The Agreement Under Seal
An agreement under seal dates back centuries to 12th century England as part of the Royal Courts of Justice. An agreement under seal was created to codify and formalize the rules of when a written agreement would and would not be recognized by the courts. The court jettisoned the idea that an agreement should only be recognized if the individual that was signing the agreement had an understanding of the subject matter of the agreement. The court therefore held that if you wish to wrap yourself in the security of the law, then it should be documented in writing with a seal.
In 1314, a Royal Warrant (enabling agreement) was formally issued recognizing and stating that a written and signed agreement would be recognized if it was: 1) in writing; 2) sealed by the party intending to be bound (signature was sealed from wax); and, 3) delivered to the party intending to enforce the agreement against the other (the action of delivering). From this rule, case law was cemented over hundreds of years resulting in limitations on when an agreement under seal is appropriate. Initially the Court allowed extension of the period of limitation for an agreement or deed executed under seal to 20 years. However, the major holding of the court was that seal acted as a substitute for consideration thereby eradicating any need for a party to provide value in the deal .
In America, however, predominantly in the 19th Century, the Court abolished the use of Seal Statutes which dictated the idea that the enforcement of a written agreement required both a signature of the party intending to be bound and the affixing of a seal. The idea was that there was not a good reason to allow a longer period of limitation because the imposition of a written agreement in its self was sufficient to evidence that the parties intended to bind themselves to the agreement. Therefore, the American rule does not need the formalities associated with agreement under seal, including the necessity of a seal, as it is bound by the same rules as any other written agreement.
With the abolishment of the seal statutes, the need for an agreement under seal faded in America as most states adopted the Uniform Commercial Code (UCC), which has also done away with the distinction between an agreement under seal and one without a seal. Several states have even abolished the statute of limitations that was used when an agreement under seal was executed. However, the courts in Massachusetts, New York, South Carolina, Pennsylvania and Tennessee are still governed by an agreement under seal and still require the formalities associated with such agreements.
Legal Consequences of Agreements Under Seal
Agreements Under Seal: Enforceable without consideration, but often not required
One of the consequences of using a seal is that an agreement under seal is enforceable even if it is not supported by consideration. This means that if parties enter into an agreement under seal, it may not matter whether something of value is exchanged as part of the agreement. A seal creates its own contract and should not require separate consideration. Agreed? Perhaps. Although an agreement under seal may not require separate consideration to be enforceable, courts may still require evidence that consideration or other contractual elements were actually given or offered. For example, in the 1931 decision in Union Colliery Co. of B.C. v Bank of Montreal, 64 B.L.R. 50 (B.C.S.C.), Mr. Justice Richards was "not prepared to assume that an agreement which purports to be a mortgage on an unpatented mining location is given in consideration of a promise to pay money or 100,000 shares of stock unless such a promise is actually contracted for, and unless [it] has been paid or an offer made to pay." However, most cases will not require evidence of consideration where the agreement is under seal. In the 1992 decision in Intelcom Canada Ltd. v. Cantech Industries Ltd., 63 Man. R. (2d) 314 (C.A.), the Manitoba Court of Appeal for example, considered whether Intelcom’s mortgage was unenforceable based on a provision in the mortgage that it would be void unless a sum of money was loaned to it prior to registration of the mortgage. Mr. Justice Cummings concluded that "the provisions of s. 103, by virtue of its applicability to "any instrument under seal", contemplate the situation in which a seal affixed to an instrument is in fact unsupported by consideration, but do not apply to an instrument which, although under seal, in fact recites that consideration in fact passed." His Honour concluded that this provision of the mortgage was unenforceable. Without a doubt, an agreement executed under seal will always be enforceable unless it can be shown that it is not binding or unenforceable for some other reason. However, courts and judges will generally find a way to require an agreement under seal to have consideration or some other contractual element. Don’t expect parties to enter into agreements with a seal and to view those agreements as the be all and end all.
Pros and Cons of Agreements Under Seal
One of the advantages is that they are enforceable beyond a standard six-year limitation period. A contract or legal action may be pursued for 2 years after a breach of contract or discovery of a claim, whichever is later. However, this limitation period is only extended to 15 years if the contract is under seal. Accordingly, the parties may wish to consider having an agreement governed by a 15-year contractual limitation period in order to stave off any potential liability that might otherwise arise after the second limitation period has expired.
Another benefit is that agreements under seal will normally require formality. Generally, authority should be granted to enter into an agreement under seal, and such authority will likely be found in a corporate by-law. Further, execution and delivery ought to occur in the presence of a witness. While these formality requirements add additional cost at the time of execution, the enforcement advantages in the long term are likely to outweigh these initial costs.
A drawback to using an agreement under seal is that it cannot be varied by oral or informal written agreement. Under seal agreements will generally remain in force and effect in accordance with their terms despite any informal or non-compliant attempts to vary the agreement. Thus, if the parties anticipate that the agreement will need to be updated or amended from time to time (for example, where additional parties may be required due to corporate mergers), then entering into an agreement under seal might not be the best choice.
Jurisprudential Differences
The vast majority of jurisdictions have abandoned the requirement that a document be executed under seal for it to be enforceable. However, a minority of jurisdictions still require a seal for at least some types of documents. Notwithstanding any such requirement, a seal will not invalidate an enforceable contract. The requirement of a seal is disfavored by modern jurisprudence, and here as elsewhere there is a general tendency to treat a seal as surplusage and disregard it where it may be an inessential matter of form. Where the law of the forum renders distinctions between sealed and unsealed instruments unimportant, or where the law of the forum does not provide for a seal at all, it would seem that the contemporary function of a seal in deed might be disregarded as well. As is to be expected , contracts touching land have received different treatment in different jurisdictions. Some courts have refused to give effect to a seal where the law of the forum does not require its use; others have enforced the agreement despite the omission of the seal. Still others have limited the rule to actions on negotiable instruments and given no effect to a seal in contracts other than instruments by which a sum of money is promised. Statutes of limitations have been applied where a seal to an instrument was held unnecessary although the law would have given rise to a longer limitation period otherwise in the absence of a seal. And even where a seal was in fact present, the uniformity of the law of the forum will be recognized where the instrument specifies a shorter limitation period.
Contemporary Usefulness
Today, many attorneys advise their clients that contracting under seal is not useful as a way of circumventing the need for consideration. This is because in most US jurisdictions this circumvention is unnecessary; most courts permit parties to be contractually bound even if the parties do not exchange something of value. This is also because US law does not require a deed (a common law tradition) in order to affect the necessary formalities for a real estate transaction. An agreement under seal is still, however, frequently encountered in non-US jurisdictions that require, among other requirements, a deed for a contractual right regarding land.
Forming an Agreement Under Seal
An agreement under seal, also known as a deed, must clearly express an intention to be executed under seal. In plain English, the parties must make it clear that they intend for the agreement to be a sealed agreement (as opposed to a merely written agreement). It is not enough just to state that the parties intend for the agreement to be a sealed agreement or to just generally indicate that the agreement is a sealed agreement elsewhere in the agreement. The intention to seal must be clear and unambiguous.
The intention to seal must be demonstrated in writing in the agreement itself. A written statement of intention situated elsewhere, such as in a cover letter or in a covering email, will not suffice. Mechanics’ lien waivers have been found not to be clear enough to constitute agreements under seal even where the signatures were witnessed and where the waivers were registered on title after the fact.
To ensure that an agreement under seal is valid, a signature on behalf of the corporation or the individual party must be either: (i) affixed to the document as is normally done (i.e. by hand), or (ii) accompanied by an electronic signature such that it complies with the requirements of the Electronic Commerce Act, 2000.
A wet signature of the other signatory or parties is generally required. A court may find a document unenforceable against a party if the document has not been properly signed.
The method of signing an agreement under seal may differ depending on whether it is a corporate party or an individual party who is the party creating the agreement under seal. In Ontario , the signature requirements for documents created under seal depend on whether the party who creates the agreement under seal is a corporation or an individual.
If the party creating the agreement under seal is a corporation, the party may either sign the document in accordance with its articles, by-law or a resolution, or affix its corporate seal on the document prior to the signature. Alternatively, if the person who signs the document is an "officer", manager or representative of the corporation, such person may make use of their official capacity by signing their own name as signature and indicating the capacity of their position within the corporation next to the signature. For example: "John Smith, Construction Manager". However, this option is only available if the person executing the agreement is an officer of the company.
If the party creating the agreement under seal is an individual, the individual must either execute prior to signature a separate written document that indicates their intention to create the agreement under seal (possibly by way of an acknowledgement, consent or a witness clause). Alternatively, the party may either: (i) place the corporate seal on the document (if there is one), or (ii) sign a seal by way of an electronic signature that complies with the requirements of the Electronic Commerce Act, 2000.