordance with the specified terms and conditions, mirroring those outlined in the original RTF.
AUCTION
In an auction, both sellers and buyers participate in a unique sales process distinguished from regular transactions by the presence of multiple buyers vying for a particular item or property. These buyers engage in competitive bidding, attempting to surpass each other, and the highest bidder ultimately secures ownership of the property or goods.
The formation of a contract in an auction adheres to the fundamental principles of offer, acceptance, and consideration. An offer is extended to the public, allowing interested parties to freely bid. Acceptance occurs symbolically with the fall of the auctioneer’s hammer. Once the highest bid is accepted, the seller is obligated to transfer the goods or property, and the buyer cannot retract from the agreement. In essence, a binding contract is established through the auction process.
The prerequisites for a valid contract are outlined in the Indian Contract Act of 1872. As per Section 10 of the Act, a valid contract necessitates offer, acceptance, and consideration. The involved parties must have attained the age of majority and possess sound mental capacity. The object of the contract must be lawful and not expressly declared as void. Furthermore, in accordance with the Sale of Goods Act, there must be a minimum of two parties involved – a seller and a buyer. The agreement should encompass the sale conditions and consideration for the goods, applying specifically to movable property.
Essentials Of A Valid Tender
A tender is an offer. It is something that you invited and communicated to notify acceptance. In general terms, the following are the requirements of a valid offer:
It must be unconditional – The validity of an offer hinges on its unconditional nature. If an offer comes with a condition that hinders its completeness or self-sufficiency, it cannot be regarded as a valid consideration. The party to whom the offer is made is not obligated to accept it. In a case in Lahore, the plaintiff forwarded a single check covering two items, with only one item being due at the time and the other not due for several years. The plaintiff argued that since the check is a singular and indivisible entity, it can be accepted in its entirety or not at all. However, it is evident that due to this condition, the offer was not unconditional, granting the defendants the right to refuse it.
It must be done in right place The tender should be carried out at the location specified in the contractual agreement. If the contract does not outline a specific location, then the tender should occur at a place determined by legal provisions. Specific regulations apply to negotiable instruments, the transfer of personal property, and the payment of rent by real estate tenants. However, beyond these specific regulations, the general customary law principle dictates that the debtor is responsible for seeking out the creditor and making offers wherever the creditor can be found. Even without explicit reference to this principle, the location of the creditor’s residence at the time of contract formation is often considered, by a reasonable implication of fact, as the contractual location.
It must conform to the terms of obligations- The offer must align with the terms specified in the obligation. The offer should be presented fully and promptly, precisely mirroring how the promisor has agreed to accept.
It must be done at the right time- The tender must be submitted in a timely manner. Hence, the argument has been made that offering to settle a debt before its due date does not pose an obstacle and does not prevent interest from accruing on the debt.
It must be made in proper form – For a tender to be considered valid, it must adhere to the appropriate format. The payment should be presented in what is termed “legal tender,” using the currency of the country or the specified currency. An insurance policy cannot be regarded as legal tender, even if it is presented as such. Attempting to validate or tender any item of value, even if it’s worth surpasses that of the debt, does not constitute a legitimate offer to settle the debt. The fact that the debtor offers to verify or present an item of value does not grant them the right to claim payment of the debt. The creditor is not obligated to accept an insurance policy simply because its coverage exceeds the amount of the debt.
Ability and Willingness – Another crucial condition for a valid offer is that it must occur in circumstances allowing the recipient to reasonably ensure that the person making the offer can and is willing to fulfill it in its entirety, as per their commitment. An offer extended by a promisor through their attorney to settle a debt, inclusive of interest up to the offer date, does not, on its own, provide a reasonable opportunity for the promisee to verify the promisor’s capability and willingness to fulfill the promise. The circumstance of the promisor and the promisee residing on the same street does not qualify as a factor extending the scope of that section of the promise.
A reasonable opportunity for inspection- The seller is required to grant the buyer a reasonable chance to inspect the goods to ascertain their conformity with the contract. The interested party is not allowed to inspect goods that do not meet legal requirements. However, there is no legal basis for the claim that a buyer has the right to continue inspecting and examining the goods until the expiration of the delivery period. The law or item being offered is the subject of the delivery commitment. The law only necessitates that the promisee has a fair opportunity to assess what is promised for delivery. The standard location for inspection is the place of delivery. The promisor is not obligated to prove the identity of the item offered to the satisfaction of the promisee. The promoter is not obliged to take delivery measures; the promisor is merely providing an opportunity.
Tender must be to the proper person – For an offer to be valid, it must be directed to the appropriate individual. Primarily, it is the promisee who can request payment and provide a valid receipt, even if they have been engaged for the benefit of others.
Tender must be of full amount – The offer must encompass the entire amount owed. An offer coupled with the condition that accepting the money equates to an agreement is not considered valid.
Types Of Tenders
- Open Tendering involves publicly announcing an invitation to tender, typically through mediums like newspapers, providing all necessary conditions. Interested and eligible suppliers are then required to submit the requisite information, and the tender is awarded based on the selection criteria outlined by the organization.
- Selective Tendering, on the other hand, is limited to a specific number of suppliers. These suppliers may be chosen through an open tendering process, or the organization might select them from businesses they have previously engaged with.
- Multi-Stage Tendering is employed when an organization needs to choose a suitable supplier for a specific task within a single project, adhering to the contract requirements. This approach is particularly useful when dealing with a large number of potential suppliers.
- Invited Tendering involves the organization directly inviting a supplier to fulfill the contract. This method is typically used in emergency situations or when specialized work is required.
Applicability Of Tenders
[3]A tender contract is an agreement between the buyer, who initiates a Request for Tender, and the tenderer, who is granted the tender following an evaluation of their bid. This contract serves as a detailed document where both parties articulate their expectations, general conduct, and the parameters governing their relationship. It goes beyond the Request for Tender by providing specific details such as a description of the goods/services, payment terms specifying how and when the buyer is obligated to pay, exclusivity clauses, warranties, representations, guarantees, penalties for delays, and more.
Crucially, a contract of tender must incorporate clauses addressing dispute resolution and the applicable governing laws in case any issues arise. The legal binding of a tender contract occurs when it is documented on non-judicial stamp paper or receives an e-stamp.
In the process of open tendering, there is no limitation on the number of tenders allowed to participate. Before distributing the tender invitation documents, the entity requesting tenders is required to publish a notice, as outlined in article 5 of this Law. This notice serves to inform potential tenderers about the opportunity to participate in the tendering process.
Existing Provisions
In India, there are no specific regulations governing tenders. A tender is essentially an invitation for an offer. In response, one party expresses its readiness with the intention of securing the agreement of another party. The interested party submits an offer or fulfills the necessary conditions to participate in a tender, and this submission is regarded as an offer for a contract under Section 2(a) of the Indian Contract Act, 1972.
[4]A contract of tender is governed just like other contracts by the Indian Contract Act, Code of Civil Procedure, Indian Arbitration and Conciliation Act, etc. When a contract specifies that Indian laws shall be applicable as relevant laws, even if the parties to the contracts are from different jurisdictions, only the laws of India shall apply.
In the legal matter of Meerut Development Authority vs. Association of Management Studies [(2009) 6 SCC 171], the Supreme Court acknowledged a tender as equivalent to an offer. A tender is essentially an invitation that communicates the intention to accept an invitation. For it to be valid, a tender must be unconditional and properly formatted. The individual making the tender should have the capability and willingness to fulfill their obligations.
TYPES OF AUCTION CONTRACT
A typical auction involves a seller, buyer, auctioneer, and potential bidders. There are three main types of auction contracts:
“consignment contract,” the “Registration Contract,” and the “Bid calling contract.”
The Bid calling contract is established between the seller and the buyer. Under this contract, the item is sold to the highest bidder, and the acceptance is symbolized by the falling of the gavel. This event marks the formation of a binding contract between the seller and the buyer.
A consignment contract, on the other hand, is an agreement between the seller and the auctioneer. This contract encompasses various services, such as advertising, arrangements, bid calling, etc. Additionally, it includes the seller’s commitment to allowing the property to be sold.
The Registration Contract pertains to the relationship between the auctioneer and the potential bidders. This contract, which can be both written and oral, addresses the bidders’ participation, agreement to adhere to terms and conditions, deposits, and other relevant details if they eventually become buyers.
Who is an auctioneer?
An auctioneer may be viewed as an agent representing the seller, making the seller the principal. The auctioneer is obligated to act and carry out tasks in alignment with the seller’s instructions, conducting themselves in good faith while considering the best interests of the principal.
When an auctioneer can be held liable?
The auctioneer may face accountability to the buyer in situations involving fraud, non-delivery of goods, and similar issues. Liability can be imposed on the auctioneer if they sell property on behalf of someone who is not the rightful owner, even if done in good faith. In such cases, the auctioneer is accountable to the true owner, who can seek damages by filing a lawsuit against the party responsible. Additionally, if the auctioneer personally benefits from the sale without the principal’s awareness, they can be held liable.
Fraud done through auction contracts [5]Auction fraud, according to the Internet Crime Complaint Center, refers to deceitful practices related to either misrepresenting a product listed for sale on an Internet auction site or failing to deliver products that have been purchased through such a platform.
A broad range of deceptive actions, including untrue statements, significant misrepresentations, or deceptive commitments about future actions, fall under the umbrella of fraud. It’s important to note that being accused of auction fraud doesn’t necessarily require successful execution of the fraudulent scheme. If prosecutors can convincingly demonstrate that you made an effort to engage in fraud through misleading conduct or false statements, you may face criminal charges, even without the actual completion of the fraudulent activity.
TYPES OF ONLINE AUCTION FRAUD
- Over payment fraud: In this type of auction scam, the focus is on deceiving a seller, usually involving the sale of a high-value item. The fraudulent scheme entails sending the seller a counterfeit check or money order exceeding the item’s actual sale price. The seller is then requested to subtract the sale price and return the excess amount to the buyer. Unfortunately, the seller may comply with this request, only to later discover that the check or money order is fake.
- Non-delivery or failure to ship merchandise: This straightforward eBay fraud occurs when a seller lists an item on an auction site, receives payment, but neglects to send the purchased item to the buyer.
- Wire transfer schemes: Wire transfer scams transpire when buyers are instructed to wire money but never receive the promised items. In cases where a seller is overpaid through a fraudulent check, they may also be urged to wire the supposed “over payment.”
- Second chance schemes: Second chance schemes involve reaching out to unsuccessful bidders from legitimate auctions, offering to sell them products at the highest bid price. Payments are collected, but the promised items are never dispatched.
- Misrepresentation: Misrepresentation in online auctions involves providing false information about the quality, type, or condition of a product. This can include presenting a painting as the work of a renowned artist when it is not, or falsely claiming that a counterfeit product is authentic.
Legal Provision
The auction sale is governed by Section 64 of ‘The Sales of Goods Act, 1930,’ which exclusively applies to movable property. In this context, an auction sale is described as a public event where potential buyers are invited to a specific location for the auction. The two main participants are the auctioneer, responsible for conducting the auction, and the buyer, who aims to place the highest bid.
The auction reaches its conclusion when the hammer is dropped, or by customary declaration, the auction is deemed complete. Upon the fall of the hammer, ownership of the property transfers from the owner to the highest bidder. Notably, the seller is not permitted to bid, and they cannot designate someone to bid on their behalf. The auctioneer may either be the seller or act as the seller’s representative. It is crucial that the auctioneer is an authorized individual who acts in the seller’s best interest with genuine intentions. A bidder retains the right to withdraw their bid before the auction’s conclusion. A bid is considered an offer, and acceptance is only finalized when the sale deed is executed in the name of the highest bidder.
Section 64 of Sales Of Goods Act 1930 –Section 64 of the Sale of Goods Act outlines the regulations relevant to auction sales. In instances where an auction encompasses the sale of goods in distinct lots, each set of goods falls under an independent contract of sale. The conclusion of an auction sale is recognized when the auctioneer officially declares it as complete.
ELEMENT THAT CARRIES OUT AUCTION
Knockout Agreement: A knockout agreement is a pact among buyers wherein only one of them is designated to place bids, effectively preventing competition among them. After the auction concludes, they agree to share the resulting profits. This practice is deemed illegal if carried out with the intent to defraud others.
Damping: Damping involves dissuading potential buyers from participating in bidding by discouraging them from purchasing or defaulting on the goods. This strategy aims to limit participation, ensuring there is no unwarranted competition.
Implied Conditions and Warranties in an Auction: Implied conditions do not apply to auction sales. The auctioneer provides a warranty that they possess the authority to conduct the sale, absolving them of liability for any title defects of the principal. Additionally, the auctioneer warrants the possession of goods against the price paid by the buyer.
CASE LAWS
In the legal matter of [6]Bombay Salt and Chemical v. Johnson & Others, the court established that the highest bidder can assert their rights to the property from the auction only after the seller approves and accepts the auction sale, and a sale deed is executed in favor of the highest bidder. Prior to these steps, the highest bidder does not possess any rights to the property.
[7]HARRIS V. NICKERSON- In this instance, an announcement was published in a newspaper stating that specific items would be sold through an auction at a designated location over a three-day period. The plaintiff, intending to purchase particular goods, found that the items were withdrawn. Consequently, the plaintiff filed a lawsuit against the defendant seeking compensation for the time loss and travel expenses incurred. The court ruled that an auction advertisement does not constitute a legally binding offer, allowing the advertiser to withdraw the goods at any time before the actual auction.
In the legal matter of [8]Coffee Board v. Famous Coffee and Tea Works in the Madras High Court, the seller explicitly stated that they reserve the right to accept any bid, whether it is the highest or lowest, based on their preference or what they consider a fair price for the property. The seller retains complete discretion in this regard and is not obligated by the highest bid. Furthermore, the seller is not required to provide any justifications for their decision, and their determination is deemed final and conclusive.
CONCLUSION
In India, there isn’t a specific law exclusively governing tendering processes; instead, they fall under the purview of various existing regulations such as the Indian Contract Act, the Code of Civil Procedure, the Arbitration and Conciliation Act, among others. Government procurements are obligated to adhere to the principles outlined in the General Financial Rules of 2017, as formulated by the Ministry of Finance. In the contemporary digital age, e-tendering has gained widespread use due to its ability to expedite the tendering process, reduce costs, and ensure fairness. The accessibility of e-tendering allows participation from individuals around the globe. A more constrained judicial review of tender contracts may be possible when it is demonstrated that the terms of a tender favor a particular bidder. The legal binding of a tender contract is established when it is documented on non-judicial stamp paper or an e-stamp and duly signed by both involved parties. The required value of the stamp paper is contingent on the state in which the contract is to be executed.
Auctions, particularly within the framework of contract law, entail numerous legal considerations. This dynamic method allows potential buyers to engage in competitive bidding, and with technological advancements, online auctions have become a convenient alternative to traditional auction houses. This article aims to explore the complexities associated with online auctions, highlighting potential drawbacks and advocating for stricter regulations to safeguard consumers. Contract law assumes a critical role in governing auction sales. An auction sale involves interested buyers bidding for a desired item, and the highest bidder secures the product, symbolized by the ceremonial falling of the hammer, indicating the acceptance of the offer. Various types of auctions exist, such as live, online, and sealed-bid auctions. Section 64 of the Sale of Goods Act, 1930 addresses the regulations, processes, seller’s rights, and the establishment of a lawful sale. The auctioneer serves as the seller’s agent, operating in good faith. It is imperative for the auctioneer to refrain from fraudulent practices and from obtaining undisclosed benefits. Additionally, in the absence of specific statutes, the laws of agency govern the auctioneer’s role. There is a necessity to formulate comprehensive laws and regulations within the domain of auctions, extending beyond specific sections. Given the surge in technological advancements, the emergence of new institutions, and the growing utilization of this method for selling goods and properties, a more extensive legal framework is warranted.
REFERENCES
Law of contract M.J. Aslam’s.
The law of contracts and tenders T.S. Venkatesa Iyer.
Contract and specific relief Avtar Singh.
Law relating to contract act of 1872, and tenders Sanjiva row https://law.jrank.org/pages/4561/Auctions-Rights-Liabilities-Buyer-Seller.html
https://www.myadvo.in/blog/online-auction-and-bidding-in-india
https://nyccriminallawyer.com/fraud-charge/auction-fraud/
https://blog.ipleaders.in/auction-sales/
https://www.myadvo.in/blog/online-auction-and-bidding-in-india/
[1]Lawsikho.com
[2]Lawsikho.com
[3]The law of contracts and tenders T.S. Venkatesa Iyer.
[4]Blog.ipleaders.in
[5]https://nyccriminallawyer.com/fraud-charge/auction-fraud/fraudulent-misrepresentation/
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