What does it mean to be sealed?
A sealed contract is a contract that has been executed under a seal by the party against whom it is sought to be enforced. For reasons of conveyancing practice, a seal is no longer relevant to the creation of contracts. The seal’s historical function was to provide public evidence of ownership or authority and so was usually attached to a document that most correctly could be described as a deed. A contract comprised of two executed deeds (one by each party) gave an impression of stability and intended permanence; what we have in contemporary parlance is an intention to create binding obligations in the nature of deeds. The benefit of limiting the categories of contracts that can be made under seal is that contractual intent is apparent from the document itself and its language. Sealed contracts are always fully executed; that is , the parties have signed the contract.
The general view (formulated by Barwick CJ in Brcondos v Victoria Finance Co Ltd (1964) 111 CLR 84) is that a sealed contract can be enforced:
In Summary, the terms of a sealed contract differ from an ordinary contract in that (i) intention to create a deed can be rebutted by extrinsic evidence (ii) the seal dispenses with consideration (iii) the provision of a seal extends limitation period as provided by legislation.
In contrast, the obligations created by an ordinary contract are determined by the words of the contract and what the parties have intended to stipulate.
Sealed Contract significance in the law
The legal significance of a sealed contract is that its status as a deed as opposed to a standard agreement means that it is enforceable for an indefinite period of time, unlike the six-year statute of limitations for breach of a typical agreement between parties. A deed may be executed as a replacement for a contract drafted in terms of which the parties only later discover it would be in their best interests to execute a deed. Once the deed is executed the contract will be superseded by the deed and the deed will be enforceable indefinitely against a contracting party and against the company after liquidation.
The seal of a deed acts as a substitute for consideration and therefore a deed is enforceable whether or not consideration is provided to the contracting party (although the doctrine of consideration does not apply against a company once it is in liquidation). For this reason, a deed may be discharged by the execution of a deed of dismission. This has the effect of relieving any person from the obligations imposed by the deed and therefore the deed will no longer bind the contracting party. However, if this is not done the deed remains of full force and effect and remains enforceable against the contracting party.
Sealed Contract Usage and Common Situations
Sealed contracts are most frequently employed in several areas of law that require the assurance of enforceability and proof of authority. One of the most common use cases is in the formation of mortgages and debt securities. In the case of mortgages, a mortgage is a contract in writing with the signature and seal of the parties. The party authorized to receive the benefit of the security interest created by the mortgage should record it in the land registry in the appropriate jurisdiction. In countries where this is common, a mortgage executed in this way is difficult to deny in the event of a dispute.
In the case of debt security arising from a security agreement, the details that typically need to be included are the names of the parties, the dollar amount of the debt, the promised rate of repayments, the term of the loan, the terms of repayment, such as monthly payments, and the penalties for default. A sealed security agreement viewed in the proper jurisdiction can be enforced against posts and courts without much further evidence than the agreement itself.
Drafting a Sealed Contract
In creating a deed, be it in the context of a contract or some other document, there are several steps which require compliance with certain legal requirements and best practice procedures.
1. IDENTIFICATION OF PARTIES
The first step, like any other contract, is to identify the parties clearly. The person who is entering into the contract cannot be the company name, for example, gone or a limited entity. It has to be clear who management of the company is acting for and as representing. Applying the legal personality of an incorporated body is not appropriate here. The parties will usually be named with a description such as the United News Limited, as tenant of Blackacre. The description then continues as defined above.
2. SIGNATURES
Signatures need to be placed on the document. The signature of the party making the deed will be witnessed (more on that later). A failure to follow this simple step will mean the deed is void and unenforceable.
3. ADDITION OF THE WORD "SEALED"
The key identifying element of a deed is the use of the word "sealed". If the intention is to create a deed even though it is a contract, the word sealed must be used to avoid challenges of validity. A variation on this point, however, is that it is not obligatory for the words "deed" or "sealed" or "executed as a deed" to be used in the title of the deed. For example, "this agreement" or "this contract" would still be valid even though "sealed" was not included in the title.
4. WITNESS SIGNATURES
The signature of the party with the deed is not enough. The form needs to be signed with the signature of a witness. The witness must be over the age of 18, independent of the party signing the deed, also not a party to the contract or deed, and not a paid clerk or agent of the person executing the deed.
5. SEAL AND EXECUTION
The execution section must contain details of the parties’ representatives such as their names and addresses, and must continue as described above.
6. DELIVERY
The final step in forming the deed is delivery. It is not necessary for the deed to be delivered personally to the party by whom it is executed. Delivery may take place even where the deed is in the possession of the party by whom it is executed. Where delivery is in an executory form, whether by hand or post, the purpose behind a delivery is that the party entitled to the benefit of the deed can claim it to be operative at any time. Delivery, effectively, is the abandonment of all control over the deed, and constitutes an intention to be bound.
Sealed Contract advantages and disadvantages
Like all legal tools, contracts containing a seal, or deed, come with advantages and disadvantages. When it comes to formal written contracts (including many types of real estate contracts), for a short period of time, a seal made all the difference. While sealed contracts offer a variety of legal benefits in some jurisdictions and circumstances, it is no longer the norm, due to the decline in the use of wax seals. Some of the advantages of choosing to enter into a contract with a seal include the following: Ease of proof: A seal serves as an extra form of endorsement, making the signatures on a contract harder to impersonate. Future enforceability: Courts will hold parties to agreements made under sealed contracts unless a party can demonstrate fraud, duress, mutual mistakes or unconsented minor alteration of contractual terms, among other situations . No consideration necessary: In many jurisdictions, parties do not need to provide consideration (a value of some form) to be bound by a contract if it has been signed under seal. The drawbacks of choosing to enter into a contract that contains a seal rather than a normal signature include the following: Devaluation of the seal: As more parties abandoned using wax seals, fewer judges have viewed the seal as a unique form of identification. Consideration still required: Even though many laws allow courts to enforce contracts without consideration, they still require consideration in order to be considered valid. Some courts will allow nominal amounts as consideration, though others will not. Confusion caused by a contract’s acknowledgement clause: Depending on the language of the contract, the acknowledgement paragraph may lead some court officials to believe a seal is required for valid contracts.
Enforcement of a Sealed Contract
In general, when a written contract has been executed under seal, the party seeking to enforce that contract need only allege the formation of a contract and a breach of it by the opposite party. An example includes an action on a bond where a plaintiff need only show that the bond was executed under seal by the defendant and that the condition of the bond was broken. However, there are certain instances in which judicial or statutory approval is required for enforcement of a sealed contract. Notably, while a valid contract may exist, its enforcement can be frustrated in situations where the rights of third parties must be protected. For example, in In Re Raines, 49 F.3d 686 (11th Cir. 1995), the Eleventh Circuit explained: When rights of third parties are implicated by a contract, enforcement may be conditioned on consent of the involved third parties. "[C]ontracts which affect the rights of third parties . . . may not be enforced unless the beneficiaries of such contracts undertake to assume the burden of their performance." (Emphasis in original). Although certain states, including Florida (amending ยง 725.08(2) in 1994), have modified this rule in some measure, in the usual case, third party consents must be obtained before enforcement of a sealed contract is permitted.
Sealed Contracts and contemporary business
Sealed contracts have seen a decline in usage in the context of modern business. Companies and their counsel are less inclined to use them, given the recognized difficulty in distinguishing them from other, more common, written agreements. As a result of technological changes, such as electronic signatures, the importance of affixing a seal has been rendered obsolete.
The Uniform Commercial Code takes the view that seals are no longer required for commercial agreements; in fact, any discussion of sealed contracts in the UCC is limited to determining whether or not the seal is relevant to the statute of limitations that applies to that particular contract. The UCC is designed to be a uniform law that applies to all states , and many states have enacted their own version of the UCC. Such statutes do not require a seal on written contracts, as provided in New Jersey – N.J.S.A. 12A:2-203.
To avoid confusion as to the enforceability, a modern contract should clearly state that the seal is or is not intended to create a legally binding obligation. For contracts where a seal is required by statute, i.e., Transfers of Land, Testamentary documents, etc., a written statement to that effect would be counter-productive.