What’s a Seal in Contract Law?
A "seal" has a historical significance in the law that flows from the time when sealed contracts were the only means by which formalities for the execution of contracts could be satisfied. In modern times, and in particular after the passing of the (now repealed) Law of Property (Amendment) Act 1924, it is unlikely that a signature under seal will be required for a contract to be binding. It is also vital that a seal is properly used in accordance with established legal precedent or else the purported contractual obligation may be invalid.
Traditionally, the placement of a seal on a deed (or bill of exchange) or on a company’s certificate of incorporation indicated that the document had been attentioned (as proof of execution) and sealed (as a mark of formality) . With the clear advantage of "name, place and date" being the only data required to identify a deed or bill, it is astonishing that such an outmoded formal practice continued quite so many centuries ago and, arguably, to this day.
While the absence of a seal might invalidate certain contract terms, it does not invalidate the contract altogether. This was held in the case of Re: English and Scottish Mercantile Investment Co. Ltd. A debtor was not liable on his guarantee since he had not executed a document under seal. However, the agreement would have been enforceable by way of an equitable action for specific performance but for laches. A seal may have been relevant in this specific case, but that does not necessarily mean that it now has to be relevant in every case.
The Historical Development of Sealed Contracts
The legal origins of the seal date back centuries to the Medieval period. The Catholic church owned by far the largest amount of property during that time and thus wrote most of the contracts for that property. These contracts were then sealed by the church with an official seal. In addition, documents were required by law to pass through the town (for instance for payment of property tax), which required the official imprint of the church’s seal. Thus, the use of the seal was ubiquitous.
A number of key benefits arose from the Church’s use of seals (which are now referred to as "seals" in their modern physical form). First, the Church had the right to prosecute any forgery of the seal as though it were a crime against it. Second, for civilians, the seal also had a punitive aspect. For instance if John Smith (a former tenant of Rogers’s) owed Rogers money in England, the Church could sue Smith for non-payment, even though there was no actual contract between Smith and the Church. This punitive aspect is referred to as affixing contractual liability to an "official document". Since these early documents were thought to be endorsed by the church, all public policy was considered to be behind them. So, in spite of the fact that the church would have to send Smith’s case to court (often a very distant court), rather than have Smith appear in court at his local court, this mitigated only minor difficulties. Given their power and the impact their seal had on why the Church’s use was ubiquitous. When England was made a Protestant country, a public policy reason for enforcing these documents disappeared. Even after the popularization of the private seal, there remained evidentiary as well as prospective reasons to use the seal, and therefore its dominance remained.
The common clay or wax seal with a seal stamp, or mark impressed into it, that we are familiar with today is very different from the ivory and gold leaf decorated seals used in the Medieval period. The symbol used is just as important as the material used to create the seal. In short, the wax seals of today did not evolve from their high society ivory and gold leaf predecessors.
The official types of seals used by the church and upper class expanded to include supple materials, ciphers and mottos used on private seals (that appeared on all documents endorsed with the seal). A private seal was used by any member of nobility and gentry. The addition of the private seal as a more lowly seal did not end the usage of the higher status public seals. However, the private seal was not an exact replica of the official seal and would usually differ in various respects including: symbol, size, ornamentation, inscriptions and the border.
As the church’s monopoly over official seals ended, other organizations began creating their own seals in an attempt to establish their official agency status in the respective professions. Professional associations (that often functioned as unions) attempted to limit the use of data collected from their profession. Usually this meant that people such as doctors, lawyers and teachers were barred from giving out information to everybody outside of the select circle of professional association members.
This attempt by professional associations to limit data circulated within their respected professions is very similar to what occurs today with limited data. For instance, only licensed and registered accountants and accountants with official clearance may enter or leave data in the Accountant’s and USER’s databases.
The natural result of the attempt to control the distribution of data was limited use of sealed contracts. The concern of being prosecuted for criminal fraud and the subsequent penalties was no longer necessary, since the possible source of seals for everyone, everywhere and by anyone at their own leisure was abundance. The wide spread use of embossed self adhesive seals replaced the old requirement for persons to have their seal customized by a chrysoprast (someone capable of cutting metal) and then mustered endangered species ingredients to affix to the custom embossing such as ivory for a matryoshka and gold leaf for a cope. The natural result was that seals went from the pinnacle of the social ladder (the Church and gentry) to the lowest rung (everybody).
However, the claim that all seals should be considered as "deeds" was not a new one. In 1968, Lord Justice Diplock of the British Supreme Court noted that although, civil law considered all seals to be contracts, English law only considered some to be deeds, but doubted whether the only distinction between those that were deeds and those that were not was their respective signatures. He said, in part, "The courts have taken the view that the distinction between a deed and an ordinary contract is to be found not in the law of contract but in the law of conveyances. Traditionally, and on account of the weighty evidence before the court, a seal has been regarded as a badge of authenticity, a badge which establishes prima facie that the instrument containing is a formal, solemn and authentic instrument. Therefore, when a contract is created under seal, it is binding and enforceable."
Some Canadian authorities are ambiguous on whether all seals are deeds and thus some courts uphold the validity of a contract under seal and others do not. Some say that all seals are deeds, while others hold that a contract can be formed without a seal thus, not changing the general status of contract law in Canada.
The Legal Implications of a Sealed Contract
The presence of a seal on a contract introduces certain substantive and procedural legal implications which extend beyond the ordinary effect of a signature. The most critical substantive effect of sealing a contract is that the seal reduces the evidential burden on a party seeking to enforce it by raising a strong presumption that the contract is valid. The peculiarity of this presumption is that it is rebuttable and only evidential in nature. As such, it cannot change substantive rights and obligations between the parties. In other words, a contract under seal is not completely insulated from challenge and may still be rendered unenforceable on grounds of mistake or illegality (for instance).
Traditionally, a bond was an instrument guaranteed by a seal to create an obligation to pay a certain sum of money. In today’s context, a seal is simply a mark with no special legal significance.
The legal effect of a sealed contract can have a positive or negative impact on each party’s defence in contract litigation. For example, both parties are bound by the contract for its full term, even if it does not expressly state that it will not be rescinded on account of any misrepresentation (unlike an ordinary contract).
In addition, it cannot be annulled due to any ‘lack of consideration’, unless such lack of consideration goes to the root of the contract. Indeed, in the event a party contends that the agreement is unenforceable due to lack of consideration, the burden is on the party who executed the deed to demonstrate that consideration was lacking at the time. It does not suffice to show that there is a failure of consideration over time subsequent to the making of the agreement. Notably, this presumption applies even when the agreement evidences the payment of a specific sum of money, unless such provision is expressed to be conditional on a certain event happening.
How Are Sealed Contracts Different Than Unsealed Contracts?
Sealed contracts may be distinguished from unsealed ones in a number of aspects. For example, the execution of sealed contracts is subject to strict rules to ensure due execution. Once these rules are met, any dispute as to whether the seal has been affixed is a matter of evidence, and the question of whether the signatory has a seal at all is immaterial. Federal Tax Grp., LLC v. Shaw Group, Inc., 501 F.Supp.2d 774, 780 (W.D.La.2007). However, where an unsealed contract has not been duly executed, the contractual obligations are not enforceable against the party, even though the agent has a power of attorney to increase the obligations of the principal. Id.; see also La.Code Civ. Proc. Ann. art. 1846 (rules for the "writing" sufficient for an obligation are to be applied "in whatever form, oral or written, and whatever name [the instrument] bears, . . . unless provided otherwise by the laws of this state for particular kinds of obligations"). Although Louisiana Revised Civil Code article 1825 provides that contracts of suretyship must be in writing, it does not require that they be signed under private signature or by a notary. Federal Tax Grp., LLC, 501 F.Supp.2d at 780. Moreover, Louisiana Civil Code article 3017(A) mandates that authentic acts must be signed by a notary public, an agent or other mandatary authorized to execute authentic acts, and the persons granting or receiving the rights granted. La.Civ.Code Ann. art. 3017(A). However, the signature of a third-party witness is not required for the execution of an authentic act and is not material to its validity. Federal Tax Grp., LLC, 501 F.Supp.2d at 780.
What is the Current Legal Position of Sealed Contracts?
In the modern legal landscape, sealed contracts have lost much of their original significance. In jurisdictions where they are still used, the rules governing them have been reformed significantly from the rules of classical contract law.
In England and Wales, the general principle of the common law is that an agreement, rather than a deed, is required to create obligations. However, this common law principle has since been qualified by various statutory provisions, most notably under the Law of Property (Miscellaneous Provisions) Act 1989, which significantly limited the by then obsolete doctrine of use of seals.
The remaining limited areas of use of seals are unequal to the areas of use of signatures and deeds; therefore, it is fair to say that the signing of a deed is more suited for higher value transactions, arrangements or contracts than the signing of a document without a seal. The law does not impose a restriction on when a seal should be affixed, but the technique tends to be used mainly when a person wants to have an extra layer of protection to avoid the potential successful arguments against its contractual obligations, such as duress, misrepresentation, undue influence or mistakes.
Whilst certain jurisdictions still require a non-hostile signature as a prerequisite to the use of a seal, the utility of the seal in present legal practice has diminished .
Seal contracts are not used in France any longer, as currently only signed, handwritten contracts are valid. However, it is still possible to "seal" a contract by way of the stamp, which the parties place in the middle of the contract to make their commitment to the contract clearer, whilst facilitating the circulation of the contract later in compliance with the formalities.
In Austria, it is challenging to follow the formalities of execution of a deed, as the law requires that the signing of the signature be done in the presence of a notary, not in the presence of witnesses. However, it is noteworthy to mention that a document can be signed "in counterpart". This means that each party can sign a separate copy, and once all copies are executed, they are considered to be one document.
In Germany, a recently tightened legislation made it very difficult to execute a deed; hence, the number of deed contracts has been diminished. As in most of the other European jurisdictions, the signing of a deed has become a formal requirement for some contract categories (e.g. the sale of real estate, mortgage documents, corporate law, etc.) but no longer plays an important role in private contracts.
Exemplary Cases and Examples
Sealed contracts have played a starring role in many interesting cases and there has been much controversy over whether new electronic means of affixing seals are sufficient to defeat the seal requirements. Judges have found themselves attempting to balance the weight of binding contractual obligations against each other and the circumstances in which seal requirements are of significance. In some cases, the parties’ failure to comply has led to significant litigation costs, resulting in a loss of time and money for all. In Pioneer Bank & Trust Co. v. Northwood Homes, Inc., 821 So.2d 117, 118 n.1 (Ala. 2001), the Alabama Supreme Court explained that a contract seal is "a representation that the instrument is solemn, formal, and designed to give the contract to which it is attached greater validity than a simple contract without a seal." The effect of a seal is that it may obviate the necessity for an acknowledgment and is a substitute therefor. (emphasis added) In State Auto Property & Casualty Insurance Co. v. Chandran, 67 So.3d 462 (MS Ct. App. 2011), the plaintiff argued that a contract with a seal was automatically enforceable. In that case, a contract for the purchase of an insurance agency contained a seal. The plaintiff breached the contract by attempting to complete the transaction without the consent of the co-owners of the policy the prospective defendant had with State Auto. The court found that the seal was a representation that the contract was solemn, formal, and designed to give the contract greater validity. Id. at 465. The fact that plaintiff did not abide by the terms of the contract, however, defeated the seal requirement. It was noted that the seal does not strengthen an otherwise unenforceable contract but merely dispenses with the necessity of a seal on the buyer’s part to make the contract enforceable. Id. at 464 (citing Alexander v. Gordon, 130 So. 2d 604 (Miss. 1961)). The Mississippi court thus disagreed with the Maryland court in American-Foreign Steamship Corp. v. McAllister, 290 U.S. 217 (1933) where the U.S. Supreme Court held that a seal merely dispenses with the need for an acknowledgment when establishing a contract for the sale of a vessel in state’s register. The Mississippi court pointed out that the statute cited in the McAllister case specifically provided, just as the Mississippi statute does, that the seal was "for the purpose of making the deed valid or perfect." Ala. Code § 35-4-24. The Mississippi court also pointed out that McAllister involved a misprinted printed contract, where the parties had actually intended to fix a sum certain, but used language suggesting that they were leaving the price open for future agreement. The court distinguished McAllister on the ground that the contract was void for lack of mutual assent, which is a more serious breach than the breach in State Auto. So the issue of whether the signatures on an electronic contract would be sufficient to validate the contract depended on the rules governing seal requirements. Thus an express seal may take precedence over an implied seal, such as an electronic signature in the context of possible electronic records. In the American-Foreign case, the contract was considered void for want of mutual assent, under the doctrine of unilateral or mutual mistake, whether "the parties mutually intended one thing, but by mistake a different thing was written in the contract." 290 U.S. at 224. In Dawson v. Rhinestone Trailer Sales LLC, 300 Ga. App. 213 (Ga. Ct. App. 2009), the contract for sale and purchase of a trailer included an implied seal under Georgia law. The contract was not adhered to, and the buyer filed suit against the seller for fraud, violation of the Interstate Land Sale Full Disclosure Act and breach of contract, claiming that the trailer’s tires were bald and that the brakes did not work. Applying Mississippi law, the court found that the contract was enforceable because it was sealed (id. at 216), even though the seller had failed to follow through with the sale. The court also noted that the contract was enforceable because it was in writing and signed by a buyer or his agent, and did not require the seller to sign. Id. An express condition is one that is spelled out in unambiguous language, while a condition subsequent is an express condition which is the substance of a unilateral undertaking, such as to pay a sum of money on a specified date, or to insure a property, or keep it habitable, or to perform according to an implied condition like the lease requirement to make certain repairs. (See Vulcan Materials Co. v. City of Sherwood, 246 F.3d 1289 (8th Cir. 2001), explained above.
Relevance to Businesses and Individuals
In terms of practical application, businesses and individuals should approach the use of seal contracts cautiously. Although enforcement actions involving the question of whether a contract has been properly executed under seal are relatively rare, given the increasingly common use of electronic signatures, there exists either a perception or a real danger that executing a contract under seal may hinder, rather than further the intention of the parties in preventing litigation in the first place .
As legal formalities are now in decline in most practical respects, it would be a mistake to hold too important or put undue reliance on the supposed enhanced evidentiary value of a seal contract when baring in mind at least the following considerations:
"Whether and when businesses and individuals should continue to seek to execute contracts under seal depends more on the type of transaction, the parties involved, and a determination as to whether the benefits of a seal outweigh the potential pitfalls."