Daily Development for
Wednesday, August 23, 2000
By: Patrick A. Randolph,
Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
randolphp@umkc.edu
STATUTE OF LIMITATIONS;
INSTRUMENTS "UNDER SEAL:" Under Maryland law, a corporation's alleged
breach of an "instrument under seal" is subject to a twelve year
statute of limitations, while a document executed by the corporation not under
seal is subject to a three year statute, and the mere inclusion of the
corporate seal in the signature block of the contract does not establish that
the contract is an instrument under seal nor create a presumption that it is.
RouseTeachers Properties,
Inc. v. Maryland Casualty Co., 750 A. 2d 1271 (Md. App. 2000)
The contract in question
was a substantial construction contract. The contractor was well aware from an
early stage following construction that there were problems with the building. The
contractor later was sold to another company and became RouseTeachers, but the
sellers indemnified the buyers for five years against any claims based upon the
construction project in question.
Soon after the five year
indemnification period expired, the property owner brought suit against the
successor corporation. The parties stipulated on this appeal that the suit
would have been time barred if the normal statute of limitations applied, but
would not have been time barred if the applicable statute of limitations was
the twelve year limitations period under Maryland law for corporate contracts
entered into "under seal."
It is possible in Maryland
for the parties to affix a corporate seal to indicate that the persons
executing the agreement on behalf of the corporation do so with its permission.
The court indicated that this practice is distinct from the execution of a
contract "under seal," by which, presumably, the corporation itself
executes the contract through the affixing of a seal. Apparently, in such
cases, individual officers of the corporation also sign the contract, so the
distinction between the two devices is a subtle one.
The signature block in the
contract in question had provided, adjacent to the signature of the President
and attestation by the secretary of the two corporate signatories, the legend
"affix corporate seal," and indeed a corporate seal had been affixed
at that location on the contract. The intermediate appeals court held that this
device created a rebuttable presumption that the contract was intended to be
"under seal," triggering the longer statute of limitations.
On appeal to the Maryland
Court of Appeals: held: Reversed.
The Maryland Court of
Appeals observed that it was a very common practice to use the corporate seal
in the signature block to indicate the corporation's assent to the actions of
the individuals executing on his behalf. Consequently, the court concluded it
was inappropriate to draw from the inclusion of such a seal the conclusion that
the parties intended to waive the protection of a statute of limitations that
might otherwise be available. In fact, the court noted, the presumption might
even go the other way, but it conceded that this question was not before it.
Thus the court reversed
the lower court's holding that the presence of the term "affix corporate
seal" created a rebuttable presumption that the parties intended to create
and instrument "under seal."
The court then turned to
the question of whether the factual record established such an intent absent
any presumption, and concluded that it did not. Consequently, the three year,
rather than the twelve year statute of limitations applied.
Comment: The court
discussed other cases in which prior judges had concluded that an instrument
under seal was intended. The court emphasized that in those cases the reference
to the seal appeared in the body of the contract, rather than in just the
signature block.
Fair enough, but these
cases nevertheless involved use of "magic words" that it might be
very easy for parties to mistake for a simple intention that the seal denote
the approval of the signing parties' authority. For instance, use of the terms
"signed and sealed" and "witness my hand and seal" make the
instrument a sealed one for purposes of the statute of limitations.
In one case approved by
this court, the testimonium clause (a part of the agreement) stated:
IN WITNESS WHEREOF, [named company] has caused its corporate
name and sel to be hereunto affixed by its duly authorized officers."
In another case, also
approved by this court, the testimonium stated:
Witness the signature of the Treasurer, together with the seal of said
corporation, annexed hereto, duly attested by its Secretary."
In both of these cases,
because the reference to the seal was in the body of the contract, the
presumption of the intent to create an instrument under seal was conclusive,
regardless of any evidence of ignorance or lack of intent.
In sum, although the
Maryland court has straightened out one defendant's problems, it has done
little to eliminate the maze of subtle drafting traps that Maryland lawyers
must dance around.
Readers are urged to respond, comment, and argue with the daily
development or the editor's comments about it.
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