Electronic bills of exchange and promissory notes, are they a reality?

Costa Rica (like the rest of the world) has been modernizing to provide agility to transactions of various kinds that occur at the commercial and banking level, as well as for the relationship between those administered and the State. 

Undoubtedly, one of the most important steps in this matter was the promulgation of Law No 8454, Law on Certificates, Digital Signatures and Electronic Documents, which gave clear legal support to concepts such as digital certificates and signatures and electronic document devices. It also established principles to govern this matter, such as the principle of minimum legal regulation (explained by its name), the recognition of functional equivalence of documents granted, stored, or transmitted by electrical or computer means (equating them to those granted, stored, or transmitted by physical means), the principle of evidentiary force according to which electronic documents are granted the same evidentiary force as physical ones and the principle of reservation of Law, according to which those acts or businesses whose presentation the Law requires in physical form if digital duplication is impossible.

Concerning the digital signature, there are different forms and levels of security. For example, a digital signature can be a username or password that, when entered into a computer system or application, allows the person to be identified and give consent for certain acts (for example, a bank website, authentication on a cell phone or tablet), to buy “Apps” or username and password to access an email). They can also add additional levels of security or sophistication by incorporating as a requirement the use of biometric devices (fingerprint or ocular iris per reader, use of Tokens) or by a certificate issued by an authority that if used to sign a document, grants by law the presumption of having been the authorship and responsibility of the holder of the certificate. Costa Rica deems the latter a certified digital signature.

Despite this advance, the Law does not cover all the possible ramifications that could legally arise from recognizing electronic documents and digital signatures, where we all focus our attention, or to the possible application of this new frontier to documents such as credit titles, bills of exchange, and promissory notes.  

This interest in seeing if this new regulation applied to these documents lies in the fact that bills of exchange and promissory notes are very relevant in our environment since it is known to everyone that – in the absence of a guarantee – they constitute documents used widely to guarantee monetary obligations (and in some cases non-monetary obligations such as contractual responsibilities), are also often used due to their simplicity and because they are seen legally as executive titles that allow their “execution” through judicial means in an agile manner. 

That said, the conclusion at this time was that although a promissory note or bill of exchange could indeed be issued or embodied legally through the use of an electronic document signed digitally by the parties or through a legal digital signature certificate or a regular digital signature, bills of exchange and promissory notes presented a series of particularities inherent to their legal nature since both the bill of exchange and the promissory note are commercial instruments regulated by the Commercial Code, which legally classifies them as securities, and more specifically, as securities on demand. 

Thus, it became necessary to determine whether, in addition to the electronic document and the signature (in this case through a digital certificate or digital signature), and the requirements for the bill of exchange (art. 727 et seq. of the Commercial Code) and the promissory note (article 799 et seq. of the Commercial Code) it was required – due to their nature as securities – that the promissory note and the bill of exchange met the requirements of securities to be valid and effective. In that same sense, a determination should assess whether, when expressed through an electronic document, the requirements of securities are not met and, therefore, not due to the signature but due to non-compliance with these requirements, the promissory note or bill of exchange was not valid or could not be executed through judicial means. 

Specifically, we scrutinize three fundamental principles of every security that are of interest for this analysis: literality, non-alteration, and circulation. 

Regarding non-alteration and literality, writing or physical format favors these two principles because an electronic document can be easily altered, copied, or duplicated, generating the risk that many identical files may exist. Imagine, for example, that a promissory note is signed and mailed to 10 people, and each one receives an identical file–which one is valid?  

Precisely because of these characteristics of electronic documents (the possibility that the electronic document was changed, duplicated, etc. ), Article 6 of the Law on Certificates, Digital Signatures and Electronic Documents requires that when a document is for future reference, the presentation of the electronic document (as in this case for a judicial collection process) must derive from an electronic medium in such a way that its integrity and security are guaranteed (that it is not altered or duplicated and that it is the original).

Note how the Law on Certificates, Digital Signatures and Electronic Documents, without precisely thinking about the principles of securities, established that for subsequent use or presentation, the electronic document must guarantee the unalterability of the electronic document, its subsequent access for consultation and the preservation of information about its origin and integrity. 

Now, it could have been thought at that time that, if the electronic promissory note or bill of exchange document is deposited in a suitable medium, which guarantees that it cannot be altered or duplicated, the requirements of the Law would be complied with, but the situation that is presented to us in that event, is that we would be compromising the principle of circulation, since with this action we would be preventing this security from being able to circulate (at least it would be debatable and this is not appropriate for the security expected of a promissory note. or bill of exchange). 

Observe that in this regard, Article 738 of the Commercial Code is clear that the bill of exchange (regulation applicable to the promissory note as well) will circulate even when the issuer has stamped the words “not to the order” since the form of circulation will no longer be by endorsement but by assignment, that, for the practical purposes of this discussion, not even the drawer can prevent the non-application of this principle of circulation. Similarly, if someone incorporates an endorsement on an electronic promissory note or bill of exchange, is that individual altering the electronic document? Law 8454 did not answer these questions (and others), so using electronic documents compromises these principles, and is not a safe way to create a promissory note or bill of exchange. 

Therefore, it is interesting to observe that this modern commercial instrument has presented substantial challenges to adapting the original concept to the needs of the new digital age. Without a doubt, challenges face lawyers who practice commercial law and receive, in their practices and the case of their clients, this instrument as generated in the new reality. In the second part of this analysis, we expand on these challenges and how the most recent legal reforms arose to fill these gaps.