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Exploring Acceptance and Legal Nature of eRecords Within a Paper-Based Framework

Electronic Signature & Records Association

November 14, 2012

Rafael Petrone

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I will share:

Our approach to the problem

Our legal conclusions

Special concerns we have encountered

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• What laws apply?• How do different laws conflict / work together?• Definitions, what is a:

o Document?o Record?o Signature?

• What is the legal effect ofo A signature?o No signature?

Our Approach: Ask Questions

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• When is a paper document necessary?• What is an “authentic”

o Document?o Signature?

• What is an “original” document?• How can we prove that a document was signed?• How can we know for sure that a given person actually signed?• What are the legal requirements of other countries?• If the laws of two countries differ, which do we follow?

Our Approach: Ask Even More Questions

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• Benchmark:o Paper and Ink – has some inherent limitationso An electronic approach must be as good as paper, but not perfect

• Geography:o Focus on the U.S. (for now)

• Counterparty: o Focus on commercial transactions o Defer review of consumer transactions

Our Approach: Define the Scope of the Problem

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• Contract law:o With some exceptions, a document executed with an electronic signature will

have the same legal effect as a paper version executed with a handwritten signature.

• Evidence:o A document executed and stored electronically is likely to survive an

evidentiary challenge so long as we meet key criteria:• We demonstrate that our system has an acceptably low error rate• Our security measures are sufficiently robust• Our system is relatively simple (no algorithms, statistical models, simulations)• The execution process is routine and part of our ordinary business practices• Records are stored at or near the time of execution

Legal Conclusions

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• Warrantso Concern: Is a warrant a certificated security? If so, then what would be the

equivalent of a transferrable record to permit transfer, encumbrance and enforcement of a warrant executed electronically?

o Resolution: Revise our warrant so that issuer and any holder agrees to negotiate an electronic version. If a warrant is deemed to be a security for purposes of Article 8, these provisions are intended to overcome obstacles negotiating the warrant because it might fall under the rules for certificated securities. If a warrant is not a security, it would have the same status as any other contract.

• Real Estate Recordso Concern: Specific local technical requirements could require county-by-county

analysis to determine whether e-signed document is complianto Approach that we are considering: consult with title companies to determine

whether there is any uniformity among real estate recorders.

Special Concerns

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• Specimen Signatureso Concern: Signature cards and incumbency certificates call for specimen

signatures to serve as a reference to confirm identity of signatory. Adopted signatures generated by a computer disrupt this process.

o Resolution that we are considering: Establish independent means of confirming identity of individuals and update policies and form incumbency certificates accordingly

• Signatories domiciled abroado Concern: Because the scope of our research is limited to U.S. law, we cannot

be certain whether an e-signed document is enforceable abroad.o Resolution that we are considering:

• Assess likelihood of enforcing the document outside U.S.• Evaluate risk of loss if document is deemed unenforceable by a non-U.S. court• Research laws of specific foreign jurisdictions• Require paper/ink execution where there is doubt or where local law or custom

demands it

Special Concerns