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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