What’s the Legal Significance of Executing a Construction Contract Under “Seal”?

Owners, Contractors, and subcontractors are accustomed to signing contracts.  Most  understand the significance of the terms they sign, some do not.  Many significant terms are easy to spot, others not so much.  Multiple, terms are generally interpreted using their common meaning, a few are archaic leftovers from the past.  Contracts under “Seal” provide an example of archaic terms, with significant impacts, not easy to spot unless knowledgeable thereof, with a very uncommon meaning.  Legal commentators have noted that “the concept of seal endures, primarily out of habit but occasionally out of stealth”.

Under medieval common laws adopted from England in the 1700’s, there were 2 types of contracts, those under “hand” and those under “Seal”.  The latter were treated as more solemn and given “special legal status”, including automatically extending the time in which to file suit.  Although no longer required, during olden days, a personalized wax "Seal" was actually applied to such contracts, Many of the original 13 colonies along the Eastern seaboard continue to recognize the distinction between contracts under "hand" versus those under "Seal".  Whereas the majority of States, especially those West of the Mississippi have abolished contracts under “Seal”.   Along the eastern seaboard, understanding the significance of signing a contract under “Seal” remains important 

States that still recognize contracts under “Seal” typically require both a “Seal Recital” above the signatures and the terms “Seal” or “L.S.” at or near each signature line.  Contracts under hand do not.  A “Seal Recital” always references the term “Seal” and is typically set forth in the sentence preceding signatures.  Examples of “Seal Recitals” include i.) ”signed, sealed, and delivered”, ii.) “in witness hereof, I hereunto set my hand and seal”,  iii.) “this document is signed under seal” or iv.) “signed under seal this day of”.  Other forms of “Seal Recital” are also allowable so long as they contain the word “Seal”.

Sealed contracts must also contain the term “Seal” or the initials “L.S.”, Latin for “Locus Sigilli” meaning “the place of the seal” beside all “sealed”  signatures.  If the terms “Seal” or “L.S’” are not beside all signatures, then the contract is only signed under “Seal” by signatories to whom both parts apply.  An archaic aspect of contract law, in that one contracting party may sign under “Seal” while the other does not.  This can result in disparate rights, to the extent one party is bound to a contract under “Seal” and the other to a contract under “hand”.

As previously referenced the principal risk to signing a contract under “Seal” is that the time in which to sue a party signing under “Seal” is automatically extended.  For example, the statute of limitations in Georgia and Massachusetts, or time in which suit must be brought for contract claims, runs out 6 years after the breach occurs.  However, both States extend the statute of limitations against a party signing under “Seal” to 20 years.  Back in 1996, a general contractor client routinely had “unwitting” subcontractors sign subcontracts under “Seal”  while the general contractor removed the “Seal” from beside its signature line.  This entitled the general contractor to file suit against its subcontractors for many (not all) claims for a period of 20 years, while the subcontractor’s claims were extinguished after just 6 years.  A "stealthy" benefit that greatly favored the general contractor over its subcontractors. 

Other legal issues can also apply against a party signing a contract under “Seal”, but they are less draconian.  For example, a party signing under “Seal” could be prohibited from disputing whether proper “consideration” was given by the other party to support the contract.  Signing under “Seal” can also deprive the party from raising “fraud” as a defense in response to claim from the other party. Parties signing a contract under “Seal” can also be required to sign all change orders thereto under “Seal”.  Finally, when an agent signs under “Seal” it can be much harder to recover against an “undisclosed principal” who authorized the agents signature.  While these other legal issues do not have the same shock appeal as does extending the time in which to file suit, each can be problematic under different circumstances.

So, the next time you sign a contract, check and see if there is a “Seal Recital” immediately above the signatures, and the term “Seal” or “L.S.” appears beside your signature line.  If both are present, make sure the terms “Seal” appears beside all other signatures, cross through the term “Seal” beside your signature, or research the risks of signing under “Seal” before doing so.