In bidding and tendering situations, or in competitive request for proposal (RFP) scenarios, owners frequently instruct bidders that bids or tenders are required to be submitted to the Owner “under seal”, or that “sealed tenders are required”. Unfortunately, confusion often arises because the term “seal” is used in three different contexts in the bidding and tendering world.

The seal as creating a binding promise

The deed executed under seal is an ancient legal concept and, in the bidding and tendering context, relates to the well-known decision of the Supreme Court of Canada in R v. Ron Engineering and Construction (Eastern) Ltd.,(1981) 1 SCR 111 [Ron Engineering]. To summarize, in a bidding situation, the courts will treat the submission of a bid as a legally binding promise (Contract A) on the part of each bidder that it will enter into a construction or procurement contract (Contract B) with the owner if the owner selects it as the successful bidder.

Under contract law, however, unilateral promises are not enforceable. A bare promise made by the bidder to enter into the second contract, without the bidder receiving consideration from the owner in return, is not enforceable.

The courts do, however, recognize promises given under seal as enforceable. If the promise takes the form of a deed to which the bidder affixes its seal, the promise will be enforceable without the need for the bidder to receive consideration in return.

At one time, a seal was applied by dripping molten wax onto the document and creating an impression in the soft wax using a metal stamp.

Wax seals are no longer used, and in their place small red adhesive seals are used where it is necessary to create a deed.

The seal as a symbol of corporate authority

Most corporations adopt, in their constating documents, a form of corporate seal, which is used to emboss corporate documents, contracts, indentures, etc. The corporate seal is usually held for safekeeping by the corporate secretary. It is most often used, after a document has been signed by the officers of the corporation, to indicate that the corporation has authorized the execution and delivery of the document.

The corporate seal is an indication of corporate authorization only – while it may indicate that the bid or tender was properly authorized by the corporation, it does not create a deed or an enforceable promise – or a Contract A – within the meaning of Ron Engineering.

Put it in an envelope and seal it

In order to avoid shenanigans, tendering procedures often require that all bids be submitted in sealed envelopes which will be opened in public at a specified time. Sealing a bid document in an envelope neither creates a deed nor indicates corporate authority but is frequently required to ensure the integrity of the bidding process.

Faulty tenders may be saved

There are numerous cases in which the courts have discussed the differences between the various concepts involved in “sealing”. In many of these cases the courts have tried to avoid an injustice by turning an improperly sealed document into a deed, or turning a document to which a corporate seal was affixed into a deed. The courts are sometimes called upon to discuss the use of the phrase “c/s” or “seal” near signatures. See for example Fast v. Nieuwesteeg, [2006] 16 BLR (4th) 192, in which the Ontario Superior Court of Justice discussed many of the above concepts in the context of a promissory note which had not been properly executed as a deed.

As a result, if bid procedures are not precisely complied with, there may be some room for latitude. But understanding of the above and strict compliance with procedures is still the best policy.

Best practices

Owners should be clear in their bidding and tendering procedures what is being asked of bidders. Be clear whether a wafer seal to create a deed is required, whether a corporate seal is to be affixed, or whether the bid is to be submitted in a sealed envelope, or whether all three are required. If a wafer seal is not required to create a deed, such as where non-binding or indicative proposals are being sought and Ron Engineering does not apply, owners should not require that a wafer seal be affixed.

For bidders: follow bid instructions precisely. In M.J.B, the Supreme Court of Canada held that bids are required to adhere to the terms and conditions outlined in the tender documents in order to be valid. While a defective bid may be saved in some circumstances, it is still best to comply strictly with the bid instructions. If the bid instructions are not clear, ask the owner for clarification as to what formalities the owner has contemplated and, if the procedures are particularly confusing or difficult, whether the procedures need to be clarified or corrected.