Legal Blog

Seal

There is confusion about the necessity and effect of a seal – certainly amongst the public and, perhaps, even amongst members of the legal profession. The effect of a seal, or better yet, the effect of no seal, is discussed in Curwood & Sons Ltd. v. Ottawa-Carlton, a 2000 decision of the Superior Court of Justice.

 What’s a Seal? 

A seal is an imprint affixed to paper. It is a corporate seal if the contracting party is a corporation; or a small red circular piece of paper, if the contracting party is an individual. At common law, a simple promise, absent some exchange of value or consideration, was not enforceable. A seal transformed an unenforceable contract into an enforceable one.

If a person promises in writing to, for example, mow the lawn next Saturday, that promise is not enforceable unless the person received or was to receive some consideration for that promise, such as the payment of money. However, if there is no consideration, then applying a seal to the written promise creates an enforceable promise.

What Happened? 

The owner requested tenders on a construction project. As part of a tender, the tenderer had to supply an agreement by a surety in which the surety promised that if the contract was awarded to the tenderer, the surety would supply a performance bond and a labour and material bond. See our March 2000 newsletter for a discussion of bonding and sureties.

The owner did not accept the tender submitted by the low tenderer because the agreement to bond that it submitted was not under seal – even though the tender call did not specify that it had to be under seal. The tenderer sued and the tenderer and the owner agreed that the only issue was whether the agreement to bond, in the form submitted, was valid and one on which the owner could rely to bind the surety. If it was, the parties agreed that damages would be in the amount of $18,000.

Owner’s Argument  

The owner argued that the agreement to bond was the surety’s promise made without any consideration from the owner. Since it was not under seal, it was unenforceable.

Judge’s Analysis 

The motions court judge analysed the issue on two bases: contract law and the Canada Business Corporations Act (CBCA).

He referred to the analysis of the Supreme Court of Canada in the Ron Engineering case. In that case, the Court referred to a call for tender and a bid as contract A. The terms of contract A were, in essence, that if the owner accepted the bid, the parties would enter into the construction contract, contract B. Contract A was referred to as a unilateral contract.

The judge then analogised his case to Ron Engineering and stated that the owner’s call for tenders and the surety’s agreement to bond, directed to the owner and the tenderer, created a three-way unilateral contract A. The terms of this contract were that if the owner accepted the tenderer’s bid, the surety would supply the bonds and the tenderer would deliver them to the owner. The surety, therefore, did not have to seal the agreement to bond for it to be enforceable.

The judge also referred to section 23 of the CBCA. It states that an agreement executed by an authorised signing officer is not invalid merely because there is no corporate seal affixed. The Ontario Business Corporations Act has a similar provision.

The judge relied on this provision to conclude that any document signed by an authorised signing officer is legally binding as if made under seal.

The owner lost, and the tenderer won, on both grounds.

Disagree 

We do not agree with the judge’s analysis regarding the CBCA. The purpose of the section was to do away with the antiquated notion that before a corporation could do anything, it had to affix its corporate seal. Individuals did not need to affix seals to every contract they entered into; why did corporations?

The judge has taken a red-tape-slashing provision and given it contractual effect. Just because individuals can enter into contracts without a seal, does not mean that they are deemed to put a seal on a document when none is there. The individual seal still has some significance; if there is no consideration, or other legal constructions such as the unilateral contract that we have just discussed, to enforce the promise, then a seal makes enforceable an otherwise unenforceable promise.

There is and should be no difference between the treatment of an individual and a corporation. In neither case, should a seal be meaningful unless the person signing a document affixes it to make it meaningful.