United States: Why You Need To Know If Your Construction Contracts Are "Under Seal"

When a client wants to pursue a lawsuit or arbitraton, one of the first things an attorney should do is determine whether the statute of limitations has run on the client's claim.   A statute of limitations sets the maximum time period after a claim arises within which legal proceedings must either be pursued or lost, unless the running of the statute of limitations is tolled or suspended.1

Many people are not aware, however, that parties to contracts, including construction contracts, may have the ability to increase the statute of limitations for a written contract by a factor of more than three hundred percent just by adding a few words to make their contracts "under seal."  As a result, these people may increase their exposure to breach of contract/warranty claims without knowing they are doing so.

In Georgia, a written contract that is not for the sale of goods would normally have a six (6) year statute of limitations measured from the date of breach.2  A contract signed "under seal," has a statute of limitations of 20 years from the date of breach.3  In other words, changing a written contract to a written contract under seal adds 14 additional years to the statute of limitations.

Another effect of a document signed under seal in Georgia is that it creates a rebuttable presumption that the parties exchanged consideration covered by the agreement.4  Every contract must have an exchange of promises, called consideration, to be enforceable.  In other words, each party must agree to do something or agree to not do something that they have a right to do before they can have a contract.  Making the contract under seal, therefore, establishes a presumption that each party has agreed to do something, which can only be rebutted by persuasive evidence that consideration was not given.

Georgia has only two requirements to convert an otherwise simple written contract into a contract under seal, namely: (1) there must be a recital in the body of the contract stating that it is given "under seal," and (2) the end of the signature line itself must include the word "seal" or "L.S."5  If these words are located anywhere in your contracts, a party may have 20 years to assert claims against you.  A wax seal or embossed paper wafer were required at one time, but they are no longer required for a contract to be under seal.

The vast majority of states outside of Georgia have either abolished recognition of a sealed contract or limited its use to establishing authority to sign the contract or allowing the contract to be entered into evidence in court without further proof of authenticity.

The practice of sealing written documents is centuries old.  Its use was primarily to establish an intent to be bound to a contract when most people could not write their names.6   Sealed contracts also established that the contract was authentic, without further proof of authenticity.7 In fact, a sealed contract was considered such reliable evidence that eventually loss or destruction of the sealed contract resulted in a loss of all rights under the sealed contract.8

But these basis are steeped in antiquity, and its modern use has become more of a trap for the unwary than a legitimate need to protect the sanctity of contract.  Indeed, Justice Lumpkin of the Georgia Supreme Court questioned the need to have contracts under seal more than 160 years ago when he wrote:

"The truth is, that this whole subject like, many others, is founded on the usage of the times, and of the country.  A scroll is just as good as an impression on wax, wafer, or parchment, by metal, engraved with the arms of a prince, potentate or private person.  Both are now utterly worthless, and the only wonder is, that all technical distinctions growing out of the use of seals, such as the Statute of Limitations . . . are not at once universally abolished."9

Despite the apparent widespread recognition, then and now, that signing a document under seal should have no legal significance, Georgia and a few other states continue to recognize an extended statute of limitations for contracts under seal.

As a result, contractors in Georgia must be diligent in reviewing their contracts to determine whether they constitute a contract under seal and, if under seal, whether they are willing to be bound to a twenty-year statute of limitations period and a rebuttable presumption that consideration was given.

Footnotes

1. State laws provide for different triggering events that set the time when the statute of limitations starts to run based on the type of claim that is being asserted.  After a statute of limitations begins to run, statutes of limitations may be tolled (or put on pause) based on the occurrence of certain events and the tolling laws in the applicable jurisdiction.  When in doubt, potential claimants are advised to consult with an attorney to determine the applicable statutes of limitations and whether they have run and/or are tollable.

2. O.C.G.A. § 9-3-24 ("all actions upon simple contracts in writing shall be brought within six years after the same become due and payable . . .")

3. O.C.G.A. §§ 9-3-23, 13-1-4

4. Autrey v. UAP/GA AG Chem., Inc., 230 Ga. App. 767, 770, 497 S.E.2d 402, 405 (1998).

5. See, e.g., Chastain v. L. Moss Music Co., 83 Ga. App. 570, 64 S.E.2d 205 (1951).

6. See Nalbandian v. Hanson Restaurant & Lounge, Inc., 369 Mass. 150, 338 N.E.2d 335 (1975) (citing 2 W. Blackstone, Commentaries *305-306; O.W. Holmes, Jr., The Common Law 271-272 (1881); 7 J. Wigmore, Evidence § 2426 (3d ed. 1940).

7. Id. at 154, 337.

8. Id.; see also O.C.G.A. § 13-1-4 ("A specialty is a contract under seal and is considered by the law as entered into with more solemnity, and consequently of higher dignity, than ordinary, simple contracts.")

9. Lowe v. Morris, 13 Ga. 147, 1853 WL 1568 (1853).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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