A Seals Case from Delaware
In Lehman Brothers Holdings, Inc. v. Kee, decided last December in the Delaware Supreme Court, Lehman lent $6 million in 2005 to borrower, Sweetwater Point, LLC (Sweetwater), to help pay for the $ 8 million purchase of two parcels of land. There were signs that the State owned at least a part of the property, but Sweetwater went ahead with the deal, thinking the government stake was de minimis. In 2007, the State asserted its property rights and indicated its intention to build a highway through the property. Protracted litigation ensued, and the Court of Chancery ruled in 2017 that the State had a superior claim to title.
The following year, Lehman and Sweetwater sued seeking rescission of the 2005 property transaction. Their legal claims, sounding in mutual mistake and unjust enrichment would have been interesting to talk about, but the court never reached them because it ruled that all of the claims were barred under the relevant three-year statute of limitations. At that point Lehman and Sweetwater brought out the big guns, claiming that the sale agreements were contracts under seal subject to a 20-year statute of limitations.
The basis for Lehman’s and Sweetwater’s claim is as follows:
- a testimonium clause before the signature line states, “IN WITNESS WHEREOF, the parties hereto have hereupon set their hands and seals the day and year first above written”; and
- typewritten next to each signature is the symbol “(s),” which Sweetwater claims “signif[ies] a seal.”
The Superior Court found these clauses insufficient to create a contract under seal “because the parties did not include the word ‘seal’ or a ‘symbolic “seal”’ on the signature line.” There were in fact no seals attached to the document and, the Superior Court noted, “(s)” does not signify a seal. The Supreme Court agreed.
Many states have adopted statutes clarifying what counts as a seal. Delaware, alas, is not such a state. Rather it has adopted a judicially-created bright-line test:
Delaware case law has held that a contract was under seal where it contained both a testimonium clause and the word “SEAL” printed next to the signature line.
In this case, the word “SEAL” did not appear next to the individual’s signature line, and so the parties had not signaled their intention to sign under seal. The “(s)” could mean many things.
If the parties intended to transform a three-year statute of limitations into a twenty-year statute of limitations, they had to do so more clearly. That seems right to me, but my instincts go in two directions here. First, it seems absurd that a statute should still be on the books that extends the statute of limitations so extravagantly based on obscure, outdated ceremonies. An actual seal might serve a purpose, but I have a hard time seeing how having the parties say abacadabra and suddenly making an unsealed document a document signed under seal serves any purpose. That said, if it does serve a purpose, then that purpose should not be thwarted because they said “shitbroleeth” when they meant to say “shibboleth.” Even though we are dealing with a formality, courts can still undertake the ordinary inquiry into contractual meaning by exploring the parties’ intentions. These are sophisticated parties who used a testimonium clause. Why did they do that? It would still be plaintiffs’ burden to show that both parties intended to sign under seal. If they cannot do so because we are talking about events that took place 17 years ago, well, that’s just a reminder of why statutes of limitations exist.
Having decided the seal issue, the Supreme Court then went on to find that Lehman’s and Sweetwater’s claims were all barred under the applicable three-year statute of limitations.