Daily Development for Friday, October 10, 2008
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Husch Blackwell Sanders
Kansas City, Missouri

STATUTE OF LIMITATIONS; INSTRUMENTS UNDER SEAL: Although aa note secured by a deed of trust is not executed under seal and is subject to a three year statute of limitations, if the deed of trust contains a separate promise to pay the same debt and is executed under seal, the twelve year statute of limitations applicable to sealed instruments will apply.

The Wellington Company, Inc. Profit Sharing Plan and Trust v.  Shakiba,  180 Md.App. 576, 952 A.2d 328 (2008)

On October 12, 2005 Lender filed suit to collect on a commercial note secured by a deed of trust on real property.  The note was a balloon note (carrying 18% interest) and was due on May 1, 2002.  Borrower claimed that the three years  Statute of Limitations in Maryland on actions in contract barred the claim and moved to dismiss.  The motion was denied and the case went to trial.

At trial, it developed that the property covered by the deed of trust had been foreclosed by the holder of a senior lien, wiping out the deed of trust.  Lender’s witnesses were uncertain whether a deficiency had been sought as a consequence of that foreclosure, and the court appeared to assume that there had been no such deficiency claim.
Lender argued, nevertheless, that it was entitled to recover on the note because it was a “specialty” under Maryland law - a sealed instrument - and therefore entitled to a twelve year limitations period.  Borrower responded that there was no seal on the note, but Lender argued  that the signature block contained the legend “signed, sealed and delivered,” and that under Maryland law the simple statement that an instrument is sealed is sufficient to accomplish a seal, and that no formal seal is necessary.

The court disagreed.  It acknowledged that all that might be necessary under Maryland law might be for the word SEAL to be printed on the document, without any other kind of formal seal, but held that a mere recitation that the instrument is sealed is not enough to invoke the benefits of a sealed instrument.    The court also pointed out that the recitation in the note stated that the seal was witnessed, and that there was a signature block for the witness signature, but no signature appeared.

But, the lender persisted, the deed of trust in this case was indisputably under seal, and contained a separate promise to pay the debt, and thus provided sufficient basis for the lawsuit alone, and enjoyed the benefit of the longer statute of limitations.  The trial court had rejected this argument, but it had more appeal for the Maryland intermediate appeals court. 

The appeals court concluded that the promise to pay contained in the Deed of Trust and the existence in the deed of trust of an acknowledgment of the debt, read together, constitute a specific, definite obligation on the part of borrower. “The parties did not render this obligation unenforceable merely by reciting the same obligation in a second document, i.e., the Note . . . the Note and Deed of Trust are separate, enforceable contracts. Although [Lender] could not recover twice, it was entitled to seek repayment under either the Note or the Deed of Trust.”

Borrower asserted that the sole remedy to collect the debt under either the note or deed of trust was an action for deficiency following the earlier senior foreclosure.  It claimed that the specific statute authorizing deficiencies in such cases ought to be deemed exclusive.  Although this argument convinced the trial court, it didn’t work on appeal.  The appeals court concluded that the purpose of the statute was to confer jurisdiction on a foreclosing  equity court to enter a money judgment, and not to establish an exclusive remedy for collection of a debt represented by a contractual statement of obligation contained in the deed of trust.  The court also dismissed arguments that the deed of trust, for these purposes, should be considered separately from a mortgage, because it specifically was made out to the trustee, rather than to the beneficiary.  Because the deed of trust contained a promise to pay the debt owed to the lender, the fact that it was contained in a document cre
ating a security interest through a trustee was of no consequence.

The court saw no inconsistency in permitting the Lender to recover on the debt set forth in an instrument other than in the note when an action on the note was barred.  It doesn’t really explain why this is so.  The fact that Maryland has decided that a longer limitations period applies to action under seal seemed to be a sufficient answer.  The court cited a number of authorities to the effect that special benefits accrue to a promissee when an instrument is under seal, and have so accrued for centuries.

Comment:   Undoubtedly all of this is perfectly clear to east coast lawyers in traditional common law states such as Delaware and Maryland (and perhaps others) that elevate the significance of what is little more than a second signature on documents or even boiler plate in the document form to a sacred status.  The editor understands that a certain amount of mysticism is always useful to impress the clients that their lawyers are effectively high priests dealing on a plane beyond that of mere mortals.  But, in light of the fact that the seal is almost certainly legal gobbledygook that the party executing the documents (and the party receiving them) almost certainly does not credit as having special significance, the editor believes that its presence should not make a significant procedural or substantive difference in the rights of the parties.

On the other hand the editor doesn’t like crab cakes so much either - can’t stand the mayonnaise.

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