Sealed Contract: Everything You Need to Know
A sealed contract is also referred to as a special contract, deed, covenant, or specialty contract. 3 min read
2. Why Is Consideration Not Required?
3. Distinction of Seal
4. How Does a Court Determine the Validity of a Sealed Contract?
A sealed contract is also referred to as a special contract, deed, covenant, or specialty contract. It is a formal contract that doesn’t require the element of consideration and has a seal of the signer attached to it. A sealed contract itself must be in writing. Once it is signed, sealed, and delivered, it becomes a formal sealed contract.
In order for delivery to be successful, it must be either given to the other party in person or the contract itself must include an intention by the other party to be bound by the agreement even if he or she doesn’t physically receive the sealed contract. The only element that must be included in the intention is that one of the parties must physically possess the contract at all times.
Why Is Consideration Not Required?
While contracts under seal appear to resemble an ordinary contract, they are entirely different. A sealed contract includes a promise(s) made by one party to another. Its validity is not determined by the consideration that is exchanged, since consideration is not a requirement. Rather, the validity of this type of contract is derived from the form itself. But as previously noted, the form itself only becomes valid after it is signed, sealed, and delivered.
Unlike a sealed contract, an ordinary contract requires consideration, which is a promise. Such consideration could simply be a promise to do something in exchange for something else. For example, it could be a promise to sell someone else your car in exchange for payment. However, a sealed contract removes this element altogether and instead replaces it with a seal.
Distinction of Seal
The seal must be printed directly next to the signature, which acts as proof that the contract is being agreed upon by the parties. This could include simply using one of the following terms or phrases:
- The place of the seal
- Locus sigilli
Some courts even find that a specific provision in the contract that states both parties consider the document to be sealed is sufficient proof of the seal, even if no seal is present.
However, compared with an actual wax seal, simply inputting the term “seal” can have potential issues. In fact, many people without knowledge of contracts wouldn’t even understand what this term means. For this reason, many states have abolished the difference between sealed and unsealed contracts. Furthermore, section 2-203 of the Uniform Commercial Code has removed any distinction for the sale of goods. Therefore, most contracts cannot simply have a seal to create validity of the contract itself.
How Does a Court Determine the Validity of a Sealed Contract?
Depending on the laws of the state, the court will determine whether or not the contract itself is enforceable. Therefore, if the contract itself has no consideration, then you might want to alter the contract in a way to prove this element of consideration. Otherwise, the court might determine that a mere seal on the contract doesn’t render the contract valid.
Furthermore, a state allowing sealed contracts might have a different statute of limitations for such contracts as opposed to ordinary contracts that have an element of consideration. For example, Washington D.C. has a 12-year statute of limitations for sealed contracts compared to a 3-year limitation for ordinary contracts. However, the party arguing that it is sealed might be met with an argument from the defendant that it isn’t sealed due to the fact that either there is sufficient consideration or that the defendant was unaware that the contract was under seal.
Even those states allowing the sealed contract will have strict limitations on such agreements. In fact, courts in those states might still determine that the contract is not actually under seal. Even if the court finds that the contract is under seal, it might require that the parties amend the contract to include the element of consideration and remove any reference to a seal.
Note that, if you have a sealed contract that also includes consideration, the statute of limitations for ordinary contracts will likely apply.
If you need help learning more about a sealed contract, or if you want to speak to an attorney regarding a potential contractual dispute based on its seal or the absence of consideration, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.