The e-note, on its face, is a “transferable record” because it
is an electronic record that would be a note under [Article 3
of UCC] if it were in writing, and its issuer expressly agreed
on its face that it was a transferable record. [UETA § 16] The
bank’s evidence proved that Fannie Mae had control of the
e-note by showing that the bank, as Fannie Mae’s servicer,
employed a system reliably establishing Fannie Mae as
the entity to which the e-note was transferred. [UETA
§ 16]. According to the bank’s evidence, the bank’s system
stored the e-note in such a manner that a single authoritative copy of the e-note exists which is unique, identifiable,
and unalterable. . . That authoritative copy, introduced into
evidence by the bank as Fannie Mae’s designated custodian, identified Fannie Mae as the entity to which the
transferable record was most recently transferred. 18
The case establishes a system for registering e-notes as “
transferable records,” although the elements that enabled the system in this
case to satisfy the criteria might warrant further examination and
study for consistency and reliability. The case does demonstrate the
ongoing progress of technology designed to incorporate promissory
notes into electronic commerce.
As modern technology advances toward a paperless system to
evidence financial transactions, it appears that eventually many, if
not all, documents and instruments presently excluded under ESRA
and UETA will satisfy the conditions for inclusion. That will occur
when users of systems designed to register documents and implement transferable records and the EVE become satisfied that these
systems are reliable. And when courts provide guidance on how these
systems must ensure the enforceability of the instruments and documents they maintain. abfj
PAUL SHUR is a shareholder at the law firm Wilentz, Goldman & Spitzer.
He gratefully acknowledges the research assistance of Anthony M.
Osbourne, Esq., who helped with this article.
18 189 So. 3d, at 329. It is not clear whether in determining that the note was a “transferable
record” the “system employed for evidencing the transfer of interests…” under UETA was the
MERS system or the Wells Fargo system or both.
Exceptions to the Rule
There are exceptions to those exclusions where UETA and ESRA do
apply. But they do so in a dissimilar manner even though the result is
the same. In New York, the legislature recently adopted the uniform
amendments to Article 7 of the UCC9 (previously adopted in New
Jersey and Florida) contemplating uniform treatment among the states
to documents of title, such as warehouse receipts and bills of lading,
so that they can be converted to electronic form and the transfer of
title in electronic form can be effectuated in an alternative medium
once a system is in place. 10 Article 3 governing negotiable instruments/
commercial paper has not been similarly revised, so it still requires a
written signature for a negotiable instrument. 11
Under ESRA, negotiable instruments and documents of title are
covered by the Electronic Version Exception (EVE). Under UETA,
instruments and documents covered by Articles 3 and 7 of the UCC can
be evidenced in electronic form if they qualify as transferable records. 12
Therefore, despite statutory exclusions, both documents and notes
can enter the world of e-commerce.
A transferable record is an instrument or document that would
otherwise qualify as an Article 3 negotiable instrument or an Article
7 document, if a system is in place where a holder can establish
control of a record of such instrument or document by such a system
which is “unique, identifiable and authoritative.” Thus, the law has
set in place a mechanism to use and create electronic notes and
document equivalents. 13
A review of reported case law uncovers few judicial pronouncements on the use and enforceability of electronic signatures. An individual’s name in the “from” field of an email was held to constitute
a valid signature for purposes of UETA. 14 The court in Prudential
Insurance Co. of America v. Dukoff, 15 indicated under ESRA, an enforceable electronic signature may consist of a checked box or click of a
button. In Savarese v. J.P. Morgan Chase, 16 the court held that, under
ESRA, an individual’s review of an employment application by clicking
through prompts and entering a typewritten name at the end of the
process constituted an electronic signature on the application.
Recent Case Law
The recent Florida Appellate Court decision of Rivera v. Wells Fargo
Bank, et als. 17 appears to be the first reported case holding that an
e-note is enforceable as a transferable record under UETA. In a foreclosure action, the bank, as the loan servicer of the Federal National
Mortgage Association, sought to enforce the electronic note, registered
in a national registry maintained by MERSCORP (MERS) for mortgage
secured notes. The bank submitted an affidavit from MERS confirming
that the bank had electronic possession of the note as the loan servicer.
The court held:
9 McKinney’s L. 2014, ch 505 (effective December 17, 2014)
10 See Official Comment No. 5 to §7-106; §7-105.
11 Official Comment No. 5 to § 3 of UETA provides that “Articles 3, 4 and 4A of the UCC impact
payment systems and have been specifically removed from the coverage of this Act.” In New
York, Article 3 governing “commercial paper” and negotiable instruments was last amended
on September 24, 1964 and does not incorporate electronic signatures or records. Uniform
§3-401 of the UCC continues to require a writing in New Jersey and Florida.
12 UE TA § 16.
13 UE TA Official Comment No. 1 to § 16. The Official Comments note the existence today of such
a system for the storage and transfer of security entitlements in electronic form under Article
8 of the UCC. See Official Comment No. 3, § 16.
14 See Khoury v. Tomlinson, 518 S. W.3d 568, 2016 WL  ( Tex. App. Dec. 22, 2016);
Int’l Casings Grp. v. Premium Standard Farms, 358 F. Supp. 2d 863 (W.D. Mo. 2005);
Mohammed v. Uber Technologies, Inc., — F. Supp. 3d — (N.D. Ill. 2017); Schwalm v. TCF
National Bank, 226 F. Supp. 3d 937 (D.S.D. 2016).
15 674 F.Supp.2d 401 (E.D.N. Y. 2009). See also Forcelli v. Gelco, 109 A.D.3d 244 (App. Div.
2d Dept. 2013).
16 2016 WL 7167968 (E.D.N. Y. 2016)
17 189 So. 3d 323 (4th DCA 2016)
As modern technology advances toward a paperless system
to evidence financial transactions, it appears that eventually
many, if not all, documents and instruments presently
excluded under ESRA and UETA will satisfy the conditions for
inclusion. That will occur when users of systems designed to
register documents and implement transferable records and
the EVE become satisfied that these systems are reliable.