You have asked whether documents executed electronically by borrowers seeking state-funded student loans and lottery program funds are legally binding. You have indicated that the Georgia Student Finance Commission (the “Commission”) is in the process of developing a web-based utility that will allow students to complete applications for scholarships, grants, and loans via the Internet. You also indicate that under the Student Authentication Network (STAN) system, a computerized system mandated for the state’s participation in federal loan programs, you are currently allowing applicants to execute promissory notes via the Internet. I assume you will want them to execute applications as well as promissory notes and other related documents under the Commission’s web-based utility.

Because the Commission is constitutionally and statutorily prohibited from making loans, I will assume that with regard to loans your question pertains to the Georgia Student Finance Authority (the “Authority”). This distinction is necessary because varying principles of law apply to authorities and agencies.

The Georgia Electronic Records and Signatures Act, O.C.G.A. §§ 10-12-1 through 10-12-5 (2000 and Supp. 2004) (the “Act”), provides that “signatures shall not be denied legal effect or validity solely on the grounds that they are electronic.” O.C.G.A. § 10-12-4(a) (Supp. 2004). Additionally, each “department, agency, authority, or instrumentality of the state or its political subdivisions shall determine how and the extent to which it will create, send, receive, store, recognize, accept, be bound by, or otherwise use electronic records or electronic signatures.” O.C.G.A. § 10-12-4(i)(1) (Supp. 2004). Thus, the Commission and the Authority respectively can determine the extent to which each will utilize and be bound by electronic signatures.

However, the Act also provides that “[t]he provisions of this Code section shall not apply . . . to any record that serves as a unique and transferable physical token of rights and obligations, including, without limitation, negotiable instruments . . . .” O.C.G.A. § 10-12-4(i)(3) (Supp. 2004) (emphasis added). The Uniform Commercial Code - Negotiable Instruments, O.C.G.A. §§ 11 3 101 through 11 3 605 (“Commercial Code”) defines “negotiable instrument” as

an unconditional promise or order to pay a fixed amount of money, with or without interest or other charges described in the promise or order, if it:

(1) Is payable to bearer or to order at the time it is issued or first comes into possession of a holder;

(2) Is payable on demand or at a definite time . . . .

O.C.G.A. § 11-3-104(a) (emphasis added). Thus, as a general rule a promissory note is a negotiable instrument which is not legally enforceable if executed electronically.

However, subsection (a)(3) of O.C.G.A. § 11-3-104 provides further, with qualifications not relevant here, that an otherwise negotiable instrument is non-negotiable if it

(3) state[s] any other undertaking or instruction by the person promising or ordering payment to do any act in addition to the payment of money . . . .

Id. It is my understanding that, in addition to other loan documents, the Authority wants to use electronic signatures for promissory notes that secure loans, some of which are service cancelable loans, made from both state appropriated funds and lottery funds. All of the promissory notes contain a requirement that the loan proceeds be used for educational purposes and that the student be enrolled in an educational program. In the case of a service cancelable loan, the student will also be required to make cash payments only in the event that the student does not satisfy the service requirements contained in the promissory note.

Although I have found no case law construing O.C.G.A. § 11-3-104(a)(3), it reasonably can be concluded that the inclusion of these service requirements in the promissory notes are “undertakings or instructions” that make the promissory notes non-negotiable. Thus, as non-negotiable instruments, the Authority may determine if promissory notes securing loans made by the Authority will have legal effect if executed electronically.

You also say that the Authority currently requires signatures to be witnessed by a notary public. I find no statutory requirement for an official witness. This requirement may be contained in your regulations or may be policy of the Authority. In either event, the requirement can be changed by the Authority without resort to legislation. Furthermore, even if there were a legal requirement to have a signature witnessed by a notary, the Act provides that any rule of law which requires a notary shall be deemed satisfied by the secure electronic signature of such notary. O.C.G.A. § 10-12-4(j).1

In summary, the Electronic Records and Signatures Act provides that electronic signatures may not be denied legal effect or validity solely on the grounds that they are electronic, although by its terms the Act does not apply to certain instruments, including negotiable instruments. Under the Act, the Authority may determine how and the extent to which it will be bound by or otherwise use electronic signatures.

Therefore, it is my official opinion that because the promissory notes obtained by the Georgia Student Finance Authority to secure state funded student loans are non-negotiable instruments under the Uniform Commercial Code, the Authority has the discretion to determine the extent to which it will be legally bound by electronically-executed documents and promissory notes; furthermore, a secure electronic signature of a notary will satisfy the requirement, if any, for an official witness.

Prepared by:

Senior Assistant Attorney General

1 “‘Secure electronic signature’ means an electronic or digital method executed or adopted by a party with the intent to be bound by or to authenticate a record, which is unique to the person using it, is capable of verification, is under the sole control of the person using it, and is linked to data in such a manner that if the data are changed the electronic signature is invalidated.” O.C.G.A. § 10-12-3 (6)