PayPal, the Web's largest person-to-person electronic payments company, has been accused of fraud, defamation and breach of contract in a suit recently filed by online auction company Bidville.com. Bidville claims it reached an agreement with Santa Clara-based PayPal in September 2000, in which PayPal's Web payments services would be integrated into a new Bidville online auction. Bidville, an arm of Bethlehem, PA-based NoBidding Inc., named the auction site "AuXpal.com" to boast of its relationship with PayPal.Ed Orlando, president of NoBidding, says AuXpal.com was scheduled to go live on December 6, 2000. He claims PayPal notified him on Dec. 1, it "would no longer support the project." He then says PayPal blocked AuXpal's access to PayPal accounts, preventing the site from functioning properly. Bidville also alleges that after PayPal terminated its agreement to support AuXpal.com, it sent out emails to PayPal customers saying the AuXpal site is "fraudulent," and urged customers not to use the site.PayPal spokesperson Vince Sollitto would not comment on the decision to terminate its agreement, but did say it "acted entirely appropriately" and "will contest the suit quite vigorously."AuXpal.com would have differed from Bidville.com and other competitors, such as eBay, by automatically transferring funds from a winning bidder's PayPal account to the seller's, at the close of an auction. This would guarantee that winners of auctions would claim the item for sale, provided sufficient funds were present in the account. "It's hard to imagine where we would be if PayPal delivered on its promises," says Orlando.

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