Beware of Seals

Real estate developers, builders, and contractors regularly enter into agreements that contain the words, often in the "testimonium" clause just before the signature lines, "witness my hand and seal" or "signed and sealed," and probably think little of it. And those who operate under a corporate structure may routinely place their corporate seal on their documents, also with little thought.

What most laymen, and many lawyers, may not fully appreciate, however, is that the use of seals and language about seals in corporate documents can significantly alter the legal risks and rights of the parties to the documents. The placement of the seal and use of certain language may result in the contract being a "contract under seal" or a "specialty." Under Maryland law, a "specialty" contract is subject to a twelve-year limitations period, rather than the three-year period normally applicable. In other words, the unwary may be subject to liability under the contract for more than a decade after the contract is signed because of language that he or she may have thought to have been "boilerplate" or "legalese." Care must be taken, then, in drafting agreements to make sure that they do not unintentionally become specialties.

At common law, seals took the form of a piece of wax, a wafer, or other substance that would retain an impression that was affixed on documents and provided a level of formality that the document would not otherwise have. Because of the importance ascribed to "sealed" documents, they were given special status in the law -- notably a longer period of limitations. In modern practice, many states have abolished the use of seals and those that still use seals (about half of the states, including Maryland) have abandoned the need for stamps or impressions in favor of simply writing the word "seal," or in some cases, the initials "L.S."

Corporate seals are a bit different. The use of corporate seals arose not just from the need to have the formality that the common law required of important documents, but because of the fact that corporations can only act through their authorized representatives. The use of the corporate seal confirmed that the document was, in fact, the authorized act of the corporation. Under Maryland law, the main purpose of the corporate seal now is to serve as a prima facie authentication that the document is the act of the corporation and the officers who have executed it have been duly authorized. Because the main purpose is to demonstrate authenticity, the use of the word "seal" and the affixing of the corporate seal to a corporate contract do not, by themselves, create a "contract under seal" or "specialty" for the purpose of the longer limitations period. Indeed, the use of the seal by itself does not even create a presumption that the parties intended the document to be a specialty.

How, then, does one know whether a document impressed with a corporate seal is a specialty? Under Maryland law, it is a question of fact whether the corporation has used its corporate seal as a general seal (thereby creating a specialty) or whether it has used the seal simply to indicate that the document is intended to be the authorized act of the corporation. In resolving this question of fact, the Court of Appeals has repeatedly held that the affixation of the seal and the use of the word "seal" are, by themselves, insufficient "to transform a would-be simple contract into one under seal." But, where the body of the contract itself indicates that the parties intended to establish an agreement under seal, then the document becomes a specialty.

It does not take much in the "body of the contract" to create a specialty. The addition of the words "witness my hand and seal" or "signed and sealed" in the document are sufficient, as a matter of law, to create a specialty.

While it may be difficult to follow the Maryland courts' logic in holding such routine language as "signed and sealed" as conclusive evidence that the parties intended to create a specialty, when the use of the corporate seal itself and the imprinting of the word "seal" is not, that is the law. The distinction, however small, is a critical one in both the drafting and interpreting of agreements. Thus, a drafter should be careful never to use the word "seal" in any place in the document, other than at the signature line, or run the risk of having a simple contract converted to a specialty. Advice of counsel should be sought before entering into any business agreement, but that is particularly so when the document refers to "seals."

For further information, contact Bill Sammons at 410.752.9706 or via email.

This information has been prepared by Tydings for informational purposes only and does not constitute legal advice.