In Pen We Trust: The Need for Wet Ink Signatures on Promissory Notes
From “signed, sealed and delivered” to a quick click after receiving an electronic signing package, the COVID-19 pandemic spurred a drastic increase in the usage and acceptance of electronic signatures. Although the pandemic is almost over, the electronic signing practice is most likely here to stay.
The Ontario Electronic Commerce Act (ECA) largely permits the use of electronic signatures. However, doubts arise regarding the categories of documents carved out by the ECA, including a type of document commonly used in business transactions – promissory notes.
To date, caselaw does not appear to address disputes over electronically signed promissory notes nor their validity. This article explores the current state of the law regarding this issue. We conclude that there is no prohibition against electronically signing promissory notes. However, given the absence of express support in law, we recommend promissory notes be signed in “wet ink” to minimize any potential risk regarding their validity and enforceability.
- What does the ECA say about whether one can electronically sign a promissory note
According to section 31, the ECA does not govern certain categories of documents, including negotiable instruments, to which promissory notes belong. However, since the ECA is silent with respect to promissory notes, it neither permits nor prohibits them from being signed electronically. Therefore, we need to investigate other legislation and common law to determine whether it is legally valid to electronically sign promissory notes.
- What does the Bills of Exchange Act (BEA) require for a promissory note to be formally valid?
To be valid, the BEA imposes certain requirements that promissory notes must: 1) be in writing, 2) be an unconditional promise to pay, 3) be made by one person to another person and signed by the maker, 4) specify whether payment will be on demand or at a fixed or determinable future time, 5) specify a certain sum of money to be repaid, and 6) be payable to or to order of a specified person/bearer.
Regarding the third requirement, above, the BEA does not define “sign” or “signature”. It follows that there is no express indication that the BEA prohibits promissory notes being electronically signed. In fact, section 4 of the BEA even provides that it is not necessary for a maker to sign the note with their own hand, but it is sufficient if their signature is affixed by some other person by or under their authority. This also means the BEA does not require a promissory note to be either signed in “wet ink” or witnessed.
- What if a note stipulates that it is payable in a particular place?
These clauses are not uncommon. Section 183 of the BEA prescribes that if there is such a clause in the body of a note, it must be presented for payment at that place. If the note requires that it must be presented in a specific location, does this requirement in itself leads to the conclusion that in this case the debtor must physically sign on a piece of paper so that it can be hand delivered?
The answer is most likely “no”.
Once again there seems to be an absence of caselaw on this issue. But let’s draw a rough analogy – if one was defamed on an online platform, where is this defamatory action deemed to occur? It is where the damage to reputation occurs, being the location that the defamatory statement is accessed. Analogously, it stands to reason that the requirement for presentment is fulfilled as long as the debtor can access the document at the specified location.
In any event, section 183(2) provides that the obligation to pay under a promissory note does not evaporate merely because the note was not presented at the particular place so specified. Instead, it permits the person under the promise to pay – the maker – to recover costs for any suits brought against them relating to said promise to pay. In other words, failure to present will not frustrate the maker’s obligations under the note, but it will provide them some legal costs protection.
- What does common law tell us about the validity of electronic signatures in general?
Courts have been generally permissive of the use of electronic signatures. This is particularly true where there is no question as to the authenticity of the electronic signature. As summarized in I.D.H. Diamonds NV v. Embee Diamond Technologies Inc., “…even absent specific legislation allowing for acceptance of electronic signatures, courts have considered an electronic signature as a valid signature simply under longstanding principles of common law”. The Ontario Superior Court commented in Newbridge Networks Corp. (Re) that “[i]f I execute an electronic signature, that too is my signature as I intend it to be my signature (and the recipient is so advised of that intention in the context)”.
Even in contexts where legislation specifically requires a signature in writing, courts have considered electronic signatures to fulfill such requirements. In Leoppky v. Meston, the court considered whether an email signature could satisfy the requirement for a written signature imposed by the Statute of Frauds. The court noted that although the signing party did not have exclusive access to the email address from which the email signature was sent, there was no claim by the signing party that she did not send the email, or that the email signature was not hers. The court therefore concluded that the emails at issue in this case are sufficient to satisfy the signature requirement imposed by the Statute of Frauds.
- Has the law given any guidance on the reliability of software tools that assist with electronic signing such as DocuSign?
Caselaw on this point is also scarce. However, as discussed above, the overarching consideration remains to be authenticity. A helpful feature of DocuSign is that the document is directly sent to each signatory, each action leading to signing is recorded and can be traced, besides further authentication steps available. In a series of recent cases from the Ontario Labour Relations Board, the Board examined the authenticity of DocuSign signatures and concluded that its requisite standard of authenticity was met. While administrative tribunals may have lower thresholds of authenticity for documentary evidence compared to courts, the Board’s ruling is evidence of DocuSign’s propensity to provide authenticatable signatures.
- Is there potentially any concern that I need to be mindful of?
a) Any indication of fraud in each specific case
As an important consideration for courts to decide whether electronically signed documents are valid is authenticity, for each specific transaction, parties and their solicitors need to be aware of any indication of fraud or any circumstances that may call the authenticity of the signature into question.
b) A “Notice to the Public and Legal Profession” by the Ministry of the Attorney General (MAG)
On February 24, 2022, MAG published a notice to standardize electronic filing processes for Ontario courts, where it stated that electronic signatures cannot be used on specific categories of documents, including negotiable instruments. As a result, for any electronic flings with Ontario courts, it seems advisable not to use electronic signatures for certain specified categories of documents.
c) Potential restraint on assignability
One last point to keep in mind is that financial institutions tend to frown upon electronic signatures and continue to impose strict requirements on “wet ink” signatures. If the counterparty happens to be a financial institution, or if the creditor is contemplating later assigning the note to a financial institution, it is advisable to consult the financial institution prior to signing, in order to prevent 1) possible delay in closing of transaction, or 2) unexpected obstacle when attempting to trade the instrument.
To conclude, it is not easy to say definitively if one can electronically sign a promissory note or not, because the law itself has not given us an express “yes”. Although the law does not have any express prohibition against electronically signing promissory notes, with the existing concerns, we recommend promissory notes be physically signed as a best practice for the time being. Parties and their solicitors should closely monitor any developments in law on this matter.
This publication is intended as a general discussion of certain legal issues and/or developments and should not be relied upon as legal advice. Should you require legal advice, please kindly contact a member of our law firm.
 Ibid at para 45.
 Ministry of the Attorney General, Court Services Division, Notice to the Public and Legal Profession regarding Electronic Court Documents: Electronic Signatures and Submissions through Online Filing Portals, February 24, 2022 (updated April 27, 2022).
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