Blockchain-based Notarization and Legal Realities

The foregoing tells us that while legal-tech, particularly those employing blockchain technology, poses a lot of promise for the improvement of delivery of legal services, among others, it needs to attune itself with legal realities in order for the technology to reach its best potential.

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by Jay-r C. Ipac, CIPM[1]

August 29, 2019 – Notarizing a document can be one of the most mundane tasks in the legal vocabulary. In the Philippines, the common impression is notarization involves dry-sealing and signing of a legal document by the notary, accompanied by payment of a prescribed fee. No more, no less. Sadly, the public impression is far from legal reality.

From a litigation perspective, a document otherwise private becomes a public document once it is duly notarized. Accordingly, the document is admissible in court without the need to “authenticate” it in the manner normally prescribed for private documents.

Notarization is also significant outside of litigation. Most notarial acts require the personal appearance of the individuals whose signatures appear on the document so that (at least in theory) the notary can determine the genuineness of the transaction covered by the document and the voluntariness of the act of its purported signatories. In this sense, notaries act as gatekeepers of authentic and trustworthy documents which in turn prevents or at least reduces chances of fraud from occurring. Less chances of fraud means more confidence in carrying out economic transactions. While notarial practice seems publicly unappealing, these legal realities and the public interest that the functions of a notary generate justify the state regulation of this particular activity.

In the Philippines, generally only lawyers duly commissioned as notaries public may perform notarial acts. In their capacity as officers of the court, lawyers have a responsibility to assist in the proper administration of justice since they are in fact part of the machinery in the administration of justice. Because of this, lawyers are considered in the best position to discharge the principal function of notaries in authenticating documents: they verify the signer’s identity, confirm that the signatory understands the document’s contents, and that the latter signed freely and voluntarily.

While the notaries’ function has basically remained unchanged for the past centuries, the advent of new technologies has threatened the legal profession where the notaries belong. In fact, the word “legal-tech” has been coined to describe a range of different technologies relating to the delivery of legal services, and one of those services that legal-tech is poised to “replace” or “disrupt” is that of a notary public. Blockchain technology immediately and prominently comes to mind.

A good friend showed me a document that has been “notarized” via blockchain technology and the printout of its corresponding hash code. As this emerging technology boasts, the minutest alteration on the original document will have a corresponding change in the hash code, thus making the “notarized” document tamper-proof. Perhaps, such additional security feature may be availed of by parties, as a value-added, if they want to ensure that the document they would sign (especially if voluminous and had undergone numerous revisions) is the same document they previously and finally agreed to, or that the notarized document presented to them is the exact same document they previously executed and notarized via blockchain. But plainly neither of these two possibilities go into the core function of the real-life notary, which leads to an interesting question: how is the “notary” viewed by some in the legal-tech, particularly those in the blockchain?

One legal-tech describes a notary as “any authority with a given power to guarantee and certify documents, creations, transactions, contracts or identities and sometimes they are needed to store the certified information, or to allow only relevant information to be stored in other official databases.” With this understanding, a number of blockchain companies offering different kinds of “notarial services” online have been using “notary” as part of their tradename. While blockchain technology is very promising, unfortunately, this shows some disconnect between the legal realities, on one hand, and the ideas of some advocates of blockchain technology that offer “notarial service.”

For one, certifying a transaction, a fact, or an event as what they appear to be as of a particular point in time by “timestamping” the same, through blockchain technology, is not what a notary essentially does, at least in this jurisdiction. In fact, the notary is less concerned with the actual contents of the document before him or with the date he affixes his seal (because the signatories to the document can provide an earlier contractual date anyway); rather, his concern is on verifying the identity of the person/s whose signature appears on the document and on the voluntariness of his act as embodied in the document.

For this reason, as early as 2000, the Philippines’ E-commerce act already provided that the Supreme Court “may adopt authentication procedures, including the use of electronic notarization systems as necessary and advisable.” At present, electronic notarization and the more recent remote online notarization are beginning to gain traction in the United States by applying credential analysis and identity proofing as identity authentication tools. Here, the notary and the notarial function are not “replaced” and “disrupted” but rather, “enhanced.” Imagine being able to notarize your document without having to physically go to the office of the notary (which presently is not allowed because it defeats the purpose of the notary) and still get the benefit of reliability provided by a verifying third party, the notary public, who uses not just his own gut-based fraud detection technique but also the latest technology. However, there appears no indication yet that our Supreme Court is looking at this direction.

The foregoing tells us that while legal-tech, particularly those employing blockchain technology, poses a lot of promise for the improvement of delivery of legal services, among others, it needs to attune itself with legal realities in order for the technology to reach its best potential. This also tells us that as the law traditionally remains to be largely territorial, it would do well for legal-tech to understand the unique legal environment and market where it seeks to operate so that everyone involved can maximize the potential benefits that the new technology offers. A mutual collaboration between and among stakeholders is indeed the best way to start.

[1] Professor, Technology Law and Policy, San Sebastian Recoletos-College of Law
Professor, Intellectual Property Law, University of Santo Tomas
Senior Associate, Divinalaw

This article is first published on BitPinas: [Feature] Blockchain-based Notarization and Legal Realities

Photo by Helloquence on Unsplash

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