Rouse-Teachers Properties, Inc. v. Maryland Casualty Co.

HARRELL, Judge. On 13 May 1994, Maryland Casualty Company (Maryland Casualty), Respondent, filed suit against Rouse-Teachers Properties, Inc. (RTPI), Petitioner, seeking damages for the defective design and construction of a building at Maryland Casualty’s headquarters. The present appeal arises out of RTPI’s unsuccessful efforts to convince the Circuit Court for Baltimore County and the Court of Special Appeals that Maryland Casualty’s suit is barred by the relevant statute of limitation and the statute of repose. ISSUES In RTPI’s petition for writ of certiorari, 1 we are asked to consider the following issues: I. Whether the Court of Special Appeals erred in (a) creating a presumption that a contract between corporate parties (the signature page, but not the body, of which contains the parties’ corporate seals in conjunction with the ⁵⁷⁸ directional phrase “Affix Corporate Seal”) is a specialty and (b) requiring the party being sued on the contract to rebut the presumption by proving that the parties did not intend to create a specialty?

II

Whether the Court of Special Appeals erred in ruling that the statute of repose is waived for construction contract claims on the basis of a judicially created presumption that results in a determination that the underlying contract is a specialty instrument and without affirmative evidence that the parties intended to waive the statute of repose?

III

Whether the trial court erred in determining that a construction contract between corporate parties (the signature page, but not the body, of which contains the parties’ corporate seals in conjunction with the directional phrase “Affix Corporate Seal”) was a specialty and, therefore, not subject to either the general three-year limitations period or the statute of repose, when the evidence shows that the parties did not intend a specialty? We also granted Maryland Casualty’s protective cross-petition for writ of certiorari, in part, limited to the following issues: IV. Does a contract executed under corporate seal, which on its face requires each party to affix its corporate seal, constitute a “contract under seal” subject to the 12-year statute of limitations, MD. CODE, Courts and Jud.

Proc. Art., Section 5-102(a)(5), as a matter of law, without need for resort to extrinsic evidence? V. Does the Maryland statute of repose (MD. CODE, Courts & Jud.

Proc. Art., Section 5-108) apply to a contract action to compel arbitration in accordance with an agreement to design and construct an office building, where the owner claims purely economic loss from structural defects in breach of the contractor’s obligations under the agreement, rather than injury to persons or property resulting from such defects? Because we answer RTPI’s Issue I in the affirmative, and accordingly reverse the Court of Special Appeals on that issue, ⁵⁷⁹ it is unnecessary to address the remaining questions advanced by the parties. BACKGROUND On 16 July 1980, Maryland Casualty and McCormick Properties, Inc. (McCormick) entered into a Design Build Construction Agreement (Agreement).

The subject matter of the Agreement was the construction of the Technology Center annex of Maryland Casualty’s headquarters in Baltimore, Maryland. The forty-two page Agreement detailed thoroughly the scope of the work, completion schedules, costs, and insurance obligations of the parties. The final section of the Agreement provided an area for the parties to execute the Agreement by signing and affixing their corporate seals. The Agreement concluded as follows: IN WITNESS WHEREOF, the parties have executed this Agreement the day and year first above written.

ATTEST: MARYLAND CASUALTY COMPANY (Affix Corporate Seal) (signature) By (signature) ATTEST: McCORMICK PROPERTIES, INC. (Affix Corporate Seal) (signature) By (signature) L.O. Gerber Alan P. Medinger President Vice President—Treasurer H.J. Bremermann, Jr., president of Maryland Casualty, and Alan P. Medinger, vice president and treasurer of McCormick, executed the agreement on behalf of their respective corporations. Regarding the attestation lines, Donald D. Hutson of Maryland Casualty and L.O. Gerber of McCormick signed as witnesses of the execution of the Agreement. The corporate seals of both parties were affixed on the Agreement to the left of the attestation lines.

After the parties signed the original Agreement, they amended it on five separate occasions. Each amendment concluded with a similar signature section, except the final four amendments added the word “(Seal)” next to the attestation lines. ⁵⁸⁰ The Agreement and subsequent amendments were the products of a long and arduous negotiation process. In the four months leading up to the consummation of the Agreement, the parties met frequently, offered proposals and counter-proposals, and exchanged many preliminary drafts of the Agreement. A disputed point of negotiation was the inclusion of express warranties in the Agreement.

In a letter dated 2 May 1980, Maryland Casualty requested a ten-year warranty to protect against potential latent defects in the proposed building. McCormick rejected the request and the ten-year warranty concept did not become part of the Agreement as executed. McCormick did extend in the final Agreement limited warranties covering the materials and workmanship of the project. These warranties provided that they would expire two years after the inspection and acceptance of each phase of the project.

Construction of the Technology Center began in July 1980 and was completed in November 1982. Maryland Casualty accepted the building later that month. Before the end of 1982, Maryland Casualty began to notice many flaws in the new building. Major water leaks in the walls, windows, and roof emerged, and numerous cracks formed in the outer facade of the building.

Maryland Casualty alerted McCormick to the problems, but despite efforts by both parties, the water penetration problems were not resolved. In 1988, the owners of McCormick sold the stock of McCormick to a corporate joint venture. The joint venture changed the name of McCormick Properties, Inc. to Rouse-Teachers Properties, Inc. (RTPI). As part of the transaction, RTPI obtained an indemnification agreement from McCormick.

Under the terms of the agreement, McCormick indemnified RTPI against contingent liabilities arising from the Technology Center project for a period of five years following the stock-purchase transaction. The indemnification agreement expired on 1 February 1994. Immediately upon expiration of the indemnification agreement, Maryland Casualty demanded that RTPI enter arbitra ⁵⁸¹ tion to resolve the extent of RTPI’s liability for the defects in the Technology Center. RTPI denied liability and rejected arbitration.

PROCEDURAL HISTORY On 18 May 1994, approximately eleven years and six months after the completion of the Technology Center, Maryland Casualty filed a complaint against RTPI in the Circuit Court for Baltimore County. Maryland Casualty’s complaint contained five counts. Count one sought a declaratory judgment addressing whether the applicable statute of limitations barred the suit. Count two sought a declaratory judgment regarding the requirement of arbitration under the Agreement.

Count three alleged that RTPI breached the Agreement for failing to design the building in accordance with the terms of the Agreement. Count four charged that RTPI breached express warranties arising under the Agreement. Count five claimed that RTPI was negligent in designing and constructing the Technology Center. In RTPI’s answer, in addition to asserting a general denial of liability, RTPI contended that Maryland Casualty’s suit was barred by the three-year statute of limitations found in Maryland Code (1974, 1998 RepLVol.), (CJP) § 5-101 2 and the three-year limitation in the statute of repose under CJP § 5-108(c). 3 ⁵⁸² Both parties moved for summary judgment.

In its motion, Maryland Casualty contended that the Agreement was a “contract under seal” and therefore a specialty governed by the twelve-year limitation period under CJP 5—102(a)(5). 4 RTPI insisted again that the Agreement was an ordinary contract with a three-year limitations period. After a hearing, the Circuit Court granted RTPI’s motion for summary judgment as to the express warranties and negligence counts, finding that these claims were barred by the statute of limitations and statute of repose. The Court ruled in Maryland Casualty’s favor on the contract count after determining that the claim was not subject to the statute of repose and that the Agreement was a contract under seal subject to a twelve-year limitations period. In accordance with a consent order signed by both parties, the Court ordered the contract count to be submitted to arbitration.

RTPI appealed the Circuit Court’s ruling on the breach of contract count to the Court of Special Appeals. In an unreported opinion, the intermediate appellate court reversed the Circuit Court. The court noted that the statute of repose generally did not apply to contract actions, but determined that the statute may have been waived if the Agreement were a contract under seal. Because resolution of whether RTPI waived the statute of repose was a question of fact and dependent on the statute of limitations issue, the court held ⁵⁸³ that the Circuit Court’s grant of summary judgement was an error.

The court then turned to the signature page of the Agreement to resolve the statute of limitations issue. It explained that: the attestation clause specifically states “affix corporate seal” when only the word “seal” is needed to identify corporate authority. We hold that, when a contract contains the above clause and the corporate seal, it is presumed to be a specialty contract. We also hold, however, that this presumption is rebuttable rather than conclusive.

When, as here, it appears on the face of the contract that the contract is under seal, the rebuttable presumption that arises shifts to the party who asserts to the contrary the burden of persuading the finder of fact by a preponderance of evidence that the contract was really not intended to be a specialty. The Court of Special Appeals remanded the case to the Circuit Court to give RTPI an opportunity to rebut, if it could, the newly recognized presumption. In anticipation of the hearing on remand, the parties entered into certain stipulations and filed them with the Circuit Court on 13 May 1997. The stipulation relevant to our inquiry is as follows: 5.

If the Design Build Construction Agreement at issue in this case is not a specialty under § 5-102(a) of the Cts. & Jud. Proc. Article of the Annotated Code of Maryland, the claims brought by Maryland Casualty herein are time-barred. The Circuit Court held an evidentiary hearing on 15 May 1997.

Three attorneys that participated in the drafting of the Agreement, James A. Gordon, Esquire, counsel for Maryland Casualty, and Marilyn Koeppel Ogburn, Esquire, and John Haas, Esquire, counselors for McCormick, testified at the hearing. In addition, the parties introduced the Agreement, its amendments, preliminary drafts, and correspondence written during the negotiation process. Upon review of the evidence, the ⁵⁸⁴ Circuit Court found that RTPI failed to rebut the presumption that the Agreement was a contract under seal by a preponderance of the evidence. RTPI again appealed to the Court of Special Appeals, requesting that it reconsider its earlier holdings that: 1) the creation of a specialty may have waived the statute of repose and 2) the evidence in the case created a rebuttable presumption that the Agreement was a contract under seal.

Determining that “neither of the holdings challenged by [RTPI] are patently inconsistent with established principles announced by the Court of Appeals,” the Court of Special Appeals rejected RTPI’s reconsideration request. The court noted, however, that RTPI “produced strong evidence that the parties did not intend to make a contract under seal.” Despite this evaluation of the evidence, the court held that RTPI failed to rebut the presumption as a matter of law. DISCUSSION A. The Court of Special Appeals’ Presumption As previously noted, the Court of Special Appeals relied upon the directional phrase “Affix Corporate Seal” and the presence of the parties’ corporate seals on the Agreement to create the rebuttable presumption that the Agreement was a contract under seal, and therefore a specialty. 5 For reasons explained below, we hold that the basis of the court’s presumption is contrary to established law regarding contracts under seal and at odds with the purpose underlying the use of presumptions. A presumption is a judicial determination that proof of certain foundational facts establishes the existence of the presumed fact.

See McQuay v. Schertle, 126 Md.App. 556, 590 , 730 A.2d 714, 732 (1999), cert. denied, 356 Md. 18 , 736 ⁵⁸⁵ A.2d 1065 (1999)(citing Joseph F. Murphy, Jr., Maryland Evidence Handbook § 1001 (2d ed.1993)). In certain cases, a presumption is an acceptable substitute for actual proof because the established facts, combined with the relevant law, provide a degree of certainty as to the likely existence of the presumed fact. In Molesworth v. Brandon, 341 Md. 621 , 672 A.2d 608 (1996), we explained the degree of certainty called for in the creation of a presumption. We stated: [generally, however, the most important consideration in the creation of presumptions is probability.

Most presumptions come into existence primarily because the judges have believed that proof of fact B renders the inference of the existence of fact A so probable that it is sensible and timesaving to assume the truth of fact A until the adversary disproves it. Molesworth, 341 Md. at 643-44 , 672 A.2d at 619 (quoting McCormick on Evidence § 342 (4th ed.1992)). The Court of Special Appeals, in this case, determined that the parties’ corporate seals affixed on the Agreement next to the directional phrase “Affix Corporate Seal” rendered the inference that the Agreement was a contract under seal so probable that it was appropriate to presume the Agreement was a contract under seal until RTPI rebutted the presumption. The Court of Special Appeals erred in recognizing a presumption.

In Gildenhorn v. Columbia Real Estate Title Ins. Co., 271 Md. 387, 398 , 317 A.2d 836, 842 (1974), we examined the role that sealed instruments play in corporate transactions. We instructed that: [i]n the early law it was held that a corporation could not contract except under its corporate seal. This rule persisted, but was increasingly relaxed during the 19th century.

Today, in the absence of charter or statute to the contrary, a corporation may bind itself by a writing not under seal to the same extent as an individual. Id. As a result, when a corporate seal appears on a contract we do not conclude that the contract is a sealed instrument. ⁵⁸⁶ Rather, we reason that the seal was affixed to the agreement as proof of the signer’s authority to bind the corporation because “the main purpose of the corporate seal now is as a prima facie authentication that the document is the act of the corporation and that the officers who have executed it have been