Instruments executed under seal: How the archaic legal formality can make a meaningful difference

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If you have ever signed or reviewed loan documents from an institutional lender, you may have noticed the word “Seal” in parenthesis or brackets next to the signature line on some of the documents. You may have noticed language on the signature page indicating that the parties have executed the agreement “intending to create an instrument under seal.” Like most people, you probably signed the document without giving these words a second thought, but what do these seemingly archaic words mean, and why are they included in most standard loan documents?

If you are a history buff, you can find all manner of interesting origin stories of the “seal,” including descriptions of Anglo-Saxon nobility wearing signet rings embossed with their personal seal, which would be used to press wax seals on legal documents. Apparently, this was a means of early authentication in the time of the Knights of the Round Table. At some point, the cumbersome (and likely messy) wax seals were replaced with embossed seals pressed directly on the page. Not so long ago, corporate records were kept in physical form. As part of your corporate minute book, you could have a small hand-held press made that would be used to physically emboss the corporation’s seal onto stock certificates and other corporate records. Even if you are not an aging corporate lawyer or administrative professional, you may be familiar with this technology in the form of personal “book embossers.”  You can order them from your favorite personalized gift store for the book lover in your life to emboss “From the Library of [Your Name Here]” on all of their favorite books.

From an early legal authentication method to a novelty gift, the language can still be found in loan documents and commercial contracts today. But does it have any legal significance?  It turns out, it does. In some jurisdictions, a sealed instrument can serve to extend the statute of limitations for bringing a claim.  For example, the statute of limitations for contract claims in Delaware is normally three years.[1] Delaware courts, however, will apply the common law limitation on claims of 20 years if the instrument in question was executed “under seal.”[2]

In New York and a growing number of other jurisdictions, the distinction may not seem to matter. The statute of limitations to commence a contract claim in these jurisdictions is no longer extended for sealed instruments. If the Lender desires to bring a claim against the applicable loan party outside of New York, however, the distinction could have real consequences.

Imagine a common scenario in which a lender obtains a New York law guaranty from a borrower’s parent company that is formed under Delaware law. The borrower defaults on the loan, time passes, and at some point, the lender decides to enforce the guaranty against the Delaware guarantor. Even though the guaranty provides that it is to be governed by New York law and contains non-exclusive New York forum selection language, the lender decides that it will be better positioned to bring a claim against the Delaware guarantor in Delaware court (this decision could be made for any number of reasons — reasons my litigation colleagues are better equipped to explain). Despite the New York governing law clause, it is generally accepted that the Delaware court would likely apply Delaware procedural rules in determining whether and how to hear the action and apply New York substantive law to resolve the claim. Accordingly, the court would likely apply the Delaware statute of limitations and bar the claim if it is not brought within three years. If the guaranty was signed by the guarantor “under seal,” however, the common law limitation of 20 years would apply.

To prevent litigants from “forum-shopping” otherwise stale claims, Delaware has enacted a statute which requires the court to look to the law of the state in which the claim originated and apply the shorter of the statues of limitation of the originating state and the forum state.[3]  In the scenario described above, if the guaranty was signed “under seal,” the Delaware court may determine that the claim arose under New York law (because the guaranty stipulated that it was to be made under and construed in accordance with New York Law). Accordingly, the court would point to the “borrowing statute” and apply the shorter, six-year statute of limitations under New York law rather than applying the Delaware common law limitation of 20 years. By requiring the document to be executed under seal, the lender will have extended the statute of limitations to bring a claim in Delaware by three years (instead of applying the default three-year statute of limitations, the court would instead apply the six-year statute of limitations under New York law).

In short, best practice is to require the lender’s loan documents to be executed under seal, especially where the loan is made, or a loan party is formed or otherwise located, in a jurisdiction in which the statute of limitations is expanded for sealed instruments.

To be executed “under seal,” the instrument should clearly state that the applicable loan party intends for the instrument to take effect as a “SEALED INSTRUMENT,” the word “Seal” should appear next to the loan party’s signature line on the instrument in parentheses and, for corporations, the corporate seal of the corporation should be physically stamped on the signature page.

Mitchell J.   Ream is a Senior Associate on Lippes Mathias LLP’s Banking & Financial Transactions Practice Team.  

[1] Title 10 Section 8106 of the Delaware code.

[2] Whittington v. Dragon Group, L.L.C., No 392, 2009 (citing State v. Regency Group, Inc.)

[3] Title 10 Section 8121 of the Delaware code.