Paperless Promissory Notes, Notaries and Wills! Oh My!

By Michael King posted 11-08-2018 19:49




"Toto, I've a feeling we're not in Kansas anymore."

Many days the changes in the world of business make me feel like Dorothy waking up in Oz. The novelty and colors of change make me yearn for the predictable black and white of Kansas.

When I started practicing law there were still court reporters who used steno pads and shorthand to keep the record of depositions. Contracts were typed on 8 ½ by 14 inch legal paper and the copies were made with carbon paper.

Photocopy machines were a new and undependable technology in offices. People mailed letters! We couldn't have imagined something like a fax machine. Legal research was done using books. Notes were taken on sheets of paper in long-hand writing.

People composed complete and coherent thoughts, arguments, and documents before transmitting piecemeal and unconnected stream-of-consciousness responses and attempts to communicate.

I remember the challenges of teaching my work-force to use the new technology of voice-mail. For years the computers on most of the lawyers' desks might as well have been decorative fish-tanks.

Over the years our practices and transactions have somehow landed over the rainbow. Now most legal and business documents are electronic. The documents and communications are transmitted by computers and mobile phones.

Still, there were certain types of transactions that I thought could never be done electronically. As with a long list of business and office technologies over the years, I was wrong. "Pay no attention to that man behind the curtain."

The flying monkeys of electronic promissory notes.

The good witches and wicked witches of IT nerds and lawyers have created "transferrable records" under the auspices of the Uniform Electronic Transactions Act ("UETA"). A transferrable record or electronic promissory note is something that would have been a promissory note under the law of negotiable instruments if it had been in writing. The issuer of this electronic promissory note needs to have expressly agreed that it is a transferrable record.

A paper promissory note actually embodies the payment obligation. There can only be one original promissory note. To enforce the obligation the holder must have physical possession of the original promissory note. How do you replicate these qualities with an electronic document?

The rules for properly dealing with electronic promissory notes are complicated. For example, the requirement that the holder of a promissory note must have possession of the document has been replaced by the concept that a person must have "control" of the transferrable record to enforce the rights under the electronic promissory note.

The electronic promissory note must be unalterable. It must identify that the person seeking to enforce it was either the person to whom it was initially issued, or the most recent transferee. The electronic document must be "maintained" by the person claiming to "control" it, or its designee.

How do you do all that? Use an "electronic vault"!

The wizard behind the curtain seemingly controls the complexities of electronic promissory notes!

Only in the Emerald City could there be electronic notarizations!

In our modern-day Oz an "electronic signature" is defined as "an electronic sound, symbol, or process attached to or logically associated with an electronic record and executed or adopted by a person with the intent to sign the electronic record."

So how can you possibly notarize an electronic signature under the terms of UETA? If a law requires a signature to be notarized or verified under oath, then UETA says that can happen electronically.

To do that, "The electronic signature of the person. . . with all other information to be required to be included. . . [has to be] attached to or logically associated with the signature or record." Once the scarecrow gets his brain, he can explain to you what "logically associated" with an electronic signature means.

Clicking the heels of the ruby slippers will send you home with electronic wills and trusts.

I never thought the yellow-brick-road of change would lead to electronic wills or trusts. While only permitted by statutes in a few states, laws exist validating electronic wills and trusts. Such a law becomes effective in Arizona in 2019.

The laws of electronic wills and trusts essentially incorporate most of the definitions from UETA into the substantive laws governing transfers of assets upon the deaths of the testators under wills, or the settlors of trusts.

The fights among heirs over who is supposed to get what from the estates will only get more complicated and interesting. Which munchkins were disinherited by which electronic document?

Birds fly over the rainbow. Why then, oh why can't I?

To properly use all of the new electronic transactions in the new digital Oz you will need more than a scarecrow, a tinman and a lion. You will need both the good and wicked magic of IT nerds and lawyers!

Michael R. King
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