At some point you may have been asked to sign a contract that has a signature block similar to the one below:
XYZ Subcontractor, LLC:
John Doe, President
Print Name and Title
It’s such a small detail that most likely no one asked why it says “(Seal)” next to the signature. However, the addition of that single word can significantly affect the contract.
First, a bit of history. In the 19th Century, companies signing a contract would press their seal into wax on the contract document. The purpose was to prove the handwritten signature wasn’t forged. If later there was a dispute, the court only had to compare the seal in the wax to the company’s seal to see if they matched. The practice of using a wax seal was so formal that contracts signed in that manner were considered more solemn than the average unsealed contract, and therefore could be enforced for longer periods of time. Over the years, at least in Maryland, the purpose of placing a company’s seal on contracts changed from forgery protection to proof that the person signing the contract had authority to bind the company.
Jump forward to modern day, the remnants of contracts under seal still linger. In Maryland, the general statute of limitations to enforce a contract is 3 years. This means that from the time a person knows or should know that the contract has been breached, he has three years to sue. But the statute of limitations extends to a vast 12 years if the contract is “under seal.”
So does placing “(Seal)” next to the signature blocks on a contract actually make a contract enforceable for a longer period of time? The answer depends on which state’s laws govern the contract. In Maryland and Virginia, adding that single word does not itself extend the enforcement period. If “(Seal)” appears next to the signatures, the court will look to whether the parties knowingly intended for the contract to be subject to the longer limitations period. See, Rouse-Teachers Properties, Inc. v. Maryland Cas. Co., 358 Md. 575 (2000); School Board of Fairfax County v. M.L. Whitlow, Inc., 223 Va. 157 (1982).
The trap is that modern contracts frequently have choice of law provisions. Many contracts choose Delaware as the law governing the contract. Unlike Maryland and Virginia, under Delaware law, merely placing the word “(Seal)” next to the signature blocks may convert the contract into a contract under seal and extend the limitations period from 3 years to 20 years. Whittington v. Dragon Group, LLC, 991 A.2d 1 (2009). A contract signed and performed in Maryland, but with a Delaware choice of law, could become enforceable for 20 years by the addition of that one word.
Although the likelihood of litigation 20 years later is minor, between 3-6 years later is not and that one word may have destroyed an otherwise successful statute of limitations defense. Additionally, litigation after extended periods of time also presents the practical problem that knowledgeable employees and documents may be long gone.
Next time you sign a contract, look for “(Seal)” in the signature block. You may want to strike it before signing.