C. Formality: Promises under Seal

• Author: John D. McCamus
• Profession: Professor of Law. Osgoode Hall Law School, York University
• Pages: 256-269

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The rule that promises recorded in instruments executed under seal and delivered to the promisee are binding on the promisor is of ancient common law lineage. Thus, the action on the covenant, which was one of the principal procedural devices for enforcing sealed instruments, can be traced back to the early-thirteenth century.¹⁹⁷The early use of seals as a means of authenticating documents and executing instruments under seal was initially the preserve of feudal elites.¹⁹⁸Over time,

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however, seals became more broadly available as "the law for the great became the law for all."¹⁹⁹Moreover, although the sealing of an instrument initially involved the making of an impression on the document by impressing the seal on a wax blob or other similar substance affixed to the document, the formal requisites of sealing have relaxed over the centuries to the point where it became unnecessary for one who wished to execute a sealed instrument to actually be possessed of a personal seal. In contemporary practice, it is common to simply affix a small red sticker or wafer to the instrument in question which, as long as the promisor has, in some fashion, adopted as his or her seal, will successfully function as a seal in the requisite sense.

Although a variety of legal consequences attach to instruments under seal, the most important for present purposes is that promises made in a sealed instrument are enforceable notwithstanding the absence of consideration. Although it is sometimes said that the seal "imports consideration," such statements are evidently historically inaccurate. The enforcement of sealed instruments long antedates the development of the doctrine of consideration. Moreover, the suggestion is likely to lead to the kind of confusion evident in one Canadian case²⁰⁰in which it was held that where the instrument stated on its face that there was no consideration, the seal would not have the effect of importing consideration. Such decisions are aberrant, however, and clearly inconsistent with the general rule that promises made in sealed instruments are enforceable, notwithstanding the absence of consideration given in return.²⁰¹Thus, for example, in the context of a so-called firm offer in which the offeror promises to keep the offer open for a stipulated period of time, that promise will not be enforceable if no consideration is furnished in return by the offeree.²⁰²A firm offer given in an instrument under seal, however, would bind.²⁰³For parties who wish to render promises binding without the necessity of exchanging

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consideration, then, the enforceability of sealed instruments may provide a useful device for achieving that object.

There are two further legal incidents of sealed instruments that may provide an incentive for their use. First, under traditional limitations law, still applicable in some jurisdictions,²⁰⁴a longer limitation period applies to claims brought to enforce sealed instruments as opposed to merely written or parol agreements. Under the traditional statutes, the period of time within which a claim could be brought to enforce a promise made in a "specialty" is often as long as twenty years,²⁰⁵whereas a claim to enforce a promise made in an informal agreement would be considerably less. Under modern limitation statutes, however, universal limitation periods are typically adopted that impose the same period of limitation on claims brought to enforce both formal and informal agreements.²⁰⁶

A third legal incident of a contract under seal is that only the identified parties to the agreement may sue or be sued for breach of the agreement. This rule, often referred to as the "sealed contract rule," constitutes an exception to a well-established doctrine of agency law that where a contract has been entered into by an agent on behalf of an "undisclosed principal," that is, a party whose identity has not been disclosed to the other contracting party, the undisclosed principal can sue or be sued on the agreement.²⁰⁷By creating an exception to this doctrine, then, the sealed contract rule provides a means whereby un-disclosed principals can immunize themselves from liability under an agreement simply by ensuring that the agent executes the agreement under seal.²⁰⁸Thus, it is not an uncommon practice in the context of mortgage lending for a corporate borrower to execute the mortgage or other loan documents under seal in order to immunize the shareholders of the borrower, who might be considered to be undisclosed principals, from personal liability in the event that the corporate borrower is unable to repay the loan. Although the soundness of the sealed contract

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rule has been challenged in recent years, its continuing validity was recently reaffirmed by the Supreme Court of Canada in Friedmann Equity Developments Inc. v. Final Note Ltd.²⁰⁹

Contracts under seal are traditionally referred to as deeds, specialties or covenants. Although these terms are used interchangeably in contemporary professional discourse, their meaning has evolved over time. Thus, in an earlier era, the term covenant was not used to refer to sealed instruments that granted or promised to grant an interest in land. In contemporary practice, the sealed instrument used to convey ownership rights in land is typically referred to as a deed or deed of conveyance. The fact that the term "specialty" has often been used in limitations statutes to identify the special limitation period for sealed instruments has led to some distortion in the use of that term. Thus, Ontario courts, albeit in obiter dicta, apparently determined to avoid the application of the former Ontario twenty-year limitation period applicable to all specialties have suggested that not every agreement executed under seal constitutes a specialty in the requisite sense.²¹⁰

Similarly, a Newfoundland court, in order to avoid what was apparently considered to be the unattractive conclusion that an instrument executed by a corporation under seal gave the corporate party the advantages of the longer limitation period, held that a contract under seal was enforceable as a specialty only where the promise in question was a promise to pay money and thus constituted a debt.²¹¹Such decisions have been cogently criticized,²¹²however, and appear to be inconsistent with traditional professional usage. As far as the Newfoundland authority is concerned, it appears to have been overtaken on this point by the decision of the Supreme Court of Canada in Friedmann Equity,²¹³ which plainly accepts that the use of a corporate seal may have the general effect of creating a sealed instrument in the requisite sense and, as a result, become subject to extended limitations periods.²¹⁴Although the basic requirements to constitute a sealed instrument have persisted - the instrument must be executed under seal and delivered - the nature of these requirements has evolved over time and,

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moreover, they lack precise definition under current Canadian law. In the early era, the use of the seal obviously functioned as a signature equivalent and, accordingly, there was no requirement at common law that the seal be accompanied by the signature of the promisor. With the decline of the use of personalized seals and the substitution of wafers, however, it has become a common expectation that sealed instruments will be both sealed and signed. Further, it is common to have phrases such as "given under seal at ..." preceding the signature - a so-called testimonium clause - or to have the signature witnessed by a person whose signature is preceded by a so-called attestation clause, such as the phrase "signed, sealed and delivered in the presence of ... ." Although, as Laskin J.A. pointed out in Royal Bank v. Kiska,²¹⁵such attestation and testimonium clauses were not necessary to make a sealed instrument enforceable at common law, they may have a useful role to play in contemporary practice where the seal itself does not serve as a unique identifier or authorized mark of the particular promisor. What must be established, however, is that the seal has been adopted by the promisor as a seal with the intention, therefore, of executing the instrument under seal. The signature may be the most convenient way of providing an evidentiary basis for that conclusion. Thus, it is well established that if an instrument bearing a wafer or other indication of a seal is signed with the intention of executing a document as a sealed instrument, this will constitute sufficient adoption or recognition of the seal to constitute the document as a sealed instrument.²¹⁶Even if not technically required as a matter of common law,²¹⁷then, insistence upon a signature is prudent. Indeed, given the common expectation that sealed instruments will be signed, it may well be that courts will refuse to characterize as sealed written agreements that bear a wafer but no signature of the promisor.²¹⁸As a practical matter, however, the kinds of documents that are likely to be sealed are also very likely to be signed and, accordingly, the issue is not likely to arise.

More difficult questions arise with respect to the requirements for the seal itself. Standard form agreements that are designed for execu-

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tion by seal may include testimonium and attestation clauses. They may also include the word "seal" or the phrase "add seal" in brackets or circled at the end of a signature line as a reminder that a wafer should be attached to the document. The letters "l.s.," suggesting locus signilli or place of the seal, may similarly be placed in brackets or in a circle for the same purpose. Alternatively, the document may bear a preprinted representation of a seal either in black and white or in colour, which may be thought to signal ambiguously either that this is the place at which the seal should be attached or that this pictorial representation ought to be considered a substitute for the...