Maryland’s highest court recently ruled that use of the word “(Seal)” next to the attestation lines of a contract was not sufficient to constitute a “contract under seal.”

In Rouse-Teachers Properties, Inc. v. Maryland Casualty Company, the Court held, despite both parties arguing that a written agreement was a “contract under seal,” such was insufficient to elevate that contract to the status of a contract under seal and thus the case was barred by the statute of limitations.

The distinction of “under seal” is important because an ordinary contract has a three-year statute of limitations. That is, a civil action arising from a contract must in general be filed within three years.

However, the Maryland Code, Cts. and Jud. Proc. Art. 5-102 states, in pertinent part, that “an action on one or more of the following specialties shall be filed within twelve (12) years after the cause of action accrues … (5) Contract under seal …” If an agreement is a contract under seal it falls within the category of a “specialty,” carrying not a three-year statute of limitations of an ordinary contract, but a twelve-year statute of limitations.

While the term “specialty” is not widely in use, it is historically significant in that both the three and twelve-year limitation statutes trace to a common source, the Colonial era, Maryland Acts of 1715. In the 1715 statute, specialties were referred to by way of inclusion, inasmuch as the twelve-year period to bring a case applied to any “bill, bond, judgment, recognizance, statute merchant, or of the staple, or other specialty whatsoever.”

The earliest statement of a Maryland court recognizing a specialty was in 1789 referring to the Statute of Richard, which was in force in Maryland until imprisonment for debt was abolished by the Maryland Constitution of 1851. During the centuries when imprisonment for debt was permissible, a jailer who allowed a debtor to escape became liable to the creditor for the debt. That action against the jailer ‘on the case for escape’ dating to the English common law of 1377, carried a twelve-year period of limitations.

From 1715 to1974, the twelve-year portion of the Maryland statute of limitations did not list contracts under seal as a separate type of specialty, but simply described them as within the category of “other specialty whatsoever.” In the re-codification effective January 1, 1974, contracts under seal were removed from the other specialty category and separately identified.

Despite the fact that both parties in the Maryland Casualty case argued the contract was a contract under seal, the Maryland Court ruled otherwise. The Court turned to the signature page of the agreement and looked at a directional phrase that read “affix corporate seal” and the presence of the parties’ corporate seals on the agreement. The parties argued that such was enough to create a rebuttable presumption that the agreement was a contract under seal and therefore a specialty. But, the Court of Appeals held that the distinction of a corporate seal from an individual seal was significant.

With respect to corporate seals, in the early law a corporation could not contract except under its corporate seal. This rule persisted, but was increasingly relaxed during the 19th Century and today, in the absence of a charter provision or a statute to the contrary, a corporation may bind itself in writing not under seal to the same extent as an individual.

As a result, when a corporate seal appears in a contract, it is not conclusive that the contract is a sealed instrument. The Court reasoned that the seal was affixed to this agreement as proof of the signor’s authority to bind the corporation because “the main purpose of a corporate seal now is as prima facie authentication that the document is the act of the corporation and that the officers who have executed it have been thereunto duly authorized.”

The Court explained that “if a corporate seal is impressed on an agreement it will remain a simple contract unless either the body of the contract itself indicates that the parties intended to establish an agreement under seal, or sufficient extrinsic evidence, in the nature of ‘how and when and under what circumstances the corporate seal was affixed,’ establishes the party’s desire to create a specialty.” The Court went on to indicate that if any presumption could have been recognized in this case, it should have been the opposite of what the lower court held and that the contract must be presumed an ordinary contract.

Further, the Court held that it is proper to consider at least two features of a contract to determine whether it was executed under seal. A court may first look to the body of the contract itself. If there is a recital in the body of the agreement stating explicitly that the contract is one under seal, that has conclusive evidence of the intent to create a sealed instrument. Formal recitals such as “signed and sealed” and “witness my hand and seal” make the instrument a sealed one for purposes of statute of limitations.

Second, a court may look to extrinsic evidence to ascertain the sealed nature of a contract. In circumstances where a corporate seal is affixed to an agreement and the purpose of the attachment is unclear, extrinsic evidence is admissible to show whether the “use of the seal was intended to make a paper a specialty or merely as evidence of its authorized execution, or that it was in fact used without authority.” In the instance before the Court, the directional phrase, “affix corporate seal” was not enough to evidence the parties’ intent to create a contract under seal.

While no case appears to have decided the question of whether for the purposes of determining the tolling of limitations, the use of the word “(Seal)” at the place of signature, together with the impression of a corporate seal makes a contract a sealed instrument, in the absence of a clause in the body of a contract regarding the sealed nature of the contract, it is clear that such is not sufficient to manifest an intent to render a contract under seal. Rather, such would be viewed as serving only as an authentication of corporate action. The parties to the contract in this instance were sophisticated and the Court reasoned they could easily have specifically provided by so stating in the body of the contract that the contract was under seal. They did not do so.

In the instance of a contract to be signed by individuals, and not corporations, the guidance of this Court is clear. A testimonium clause providing, “witness my hand and seal on the date first above-written” above a signature line that includes the word “(Seal)” makes the contract a sealed one for the purpose of statute of limitations.

Such is not necessarily the case if a corporation or other business entity is a party to a contract. In that instance, the advice of the Court indicates that a recital should be included within the body of the agreement to the effect of, “[t]his agreement is a contract under seal, and is intended to be a specialty.” In addition to that recital and the testimonium clause described above, the word “(Seal)” should be employed.

The potential impact of having a court determine the statute of limitations tolls for a contract in three years versus an intended twelve years is sufficient cause to review all written agreements making certain that they comply with the guidance of the Court.