Relating to Real Estate

Thirty years ago in the Maryland Bar Journal, David Fishman and Daniel Higham asked whether it was time to throw out your sealing wax. David Fishman & Daniel Higham, Is it Time to Throw Out Your Sealing Wax?, Md. B. J., Nov. – Dec. 1988. 

The answer today? Throw out the wax, but keep your wits about you! Sealed instruments are still alive and well and carrying serious consequences to unsuspecting signers.

It is no longer common to see seals stamped or affixed in wax to legal instruments. However, often the signature page of an agreement, lease or contract will include the pre-printed word “SEAL” next to each signature line. Sometimes, this is preceded by the following: “IN WITNESS WHEREOF, the parties hereto have executed this agreement under seal.” This language is not as formal or conspicuous in appearance as the impressions or wax used in the past, but it remains important for establishing how long the parties have to sue on the contract.

Ordinarily, contract actions in Maryland are subject to the three-year statute of limitations for civil actions under §5-101 of the Courts and Judicial Proceedings Article. However, §5-102 provides that an action on a “specialty” may be brought within 12 years after a cause of action accrues — nine years longer than actions governed by §5-101.

 A “contract under seal” is one of the “specialties” listed in §5-102. When, then, is a contract “under seal” so that the 12-year statute of limitations applies? As noted 30 years ago, it depends in part on whether the parties signing the contract are individuals or corporations.

In General Petroleum Corp. v. Seaboard Terminals Corp., 23 F. Supp. 137, 140 (1938), the U.S. District Court for the District of Maryland ruled that a contract “signed by an individual opposite and in obvious relation to a legally sufficient seal” will be considered a “sealed document” subject to the 12-year statute of limitations “even though there be no reference to the seal in the wording of the paper.” 

Nearly 50 years later, the Court of Appeals held in Warfield v. Baltimore Gas & Electric Co., 307 Md. 142, 143 (1986), that the word “(SEAL)” included in “pre-printed form” at the end of the signature lines to an individual guaranty was sufficient “to make the instrument one under seal.” The Warfield Court noted that the fact that the corporate beneficiary and drafter of the guaranty “placed the seal on the instrument did not make it any less the seal” of the individual signatory. 

When it comes to corporations, the answer differs. 

Today, the “main purpose” of a corporate seal “is as a 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.” Gildenhorn v. Columbia Real Estate Title Ins. Co., 271 Md. 387, 398 (1974); Anne Arundel County v. Xerox State & Local Solutions, Inc., No. CV JFM-16-00563, 2016 WL 5720705 (D. Md. Sept. 30, 2016). Whether the corporate signatory employed the seal to create a specialty or merely to indicate corporate authorization for the contract is thus a question of fact in any case.

Therefore, the General Petroleum Court held that when the signer is a corporation, the mere presence of a seal on the signature block is insufficient to transform the contract into a specialty subject to a 12-year statute of limitations. There must also be some reference to the seal in the body of the contract itself, such as a recital that the signer is “affixing the seal” as mentioned above. Gildenhorn, 271 Md. at 398. 

In the absence of any reference, extrinsic evidence of the parties’ intention to make the contract a specialty and waive the general three-year statute of limitations is required. Mayor and Council of Federalsburg v. Allied Contractors, 275 Md. 151 (1975).  As the Court of Appeals summarized in Rouse-Teachers Properties, Inc. v. Maryland Casualty Co., 358 Md. 575 (2000), “if there is a recital in the body of the agreement stating explicitly that the agreement is one under seal, that is conclusive evidence of an intent to create a sealed instrument.”

Maryland courts have not addressed whether the treatment of seals for corporations is also applicable to other legal entities, such as limited liability companies and partnerships.

What about contracts signed by both individuals and corporations? Or contracts where “(SEAL)” appears next to some, but not all, signatures? 

According to the Court of Appeals in Federalsburg, “ordinarily when a seal is attached to the signature of one of the parties but not to that of the other party, the contract as to the latter is a simple contract while as to the former it is a contract under seal.” However, “a contract need not always have as many separate seals as there are signatories to it, since in some circumstances a rebuttable presumption of a party’s adoption as his own of another party’s seal can be established [e.g., such as when the instrument purports on its face to be sealed by all the parties signing it].” 

Illustrations

Consider the following scenarios and the outcomes that should follow based on the foregoing:

• The contract includes “(SEAL)” next to each signature but does not contain a recital referencing the seals. The contract will be a specialty as to the individual signer but only a simple contract as to the corporation. The corporation may sue the individual under the contract for up to 12 years after the cause of action accrues, but the individual is barred from suing the corporation under the contract more than three years after accrual. 
• The contract is signed by individuals and includes “(SEAL)” next to some, but not all, signatures and does not contain a recital referencing the seals. The contract will be a specialty only as to the individuals who signed next to (SEAL). Those individuals may be sued under the contract for up to 12 years after the cause of action accrues.  
• The contract includes a recital indicating the instrument is signed by all of the parties under seal, but “(SEAL)” only appears next to the corporate signature. The individual signer will be considered to have adopted the corporate seal, and the contract will be a specialty as to both parties. Claims by either party arising under the contract will be governed by the 12-year statute of limitations.  Likewise, a corporation will be deemed to have adopted a seal next to the name of an individual.

New Rules for Leases And Other New Developments

Since publication of the article by Messrs. Fishman and Higham in 1988, the Court of Appeals and the U.S. District Court for the District of Maryland have issued decisions which appear to set a different standard for determining specialties in the context of leases. 

In Tipton v. Partner’s Management Co., 364 Md. 419, 445 (2001), the Court of Appeals held “claims for arrearages of rent under a residential lease, even a lease to which a seal is affixed,” must be filed within the three-year limitation period of §5-101 “unless the parties to the lease agree, in the body of the lease, that the lease is subject to the 12-year limitation period of section 5-102.” (Emphasis added). 

The Tipton Court based its holding on an analysis of the legislative history of §5-101. The Court concluded that with the codification of the Courts and Judicial Proceedings Article, the Legislature merely intended to enact a “broad three-year limitation provision for the purpose of avoiding confusion and providing clarity.” It did not, according to the Court of Appeals, intend to “remove actions on leases, with or without a seal affixed, from the type of claims governed by the three-year period of the blanket limitation codified as section 5-101.” 

Notably, the parties to the residential lease in Tipton were an individual and a corporation. The signature page contained the recital, “the parties hereto have set their hands and seals the day and year first above written,” and the word “SEAL” was printed next to each signature line. Nevertheless, the Tipton court held that the lease was not a specialty subject to the 12-year statute of limitations as to either party, in direct contradiction to the holdings of General Petroleum, Gildenhorn and Rouse-Teachers. 

In Mercantile Place #1 Limited Partnership v. Renal Treatment Centers—Mid Atlantic, Inc., No. CV PX 17-1266, 2017 WL 5171120, *4 (D. Md. Nov. 8, 2017), the U.S. District Court for the District of Maryland held that a commercial lease which contained two separate references to the instrument “being ‘under seal’” was not a specialty. The District Court cited Tipton and its analysis of the legislative history of §5-101 for the proposition that “the Court must apply the three-year limitations period to residential or commercial leases executed ‘under seal’” unless the evidence “demonstrate[s] that the parties clearly intended to create a specialty contract” and to “waive the three year limitations period[.]” (Emphasis added.)

Tipton and Mercantile Place introduced a new factor to the determination of how long a party has to sue under a contract. Now, in addition to who the signatories are, it is important to consider the type of contract at issue. But what about scenarios where more than one contract is at issue?  The Court of Appeals and Court of Special Appeals recently addressed this question in Goodwin & Boone v. Choice Hotels International Inc., 346 Md. 153 (1997), and Wellington Company, Inc. Profit Sharing Plan and Trust v. Shakiba, 180 Md. App. 576 (2008).

In Goodwin, a general partnership executed an assumption agreement with a motel chain under which the partnership assumed the obligations of the franchisees in a franchise agreement between the motel chain and several individuals executed 13 years prior. The assumption agreement was executed under seal and expressly incorporated by reference the terms of the franchise agreement; however, the franchise agreement was not itself executed under seal. The Court of Appeals nevertheless held that the sealed assumption agreement governed the limitations period for the motel chain’s claim against the general partnership for breach of the terms of the unsealed franchise agreement. 

Therefore, the 12-year limitations period for specialties applied.

In Wellington, the Wellington Company sued Mr. and Mrs. Shakiba after they defaulted on repayment of a $53,000 loan evidenced by a promissory note and secured by a deed of trust on the Shakibas’ residence. The note was not under seal, and the three-year statute of limitations for simple contract actions had expired. The deed of trust was executed under seal and included a covenant to “pay when due the principal of and interest on the debt evidenced by the Note and any prepayment and late charges due under the note.”  The Court of Special Appeals found that the note and deed of trust were two independently enforceable contracts, and either could be the basis of an action for recovery of the debt. Therefore, Wellington could still bring an action to recover the debt on the deed of trust, which was governed by the 12-year limitations period for specialties. 

In 2014, the General Assembly amended §5-102 to exempt deeds of trust, mortgages, and promissory notes secured by or securing owner-occupied residential property. The 2014 amendment thus abrogated Wellington as it applies to residential deeds of trust, mortgages, and promissory notes.

Conclusion

Under certain circumstances, adding a “(SEAL)” can significantly increase the liability of the parties to the contract. Accordingly, it is important to pay close attention to the signature page of contracts, and to closely consider the implications when using a form or prior document. If the parties wish to waive the general three-year statute of limitations in favor of the 12-year limitation for specialties, they need to take care to do so. 

Note that the parties may be able to shorten the period within which an action on the contract may be brought.  The Court of Appeals held in Ceccone v. Carroll Home Servs., LLC, 454 Md. 680, 684 (2017), that “contractually-shortened limitations periods … are valid only if (1) there is no statute to the contrary; (2) the provision is not the result of fraud, duress, misrepresentation, or the like; and (3) the provision is reasonable in light of all pertinent circumstances.”  See the November 2017 issue of Relating to Real Estate for further discussion of Ceccone.

For questions, please contact Edward J. Levin.

Ed Levin
410-576-1900 • elevin@gfrlaw.com

A version of this article appeared in The Daily Record  online and in the print edition on April 9, 2018.