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Electronic Records and Signatures: When they are sufficient, when they are not
By:  John E. Burrus,  Esq.

The validity and enforceability of electronic records and signatures has been the subject of recent statutory changes.  The “Electronic Signatures in Global and National Commerce Act” (15 U.S.C. §7001, et seq.) was passed in 2000.   The Colorado legislature, in its last session, passed the “Uniform Electronic Transactions Act” (C.R.S. §24-71.3-101, et seq.).  Recent revisions to the Uniform Commercial Code also address this issue.

The effect of these statutes is generally, with some exceptions, to make “electronic records” and “electronic signatures” equivalent to normal “writings” and “signatures” and to give them the same legal effect.  An “electronic record” is generally a facsimile transmission or a record generated by, stored on and/or transferred by computer.  An “electronic signature” is either a facsimile signature or a method of signing by computer.

There remain a few types of documents which should be accepted only in their “original” and “signed” versions.  The ones with which a bank would have primary concern are the following:

• Negotiable instruments, including promissory notes and amendments of promissory notes.
• Documents which must be filed in the real estate records, such as mortgages, deeds of trust, deeds, assignments of mortgages or deeds of trust, leases and memoranda of leases.
• Stock certificates taken as collateral.

As for other types of documents, a degree of judgment is required.  Loan documents other than those mentioned above, such as guarantees, security agreements and loan agreements, can all be contained in facsimile documents bearing facsimile signatures and will have the same legal effect as ordinary “originals” bearing ordinary “signatures”.  In these instances, the issue is not the validity or enforceability of the documents per se, but whether the bank would be able to establish that a particular party did, in fact, sign the documents when this is done out of the presence of any bank official.  This issue is no different from that which would arise if the bank were to permit a customer to take loan documents or account documents away from the bank for execution by another party.

The better policy is to have any loan, account or other documents executed in the presence of a bank representative when this is practical.  However, when this is impractical, it would be permissible to accept either facsimile documents or ordinary originals which have been executed outside the presence of a bank representative when the loan or account officer is satisfied that the customer’s execution of the documents either will not be questioned by the customer or, if questioned, can be established to the satisfaction of a court if the issue arises.  Evidence which would be relevant to establishing the authenticity of a customer’s signature would include the signature itself (as compared to other signatures on file with the bank), oral communication with the customer in which the customer acknowledges execution, a notary’s attestation of execution, and the means of transmittal of the document – e.g., by a fax machine showing the customer’s fax number or by transmittal letter on the customer’s letterhead.

In summary:

• Always require ordinary “originals” bearing ordinary “signatures” for negotiable instruments, documents which must be recorded in the real estate records and certificated stock held as collateral.
   
• As a general rule, require execution of other loan and account documents in the presence of a bank representative.  If it is impractical to impose these requirements, facsimile documents can be accepted if a responsible bank representative determines that the fact of a customer’s execution either will not be questioned or, if questioned, will be supportable in court if the issue is raised.

Contact John E. Burrus at jeb@bsblawyers.com

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