Earlier this month, SB 220, the Ohio law that amended Ohio’s version of the Uniform Electronic Transaction Act (UETA) became effective. The amendment to the UETA confirms that records, contracts, and signatures that are secured through blockchain technology, i.e., a technology that creates an unalterable electronic ledger, will be considered an electronic recording holding the same legal legitimacy as its printed counterpart.[1] As a result, records, contracts, and electronic signatures secured through blockchain technology cannot be denied legal effect or enforceability solely because it is in electronic form.[2]

By expressly stating that the UETA applies to electronic records and signatures secured through blockchain technology, the Ohio legislature has reaffirmed that the law is adapting to modern trends of efficient Internet-based transacting. This change not only reduces paper waste, but decreases burdens associated with paper transacting, such as printing, scanning, mailing, and filing.

Nevertheless, lenders should be particularly cautions when adopting electronic records transactional systems. The UETA does not apply to certain transactions governed by Ohio’s version of the Uniform Commercial Code (UCC), including the issuance of promissory notes. The UETA does however apply to “transferrable records,” or any electronic record that would be considered a note under the UCC if the record were in paper form (“e-note”).[3] Nevertheless, a lender must meet rigorous requirements in order to ensure that it will be able to enforce an e-note.

In order to ensure compliance with Ohio legal requirements for contracting and executing e-notes, certain protocols should be adopted to establish authenticity of electronic signatures, preserve the integrity of the document, mitigate risks of repudiation, and establish the lender’s control over the original executed document. In order to reliably create, maintain and transfer control of an e-note, the lender should adopt an electronic-based system, approved by all parties in the transaction, that meets the following requirements:

  1. The lender, or its designated custodian, shall always retain a single authoritative copy of the e-note. The authoritative copy should be unique, identifiable, and unalterable.
  2. The authoritative copy must identify the person asserting control of the e-note. This person should either be (a) the person to which the transferable record was issued, or (b) the person to which the e-note was most recently transferred; and
  3. The authoritative copy is communicated to and maintained by the person asserting control or its designated custodian.
  4. Any copies to the authoritative copy are made with consent of the person asserting control, shall be readily identifiable as the copy, and shall state whether the copy is authorized or unauthorized.

The adoption of SB 220 provides further evidence that electronic-based transaction is not only a legitimate practice in Ohio, but may soon become the standard. However, in order to ensure that a lender will be able to enforce promissory notes regardless of the document’s electronic format, the lender must be able to provide evidence that it has complied with the above requirements.