Electronic Seals
Canada’s electronic commerce legislation in Canada tells us how to create an electronic document that will satisfy a legal requirement that the information must be in writing. Most such legislation also tells us that a legal requirement that a document be signed is satisfied by an electronic signature. In the common law provinces and the territories, however, it stops short of telling us how to create a sealed document.
This article addresses that shortcoming, if it is one. It will restrict itself to seals on transactional documents. Seals by public authorities will be the subject of a future column. (If you can’t wait, see my June 2011 column on the Apostille Convention)
Why do we want seals?
Should we care? The special legal rules about sealed documents (deeds) largely survive, often as free-standing artefacts of the law rather than as an expression of a legal principle. Thus an agreement under seal does not need consideration to be enforceable, unlike a contract. An agreement under seal on behalf of undisclosed principals does not expose those principals to suit if the agreement goes bad. Friedmann Equity Developments v Final Note Ltd [2000] 1 SCR 842. Specialties, which are either acknowledgements or a guarantee of debt plus a seal (A. Frank, “Seals: The Power that Drips from Red Wax”) or any deed (British Columbia Law Reform Commission, Report on Deeds and Seals 1988), enjoyed a longer limitation period than contracts, though that advantage disappeared in Ontario with the Limitations Act, 2002, and in B.C. over a quarter-century earlier.
The B.C. Law Reform Commission recommended the abolition of the seal, or the merger of the doctrine on seals with the general law of contact, mainly to avoid unfair surprises:
An instrument executed under seal is called a deed. Obligations recorded in a deed are subject to an area of law in which the principles sometimes differ dramatically from those which are applied to a simple contract. Since few people are aware of these differences, executing an instrument under seal is a practice which is attended by some danger. Moreover, curious results are to be found in the cases where one legal consequence follows from a contractual obligation, and another, totally different, consequence follows when the same obligation is contained in a deed.
… It is recommended that legislation be enacted to provide the obligations created or recorded by deed have the same legal effect as obligations contained in a simple contract. The enactment of such legislation will dramatically simplify the law and render it more just. [from the Introduction to the 1988 Report. The Commission was willing to see the substitute-for-consideration rule continue.]
In Friedmann, the Supreme Court said that the law on sealed contracts was clear, and only the Legislature could abolish it. Interestingly, the agreement in that case had been signed by the corporate signing officers and sealed with the corporate seal. The application of the corporate seal was thought, however, not to have been intended as a sealing as distinct from just part of normal signing. The Court found, however, that the Ontario Legislature had deemed certain classes of document to have the same effect as if under seal, without having to apply a seal. Thus the rule on seals continued in effect by decree, in the absence of an actual (intentional) seal. The Court cited s. 13 of the Land Registration Reform Act R.S.O. 1990. c. L.4:
Despite any statute or rule of law, a transfer or other document transferring an interest in land, a charge or discharge need not be executed under seal by any person, and such a document that is not executed under seal has the same effect for all purposes as if executed under seal.
This provision essentially applies to the named documents all the rules applicable to seals whether the parties intend them or not. Who knows what was in the mind of the parties to Friedmann at the moment of agreement? The provision does not say if the parties could expressly disclaim that the document is under seal.
It may be noted that the same Ontario statute also abolishes the writing and signature requirement for several documents that have often been sealed. See s. 21:
Despite section 2 of the Statute of Frauds Act, section 9 of the Conveyancing and Law of Property Act or a provision in any other statute or any rule of law, an electronic document that creates, transfers or otherwise disposes of an estate or interest in land is not required to be in writing or to be signed by the parties and has the same effect for all purposes as a document that is in writing and is signed by the parties.
One may ask if abolishing the need for writing abolishes the rule about seals for those documents, or whether somehow the electronic versions as well as paper versions still benefit from virtual sealing thanks to the deeming effect of s. 13. Though the language of application of the two sections is not identical, they likely have about the same scope.
Since the enactment of the Business Corporations Act in 1971, Ontario business corporations have not been required to have seals. Canada Business Corporations Act companies may also be seal-free. For a few years after those statutes were passed, banks tended still to require them on lending documents or certificates. I do not know the present practice, or whether old habits survive in practice.
Pending further legislative action to say for sure that we do not need seals across the board, how are they to be created electronically?
Seals on paper
It will help answer that question to consider how one create a seal on paper. The matter is not as obvious as it may seem. Whether a document is sealed depends on the intention of the parties, and the parties must give some evidence that they have turned their minds to the sealing. The easiest way is of course to attach to the paper a wafer, in the absence of wax and a signet ring, and that will suffice – if the intention is clear. If the wafer is attached before the parties ever see the document, an attack might be possible. As the Court said in Friedmann, “the application of the seal must be a conscious and deliberate act.”
Signing a form contract that already has printed on it the words ‘signed, sealed and delivered’ or the abbreviation ‘l/s’ in a circle, is not guaranteed to suffice as a seal unless the parties can be said to have adopted the notion. That is why the parties sometimes circle the ‘l/s’ mark in ink. (The BCLC Report says that the initials stand for ‘locus sigilli’ – the place of the seal – rather than for ‘legal seal’, not that it matters.) I once sealed a sale of corporate shares by tearing up a postage stamp and sticking the parts after the parties’ signatures to serve as seals. Though the transaction later turned sour, no one ever doubted the validity of the seal.
It used to be thought that the act of affixing a seal was a method of making the person doing it take seriously the obligations being created by the process. The same claim was made for a signature, but the rarity of sealing gave it even more power. Many methods of electronic signature lose this ceremonial effect – clicking ‘OK’ on a web site somehow does not seem as weighty, though the legal effect can be just as serious. The same is true of a seal. Just adding some words to a text that the signer (the client) may not read attentively or at all is not likely to provide an extra appeal to prudence.
A corporation can impress its metal seal on the paper, with or without the benefit of a colourful sticker to highlight the impression. The BCLRC Report says that the seal of the corporation is actually its formal signature, rather than a separate ‘seal’. As noted, the Friedmann case was fought on the need for a seal, the usual corporate seal not being demonstrated to have been affixed for any purpose except plain vanilla signing. So a corporation that wants its seal to be a ‘real seal’ may need to add words to say so.
Common law electronic seals?
As a result of this focus on intention rather than form, it is arguable that one can seal an electronic document simply by expressing the intention that its execution is to be considered to be under seal. Particularly cautious counsel could use words like those in the LRRA that persuaded the Supreme Court in Friedmann: ‘the parties intend that this document has the same effect for all purposes as if executed under seal’. Really cautious counsel could propose the addition of additional text (like ‘l/s’, why not?) to serve as evidence of this intention, if the words are not thought sufficient.
If one has a click-through agreement, however, one does not have the opportunity to add words. Usually in such agreements a seal would not have much legal purpose anyway.
Legislation on electronic seals
Canadian legislation offers four treatments of seals: the Quebec detailed method; the federal secure electronic signature; the Ontario potential regulation; and the rest is silence.
Quebec’s Act to provide a legal framework for information technologies, R.S.Q. c. C-C.1, proceeds here as elsewhere by looking at the policy functions of the seal rule and saying how the functions are to be satisfied electronically (by a ‘technological document’, in the terms of the statute). Here is s. 13 on seals, and the follow-up section with more details:
13. Where the function of affixing a seal, signet, press, stamp or other instrument is
(1) to preserve the integrity of a document or authenticate the document as an original, the purpose may be achieved, in the case of a technology-based document, by means of any process appropriate to the medium used ;
(2) to identify a person, an association, a partnership or the State, the purpose may be achieved, in the case of a technology-based document, according to the rules provided in subdivision 1 of Division II of Chapter III ;
(3) to protect the confidentiality of a document, the purpose may be achieved in the case of a technology-based document, according to the rules provided in section 34.
14. As regards the form of a document, one or more processes may be used to fulfil the functions or achieve the purposes provided for in sections 12 and 13, making use of the characteristic features of the medium used.
I will not track through the cross-references. Suffice it to say that the statute would allow parties to create an electronic seal for the functions named. It may be noted that the common law function(s) of a seal, to import the rules of deeds and to show the parties the seriousness of the transaction, are not part of the Quebec Act.
The federal approach is in the second part of the Personal Information Protection and Electronic Documents Act S.C. 2000 c. 5. Section 39 says this:
A requirement under a provision of a federal law for a person’s seal is satisfied by a secure electronic signature that identifies the secure electronic signature as the person’s seal if the federal law or the provision is listed in Schedule 2 or 3.
Rather than Quebec’s functional approach, the federal government relies on a specific technology, secure electronic signatures as defined by s. 48 of the Act and as further prescribed by the Secure Electronic Signature Regulations SOR/2005-30. Essentially this requires a digital signature from a government of Canada public key infrastructure or from a PKI cross-certified with it. This demanding approach only works if the provision requiring the seal is listed in the named Schedules. To date only one statute and its regulation are listed: the Federal Real Property and Federal Immovables Act S.C. 1991 c.50, plus one subsection of the Canada Labour Code.
Ontario was asked by private sector interests to insert something into its Electronic Commerce Act, 2000, S.O. 2000 c. 17, to allow for seals in case they turned out to be needed. Since it was not clear at the time how to do an electronic seal, the question was deferred to the regulations. Here is subsection 11(6):
The document shall be deemed to have been sealed if,
(a) a legal requirement that the document be signed is satisfied in accordance with subsection (1), (3) or (4), as the case may be; and
(b) the electronic document and electronic signature meet the prescribed seal equivalency requirements.
No regulation has been made, or even requested, in the eleven years since the E-Commerce Act was adopted.
The other common-law provinces and the territories have all implemented the Uniform Electronic Commerce Act and have maintained the Uniform Act’s silence on electronic seals.
Conclusions
To summarize, there is no authoritative method of creating an electronic seal in the common law provinces; the federal statute is almost inactive; and Quebec’s statute, if its sealing provisions are used, does not serve the same function as in the rest of the country.
From this one may conclude either that not much electronic commerce is going on, or that the private sector has quietly figured out how to do an electronic seal but has not publicized the method, or that it has turned out in the electronic age that seals are not all that useful after all. One suspects the last explanation is the right one. Electronic commerce may have achieved in practice what the BCLRC was aiming for by legislation: the disappearance of the seal.
John
Fraudsters obviously think red seals make their documents look more legitimate. You can see lots of red seals in this amazing collection of fake documents lawyers have provided to us for posting on the AvoidAClaim.com blog. These were sent to Canadian and US lawyers on attempted (and successful) bad cheque frauds.
I agree. For a similar phenomenon, see my June column on the Apostille Convention:
When I was in practice I did notarial copies of my clients’ patents and other official documents. When they were bound for Latin America, I always used a red or gold seal under my impression of my notarial seal.
Generally speaking the seals you mention, Dan, are intended as official or public sector seals. I will comment on them in a future column. Your examples will help me focus on useful issues.
One problem (as I see it) is that many lawyers and corporate secretaries today don’t know the legal difference between a corporate seal and a wax seal. They see a requirement that a document be “under seal” and tell their clients to find the corporate seal.
I’ve worked with very senior commercial lawyers who were astonished that affixing a red sticker that they bought at Office Depot could have a significant legal effect.
Education for lawyers is (IMO) in order.
In response to Mike’s points: how often does one encounter a requirement that a document be under seal? It would seem to be the law that if the corporate seal were impressed with a conscious – and ideally explicit – intention to seal the document by doing so, then that would constitute a seal.
The Ontario law mentioned in my column has probably resolved the issue, but other provinces may have no equivalent ‘deeming’ provision.
If lawyers are surprised at the legal effect of a seal, does that reinforce the argument made nearly 25 years ago by the BC Law Reform Commission, that the law should be changed to conform to the law about unsealed documents? The Commission spoke against such surprises.
Certainly education for lawyers is one solution, but removing the hidden traps is another.
The sealed document remains an essential tool in every lawyer’s kit. It is the simplest method for making a promise that has not been bought with consideration enforceable. This fact explains why guarantees are often in the form of deeds. What is important about a deed, i.e., a document under seal, is its form: a deed is binding because of the form in which it is made. Without compliance with the form, the document will probably not be a deed. There are some surprising consequences of this fact: there can only be one valid deed and a deed must not be executed in counterparts. There can, of course, be copies, but they can’t be sued on. The law to govern a deed is the law of the place where it is at any moment; move a deed, i.e., the physical piece of paper, from one country to another and its effect may change. Corporate seals are no longer required; a deed signed by an authorized officer of a corporation with a stationer’s seal attached would be a deed, provided the document was intended to be a deed. A corporate seal would, of course, have the same effect. I won’t go into the arcane rules for specialties or other odd rules for deeds. The lawyer who does not know the law of deeds may, even now, get a nasty surprise.
From what I recall, a sealed document needs no consideration. I know consideration is, today, a rarely used legal concept, perhaps, but it may one day make a comeback (see: St. Arnaud v. Facebook, Que. SC 2011, for ideas on what that might look like). Any potential implications to letting free web services add ‘sign, sealed, delivered’ to a TOU to override consideration requirements?
Introduction and summary
In olden times, a nobleman and others could be sure that a document wasn’t his, unless he’d impressed his well-guarded seal in molten wax on the document. Technology could allow us and others to be sure that a document wasn’t ours, unless we’d authorized it using a secure electronic process. But first, in Ontario, we must probably finish the job of doing away with the old seal, whether the document is electronic and not.
John Gregory’s article on Electronic Seals asks whether the seal is all that useful. A comment by Angela Swan suggests that the seal may even now lead to a nasty surprise.
In Ontario, a document can be still void for some purposes unless it’s sealed. Even the Ontario electronic land registration system can allow a document to be registered that’s void for some purposes for lack of a seal. Despite that, we don’t need to worry much about the seal, but we could still fall through a crack that causes loss.
Shortly, the big risk over the seal may be with any document signed by an agent (even a transfer, charge or discharge). There may also be risks with a document, other than a transfer of ownership, a charge or a discharge. Examples are a lease for over 3 years and a document that only creates a new easement.
However, there’s probably no added risk merely because a licensed user in the Ontario electronic land registration system signs for a party under an unsealed acknowledgment and direction. A continuing power of attorney for property probably needn’t be sealed. The risk for document executed for a corporation is probably basically the same.
The reasons of both the Supreme Court of Canada and the Ontario Court of Appeal in Friedmann Equity Developments v Final Note Ltd. deal with important issues for the seal.
These comments focus on real estate. Perhaps an estates lawyer might comment on the seal for a continuing power of attorney for property. Perhaps a corporate lawyer might comment on the corporate seal. And a real estate lawyer or land registry official might add further comments.
This is a short version of a full article that the writer hopes Carswell’s Real Property Reports will publish.
Laws on electronic documents
Laws on electronic commerce assume that an electronic document may not be able to comply with some common formalities. The laws try to get over the formalities, but needn’t affect the law on when we must comply with the formality or what is the effect of the document.
For example, some documents are void unless they’re in writing and signed. When we change this for an electronic document, we accept that the document still has the same effect as if it was in writing and signed. For example, we accept that, by signing a document, a person usually agrees to its terms.
In the same way, when we change the law for a seal, we needn’t change the law on when we need a seal or what is the effect of a sealed document. But this article shows that, in Ontario, we must probably now finish the job of doing away with the old seal, whether the document is electronic and not.
General rules for land in Ontario
As a general rule, a document that would create a legal interest in land in Ontario must be sealed; otherwise, it’s void for that purpose. As a general rule, a document that would create any other interest in land may be sealed, but needn’t be sealed. We call a sealed document a “deed.” In Ontario, the general rules are based ancient common law as changed by statute (especially section 3 of the Ontario Conveyancing and Law of Property Act). The seal is a basic part of Ontario land law.
As a general rule, an authority for an agent to seal a document must itself be sealed; otherwise, it’s void for that purpose. We usually call the sealed authority a “power of attorney.”
As a separate general rule, a document that would create a legal interest in land in Ontario must be in writing and signed, or an authority for an agent to sign that document must be in writing; otherwise, it’s void for that purpose (Ontario Statute of Frauds).
The above general rules don’t usually apply to a lease for three years or less (Ontario Statute of Frauds).
Even though a document needn’t be sealed, it may be sealed.
Ways in which law in Ontario has softened general rules
Over time, the law has softened what started as a hard requirement that a document that would create a legal interest in land could be void for the purpose, either because it wasn’t sealed or because an authority for an agent to sign it wasn’t sealed. It does so in the following ways in Ontario:
• A document need only show in some way that a party intended to seal it, but it can’t safely do so only in words.
• Where a document that would create a legal interest in land in Ontario is void for that purpose, a person might still get an equitable interest. A person would have an equitable interest where both a person had agreed to create the legal interest and a court would order specific performance of the agreement. (A court should treat the document as such an agreement.)
• The Ontario Land Titles Act might give a guarantee for a transfer of ownership, a charge or a discharge, even though an authority of an agent to sign it was void for lack of a seal.
• Under a specific Ontario exception, a transfer of ownership, a charge or a discharge of land isn’t void for lack of a seal. As a general rule, the transfer, charge or discharge must still be in writing and signed; otherwise, it’s void for the purpose of creating a legal interest. A valid transfer of ownership, charge or discharge has the same effect as if it was sealed. The exception doesn’t do away with the seal on a lease for over 3 years, or safely do away with the seal on a document that only creates a new easement.
• Under another Ontario exception, an electronic document that would create an interest in land in Ontario isn’t void for lack of writing or signing, and has the same effect as if it was in writing and signed. Under the previous exception, an electronic transfer of ownership, a charge or a discharge isn’t void for lack of a seal and has the same effect as if it was sealed. The exception for an electronic document probably does away with the seal on an electronic document, but doesn’t safely do so. (Section 40(4) of Ontario Regulation 19/99 (Electronic Registration) doesn’t do away with a need for a seal.)
• The exceptions raise the question of whether an authority to sign an excepted document could still be void for lack of a seal. For several reasons set out in the full article referred to above, the answer is that an authority safely allows an agent to sign a transfer of ownership, a charge or a discharge, or an electronic document that creates an interest in land, only if it’s sealed. This is so even where the above exceptions show that the document itself needn’t be sealed. But a continuing power of attorney for property under the Ontario Substitute Decisions Act, 1992 probably needn’t be sealed. And an acknowledgment and direction for a licensed user of the Ontario electronic land registration system to sign an electronic document needn’t be sealed.
Special rules for the effect of a sealed document
British Columbia summary for special rules
The Law Reform Commission of British Columbia’s 1988 Report on Deeds and Seals sets out possible special rules for a sealed document. The report shows that the laws for both a sealed document and an unsealed contract have tended to take good principles from the laws for other, but that the assimilation isn’t quite complete. The following tries to summarize what the report says about the possible special rules:
• There’s almost no difference in form between a sealed document and an unsealed contract that’s in writing and signed.
• An authority for an agent to sign a sealed document must itself be sealed; otherwise, it’s void for that purpose. (For land, this serves an important practical purpose of enabling a person, other than a party, to check that an agent signing a sealed document was authorized. A party might rely on an informal or apparent authority, but it would usually be impracticable for a land registrar or a successor to do so. This special rule helps to ensure that the record, on its face, shows that the agent has authority. The report ignored this factor.)
• An unsealed agreement may be void because it lacks consideration, but a sealed document won’t be void for lack of consideration.
• Where an unsealed contract is entered into by an agent, the principal can usually enforce the contract, or another party can usually enforce the contract against the principal, even if the agency wasn’t disclosed. But a sealed document can be enforced only by or against a party to the document.
• Similarly, contrary to normal rules for a partnership, a partner that isn’t a party to a sealed document may not be able to enforce it, and it may not be able to be enforced against that partner.
• An obligation in a sealed document can be either a condition or a warranty. After a breach of a condition, the wronged party needn’t comply and can get damages; after a breach of a warranty, the wronged party must comply and can only get damages. This now also applies to an unsealed contract. But a surviving difference in remedies is that a party that hasn’t given consideration for a right under a sealed document can’t get specific performance or an injunction.
• When a party makes a sealed document, a party that benefits can enforce the sealed document, even though that party didn’t seal it or, it seems, didn’t accept it or wasn’t aware of it.
• A person that makes an unsealed offer can usually revoke the offer before it’s accepted, even where the person has promised in the offer not to revoke it for a period. But a party to a sealed document may not be able to retract it before another party accepts it, and so will be bound by a sealed promise not to revoke for a period.
• The limitation period for enforcing a sealed document may be different from that for an unsealed contract.
• In an estate, a creditor under a sealed document may have priority over other creditors.
• An unsealed contract can vary or replace a sealed document, but an unsealed contract may not merely end a right in a sealed document, unless the holder accepts something in satisfaction of the right (so that there’d be an “accord and satisfaction”).
• A sealed document can be valid even if it has only one party (that is, if it’s a “deed poll,” rather than an “indenture”), but an unsealed contract must be between more than one person.
• A later sealed document might extinguish an earlier unsealed contract through merger, because the later sealed obligation was “higher” and replaced the earlier and lower unsealed obligation. For example, a conveyance might extinguish the sale agreement. But this may only apply to a later dealing with land and, even there, it applies only as far as the parties intended the later sealed document to supersede the earlier unsealed contract.
• Under the rules for conflict of laws, the law for a debt may be the law of the place where the debtor resides, but the law for a sealed document may be the law of the place where the sealed document happens to be.
• A sealed document is a formal document and its terms usually follow an accepted order, and this affects interpretation. (However, this doesn’t seem to depend on the document being sealed and it may only be a sensible guide to interpreting a document.)
• Where an obligation is to take effect on a future event (for example, a closing), a sealed document is “delivered” in escrow, while an unsealed contract is conditional. The practical effect seems to be the same.
• A party to a sealed document can be “estopped” from denying facts stated in the document, and this now applies to an unsealed contract.
• An unsealed contract can be rectified, and this now applies to a sealed document.
• A party to a sealed document isn’t bound if the transaction is
substantially different from the transaction intended, and this now applies to an unsealed contract.
Changes for special rules
In 1987, the Ontario Law Reform Commission Report on Amendment of the Law of Contract dealt with many contract issues. Among other things, it recommended that Ontario do away with the seal altogether and replace it with a “witnessed signed writing.” (It also recommended that, where a court could have enforced a gratuitous promise through damages, the court should have power to order an injunction or specific performance.)
The above British Columbia report referred to legislation showing that an instrument purporting to deal with land, and every power of attorney under which the instrument was executed, could be executed without a seal. Therefore, in 1988, the law in British Columbia was in this way very different from the law in Ontario.
(Presumably, section 48 of the British Columbia Land Title Act replaced this legislation. But it seems to assume that a seal could be again needed, and then to replace it with a “certification” by an officer, without saying what the effect is.)
We need to ask the questions below about changes for the seal. The answers in the British Columbia report were as follows:
1. As to the kinds of document that the law requires us to seal, should we change those kinds of document? The report didn’t deal with this, because British Columbia had then removed the requirement. If we change the law, what formality should we put in place of the seal? The report didn’t deal with this, but British Columbia seemed then to have put nothing in place of the seal.
2. As to special rules that apply to a sealed document and that don’t apply to an unsealed contract, should we keep any of those rules? The report concluded that all the special rules were “historical baggage,” except one. This was that a person should still be able to make a valid promise that wouldn’t be void for lack of consideration.
3. If we do away with the seal, but keep any of the special rules, should all of the kinds of document in 1 automatically have the effect of being subject to the rule? The report didn’t deal with this, because British Columbia had then removed the requirement, without saying what effect that had on the special rules. And, where we could have chosen whether to seal a document, how will the document show that we’ve chosen to have the special rules apply? The report concluded that, by providing another way for a person to make a valid promise that wouldn’t be void for lack of consideration, other than by sealing the document, British Columbia could do “grave injury to the modern law of contract.” Therefore, the report recommended that British Columbia keep the whole idea of a sealed document, but remove all the special rules, except the one for consideration.
Perhaps the report put too much emphasis on preserving a person’s ability to make a valid promise that wouldn’t be void for lack of consideration. Unsealed contracts routinely enable a person to do that, by adding a nominal consideration. And perhaps the report could have recommended that a person could still make a valid promise that wouldn’t be void for lack of consideration by putting the promise in a document that would, but for a change doing away with the seal, have been a sealed document.
In 1989, section 1 of the English Law of Property (Miscellaneous Provisions) Act 1989 did away with the seal altogether and replaced it with a signed and witnessed (but unsealed) “deed.” (Section 91 of the English Land Registration Act 2002 later provided for an electronic “deed.”)
In 1998, The Law Reform Commission of Ireland’s Report on Land Law and Conveyancing Law: (6) Further General Proposals Including the Execution of Deeds dealt with seals. It also recommended that Ireland do away with the seal altogether and replace it with a signed and witnessed (but unsealed) “deed.”
Seals in Ontario electronic land registration system
As shown below, the Ontario electronic land registration system doesn’t reflect the law on the seal and can allow a document that would create a legal interest in land to be registered, even though it’s void for that purpose for lack of a seal. But two things can reduce any loss: the document will often still create an equitable interest; and the Ontario Land Titles Act may guarantee the interest.
The Ontario electronic land registration system is a database of land title information. The computer can automatically check a registration and automatically put the new data correctly into the land database. The electronic system has two ways for a person to submit a document for registration. A document can be wholly prepared and signed in the system. It looks like a document that creates an interest in land, but it’s actually a programmed form. It’s reliable, because the parties actually agree to the information in the programmed form. Or a document won’t be wholly prepared and signed in the system. For this, the system should require both a programmed form that gives the required information about the document and electronic proof of the document itself. It’s less reliable, because the parties haven’t actually agreed to the information in the programmed form.
The system uses the trademark “e-reg,” and these comments call a document wholly prepared and signed in the system “wholly e-reg electronic.” If the document is on paper, the system registers an electronic copy of the document.
For a wholly e-reg electronic document, the system has no technology to enable an ordinary person to sign the document. (Presumably, such technologies exist. For example, how many people in Canada use DocuSign to sign real estate documents, how do those people add a seal, and should the Ontario electronic land registration system accept the signature?) Only a licensed user of the system can sign the document, and the system tries to ensure that a user’s input is secure. Therefore, in practice, for a wholly e-reg electronic document, a licensed user will usually sign the document as an agent for a party.
In practice, where a licensed user signs for a party, the user normally gets an authority to sign the specific document. This is usually in an unsealed “acknowledgment and direction” containing the exact contents of the proposed document. Where a user acts only under an acknowledgment and direction, presumably, the user acts only in a ministerial way in signing the document, and wouldn’t need a sealed authority. But the system doesn’t try to ensure that a user gets an acknowledgment and direction (despite section 40(4) of Ontario Regulation 19/99 (Electronic Registration). In practice, a party receiving an interest usually doesn’t ensure this either. Therefore, although the acknowledgment and direction reduces the risk of a document being registered that’s void for lack of a sealed authority, it doesn’t wholly avoid the risk.
The Ontario Land Titles Act usually has two main ways to register an interest in land created by a document, by entering the document either directly or through a “notice.” A transfer of ownership, charge or discharge by a registered owner can lead to the Act guaranteeing a person’s interest. Usually, the transfer, charge or discharge is directly entered in the register. Otherwise, the Act usually only “protects” an interest from being lost when a registration triggers the Act’s guarantees and only protects the priority of the interest, but the Act doesn’t guarantee that the interest exists. It usually does these things through a notice (section 71). In the paper system, a person usually applied to have the notice entered and a document that was separate from the application created the interest.
The Ontario electronic land registration system reflects both the old two ways to register an interest in land created by a document, and the new two ways, but it does so imperfectly. On the one hand, the electronic system tries mimic the old paper system, by requiring an application for a notice. It can even require an “application” for any other document that isn’t wholly e-reg electronic, even where the system should enter the document directly and not through a notice. On the other hand, where the document isn’t wholly e-reg electronic, the new system may not ensure that the information is correct, or that the copy is true, or that the document is genuine (and section 22 of the Ontario Land Registration Reform Act doesn’t cure these). And an application can even leave it unclear whether it contains a wholly e-reg electronic document, or only a copy of another document. If an application contains a wholly e-reg electronic document, the system may not even ensure that all the parties sign the document.
The effect of the above for the seal is as follows:
1. The vast majority of registered documents don’t need to be sealed, because they safely meet three conditions. The document is a transfer of ownership, charge or discharge. It’s wholly e-reg electronic. And it’s not entered into through an agent, other than a licensed user acting only under an acknowledgment and direction given by the party. As to such a document that’s entered into through an agent or through that licensed user, see 2 below. As to a document that isn’t a transfer of ownership, charge or discharge, see 3 below.
2. If a document is entered into through an agent, the general rule is that it won’t usually create a legal interest in land, unless the agent’s authority is sealed. Even if it’s a transfer of ownership, a charge or a discharge, it won’t safely do so. Yet, although the system tries to ensure that a power of attorney is registered and that an attorney has authority, it doesn’t clearly address the issue of whether a document is entered into through an agent. The general rule doesn’t apply where the agent’s authority is a continuing power of attorney for property. Yet the system doesn’t check whether a power of attorney is sealed or is a continuing power of attorney for property. The general rule doesn’t apply where a licensed user signs a wholly e-reg electronic document under an acknowledgment and direction given by the party. Or, where the document is entered into through an agent under a sealed authority or a continuing power of attorney for property, the general rule doesn’t apply where a licensed user signs a wholly e-reg electronic document under an acknowledgment and direction given by the agent. Yet, as shown above, the system doesn’t try to ensure that a licensed user is signing under the acknowledgment and direction. The general rule doesn’t apply to a simple postponement, a restrictive covenant or usually a lease for 3 years or less.
3. A document, other than a transfer of ownership, a charge or a discharge, won’t usually create a legal interest in land, unless it’s sealed. A document that would only create a new easement won’t safely create a legal interest in land, unless it’s sealed. Yet the system usually requires it to be wholly e-reg electronic, even though it can’t safely be sealed. The same may apply to a separate assignment of rent as security (but not to an assignment of leases or rents in a charge, for example, in standard charge terms). Where the system uses an application and the document that creates the interest isn’t wholly e-reg electronic, the system doesn’t check whether the document is sealed. For example, a lease won’t create a legal interest in land, unless it’s sealed or usually for 3 years or less, but the system doesn’t check that. Where the system uses an application and the document that creates the interest is wholly e-reg electronic, it wouldn’t create a legal interest in land if it had to be sealed, because it can’t safely be sealed. These comments don’t deal with an agreement of purchase and sale of land or with registration of a power of attorney. As to a document authorized by an agent, see 2 above.
4. Where a corporation is a party to a document, an officer who signs for the corporation may either (1) sign simply as part of the corporation’s signing process or (2) enter into the document as an agent (or attorney) for the corporation. The system uses the statement: “I, name, have the authority to bind the corporation.” This seems to imply (2), but probably means (1). If so, a user who signs a wholly e-reg electronic document under an acknowledgment and direction is only part of the process in (1). Yet this isn’t clear. Where the document isn’t wholly e-reg electronic and must be sealed, and the corporation uses a corporate seal, the document must show in another way that the corporation intended to seal it. Yet the system doesn’t check this. As to such document entered into by an agent under (2) above, see 2 above (but a corporation can’t give a continuing power of attorney for property). As to such a document that must be sealed, see 3 above.
The above shows that Ontario electronic land registration system should be improved to reflect the existing law on the seal, and in other ways.
Reform in Ontario
We need to ask the questions below about changes for the seal. For Ontario, the answers are probably as follows:
1. As to the kinds of document that the law now requires us to seal, should we change those kinds of document? We should clarify the existing laws. If we change the law on the seal, what formality should we put in place of the seal? We should put writing and signing in place of the seal, for both the above new kinds of documents and an authority of an agent to sign them.
2. As to special rules that apply to a sealed document and that don’t apply to an unsealed contract, should we keep any of those rules? We should consider whether to keep those for consideration; for a non-signing principal; and for specific performance or an injunction.
3. If we do away with the seal, but keep any of the special rules, should all of the kinds of document in 1 automatically have the effect of being subject to the rule? Yes (except an authority of an agent). And, where we could have chosen whether to seal a document, how will the document show that we’ve chosen to have the special rules apply? We might keep the seal, but only as a signal that we’re choosing to have the special rules apply to the document (and we should clarify that a document, including an electronic document, can show this in words).
In making the changes, Ontario should publish a policy, with reasons, and a draft law well before a change, and work hard to draw good public input, give time for it and consider it carefully.