Have you ever signed a contract that was “under seal”? You probably have, and you probably have done so without really understanding what it means. In North Carolina, a contract “under seal” means that the contract can be enforced for ten (10) years instead of the usual three. In other jurisdictions, the contract can be enforced for even longer periods of time. [For example, in Delaware, a contract under seal extends the time for brining a claim to twenty (20) years!] Since a sealed contract extends your liability significantly, it is not something you should do lightly.
The phrase “under seal” comes from the old tradition of using a unique wax symbol (such as an engraved signet ring) to identify the owner signing the contract. Today, however, you sign under seal when the words “under seal” or even just “[Seal]” is printed next to your signature, like this:______________ [SEAL] Melissa Dewey Brumback
While it is good to know about seals in general, construction professionals should be more concerned than ever about sealed contracts following a recent North Carolina Court of Appeals decision, Davis v. Woodlake Partners. The Court in Davis held that in a contract to purchase improved property, signed “under seal,” extended the statute of limitations to the ten year statute as authorized by N.C. Gen. Stat. 1-47(2). This is despite the fact that there is a six year statute of repose in North Carolina. In the case, the lawsuit was brought within the 6 years, but outside of the 3 year statute of limitations for ordinary contracts. The Court found the action was timely because of the “sealed” nature of the contract.
What does this mean for construction contracts? You could find yourself liable on a construction contract longer than you intended. Does this case apply in a situation where the 6 year statute of repose was violated? The Court was not faced with that issue, so it’s too soon to tell. The case was a divided opinion, so the state Supreme Court may be weighing in on the issue. Stay tuned.
In the meantime, consider striking through any “seals” on your construction contracts.
Your turn. Take a look at the last contract you were asked to sign. Was it “under seal”? Did you know what that meant when you signed it? Share below.
Photo (c) Losinpun.
Today, we have a guest post by on of my comrades in crime (that is, a fellow construction law blogger), Chris Hill. Here’s his official bio: Christopher G. Hill, LEED AP is Virginia Supreme Court certified mediator, construction lawyer and owner of the Richmond, VA firm, The Law Office of Christopher G. Hill, PC. Chris authors the Construction Law Musings blog where he discusses legal and policy issues relevant to construction professionals. His practice concentrates on mechanic’s liens, contract review and consulting, occupational safety issues (VOSH and OSHA), and risk management for construction professionals.
First of all, thanks again to Melissa for letting me post at her fine blog. She’s one of the more knowledgeable and cool Tarheels I know (and this is coming from a Blue Devil!). Now, on with the show.
As those who read my Construction Law Musings blog on a regular basis know, I am a huge proponent of getting a knowledgeable attorney involved in your construction contracting business early on. While we construction lawyers are generally seen as last resorts, we can actually be helpful and (dare I even say it?) save you money. How, you may ask, can paying a construction lawyer that ostensibly is only there when you have a claim actually save you money? Well, as you may have gathered by the title of this guest post, I’m going to tell you.
Two words: Disaster avoidance.
Litigation is a money, time and emotion draining process for those that don’t have the particular odd propensity of the litigator that makes them actually enjoy trials. Litigation takes money from the bottom line because no business this side of a cigarette or pharmaceutical company can do business planning to sue or be sued. For that reason, litigation cannot be treated as overhead and even in the case where you could get a judgment for any fees that you may spend, you are still out the cash and even then may never recover on the judgment. A contractor cannot make money through litigation (at least in my experience).
Even in the case where you are “right” and “should never lose” there is risk in court. Juries, arbitrators and judges sometimes go the other way. These are humans. They are fallible and in many ways unpredictable. Litigation is (and should be) a last resort.
The best way to avoid this result is a good contract and good advice from those of us who have seen the results of litigation on numerous occasions and that therefore know how to avoid it. Everything from the proper claim and notice procedures to a well scoped project are necessities up front. Aside from the “common sense” issues that you as a business person will see coming, an attorney can see the picky “traps” that are there and are counterintuitive. For instance, Virginia, unlike many other states, allows the waiver of mechanic’s lien rights in a contract. You wouldn’t want to miss this thinking that you “knew” that such a clause was unenforceable. [Editor's Note: By comparison, in NC, such a waiver in advance is against public policy].
Much like your bi-annual visits to the dentist (yes, I compared my profession to one that is almost as popular), the relatively small expense of early review of your contracts and business practices can go a long way toward avoiding surprises and disastrous expenses later. In short, and as you learned in kindergarten, doing it right the first time is always easier than fixing the problem later.
My final advice: Add a lawyer to your team of advisers, you’ll be glad you did.
Thanks, Chris, for another fine post. And I completely agree: the number of hours spent on claims will vastly supersede the small cost for most companies/Firms to properly prepare and vet their contracts and proposals. Chris and I welcome your comments, questions, and thoughts!
Adding an “Additional Insured” in the Professional Services Agreement: an exercise in futility! (law note)
As an architect or engineer, you may be asked to sign a contract that has a requirement of adding the Owner (or Contractor, in a design-build project) to your own insurance as an “additional insured”. This is usually a fall out of the fact that the Owner is treating you like a contractor and using “stock” contract language. It is not appropriate, nor sometimes even possible, to add the Owner to your professional liability policy.
This is beacuse professional liability insurance only provides coverage for “professional services”. That is, if it is even possible to buy such coverage, it won’t work to avoid any risks the Owner is seeking to avoid, because the Owner is not providing licensed architectural or engineering services on the Project.
In fact, because of the way professional liability policies are generally written, naming the project Owner as an additional insured essentially voids any coverage for the owner for your Firm’s design errors & omissions.
What should you do with a stubborn Owner who insists he wants to be an additional insured under your E&O policy? Explain the facts to him, and point out he is risking voiding coverage all together. Tell him to call me, or point out this post to him. Also, several insurance brokers, agents, and companies have simple one or two page information sheets that you can provide to the Owner to help with his education.
Remember, having an “Additional Insured” in an Errors & Omissions policy is a true exercise in futility. It may not be what the Owner wants to hear, but such is life!
Question time: have you ever been asked to add an Owner to your E&O insurance? How did you handle it? Share in the comments section, below.
And if you haven’t already, be sure to download your free white paper on the 7 Critical Mistakes that Architects & Engineers make– it’s in the box on the top right hand side of the blog.
A client asked me about a contract he was asked to sign in which consequential damages were being waived. Consequential damages are those things that cost money which arise indirectly out of a failure of a party on a construction project. They can include:
- loss of use
- loss of rent
- loss of profit
- loss of bonding capacity
- extended overhead
- extended equipment rental fees
- increased material costs
Note that this is not an exhaustive list, and other consequential damages may be applicable depending on the project.
The standard industry contracts all have at least some waiver of consequential damages, as noted in this chart.
Bottom line: waiver of consequentials can be a good thing or a bad thing, but you will not know which when you are signing on the dotted line.
Just make sure that if there is a waiver, that it is mutual on both sides. Good luck, and “be safe out there”
Your turn. Have you ever waived your right to consequentials? Horror story to share about paying someone else’s costs? Share in the comment section.Dollar Photo (c) sivlen001. Chart (c) Melissa Brumback
For my local readers, if you are looking to earn up to 7.0 HSW contact hours or 7.0 PDHs, come here me this Wednesday at the Halfmoon Seminar on Construction Law in Chapel Hill, North Carolina.
I’ll be speaking on “Making Changes and Resolving Disputes During the Construction Process“.
Other topics include:
- Construction Contracting in Traditional and Alternative Project Delivery Systems
- Entering into Construction Contracts and Subcontracts
- Accessibility Review and Update
- Ensuring Environmental Compliance During the Construction Process
- Protecting Entities Seeking LEED Certification
Registration is here.
If you register, be sure to let me know! Would love to meet more blog readers in person!