Insights

The Connecticut, North Dakota, and Virginia legislatures each considered revisions to notary public statutes in 2011 that would, among other things, prohibit a notary public from taking acknowledgments in connection with documents in which either the notary or the notary’s spouse has a “direct beneficial interest” (and, in Virginia’s case, prohibit notarization if the notary is named in the document being notarized). This legislation passed in North Dakota (North Dakota House Bill 1136, Chapter 334) and Virginia (Virginia House Bill 1670, Chapter 746). In Connecticut, this legislation – 2011 Connecticut House Bill 6645 – did not pass, possibly because the legislative session ended too early for the bill to be considered and possibly because the Connecticut Secretary of the State expressed some reservations about the effective date of the bill and certain bill-related implementation costs that would have been the responsibility of the Office of the Secretary of the State.

The prohibition against notaries taking acknowledgments in connection with documents where they (or their spouse) have a “direct beneficial interest” seems innocuous enough and is based on Section 4(b) of the revised Uniform Law on Notarial Acts. However, legislators should carefully consider how seemingly minor changes to existing law might inadvertently disrupt decades of well-established case law for no good reason. The drafters of the revised Uniform Law on Notarial Acts have indicated that the prohibition against acknowledging signatures on documents in which notaries have a “direct beneficial interest” is meant to cover circumstances in which notaries have a direct beneficial interest in the outcome, operation, or result of the document in question. However, the Uniform Law does not include a definition for the phrase “direct beneficial interest.”

A prohibition against taking an acknowledgment with respect to a document in which the notary (or the notary’s spouse) has a “direct beneficial interest” is problematic, especially for closely-held businesses where a co-owner of the business (or the spouse of a co-owner of the business) may be a notary public and may be asked from time to time to notarize routine business-related documents that would further the business enterprise and directly benefit the owners of the business. Consider, for instance, a family-run car dealership where an owner (or spouse of an owner) is a notary public and wishes to take the acknowledgments of customers on routine title-related documents in connection with the sale or trade-in of cars.

The prohibition is also problematic for notaries public who are employed as stockbrokers, real estate agents, or insurance agents, or who work in other lines of business in which they would earn commissions, bonuses, or other business-related income in connection with customer transactions that require the customers’ notarized signatures. This legislation could effectively prohibit, for example, an insurance agent or stockbroker from notarizing a customer’s signature on an insurance application or securities purchase or sale order form if the insurance agent or stockbroker will earn a commission on the underlying transaction.

Within a large organization, to avoid notarizing documents in which an individual broker, agent, or other employee or principal has a “direct beneficial interest,” a customer could be introduced to a colleague or co-worker who holds a notary public commission and who could notarize the customer’s signature. Within a smaller organization, however, or within a small branch office of a larger organization that has only one notary public on the premises, this prohibition could potentially require customers of a business to go across the street or down the hall to an unrelated business to have a signature notarized.

In 1990, when Connecticut first enacted Conn. Gen. Stat. Section 3-94g, the statute prohibited notaries from notarizing documents if they were “legally related to the person for whom the notarial act is to be performed,” or if they would receive a fee, commission, or other consideration greater than the statutory fee for the notarial act in connection with the document being notarized. Shortly after enactment of this statute, unintended difficulties arising from these prohibitions were made known to the Connecticut General Assembly. In recognition of these difficulties, the Connecticut General Assembly appropriately decided to delete these and other restrictions on Connecticut notaries in 1991. Consequently, these original restrictions enacted in 1990 were only in effect in Connecticut for slightly less than eight months, between October 1, 1990 and May 22, 1991, the effective date of Public Act 91-110. Twenty years later, it appears that proponents of Connecticut House Bill 6645 may have overlooked the history behind Conn. Gen. Stat. Section 3-94g and the rationale behind Connecticut Public Act 91-110.

State courts will consider and weigh evidence concerning the credibility of notaries public in cases involving alleged forgeries, fraudulent inducement, and other challenges to the enforceability of notarized documents. See, e.g., Martin v. Williams, 194 Va. 437 (Va. 1952) (notary public acknowledgment may be challenged by a plaintiff who alleges fraud), Murdock v. Nelms, 212 Va. 639 (Va. 1972) (notary public acknowledgment may be challenged by a plaintiff who alleges she never appeared before the notary), and First National Bank v. Plante, 60 N.D. 512 (1931) (upholding trial court’s decision that the mortgagor’s signature was forged, and that the mortgagor did not acknowledge before a notary public that her signature on the mortgage was her free act and deed, notwithstanding the notary public’s certificate of acknowledgment on the mortgage). See also Barnes v. Bess, 171 Va. 1 (Va. 1938), where the Virginia Supreme Court upheld the trial court’s decision not to override the jury’s finding that a certain last will and testament had been fraudulently altered after it had been executed, notwithstanding the testimony of the notary public who drafted the will.

Interestingly, there is some case law in a few states that a notary public who is a stockholder of a corporation is disqualified from acknowledging signatures on documents that convey property to or from the corporation. See, e.g., Tuten v. Almeda Farms, 184 S.C. 195 (S.C. 1937), and Loyal’s Auto Exchange v. Munch, 153 Neb. 628 (Neb. 1951). In South Carolina, this case law has been significantly curtailed by S.C. Code Section 26-1-120. Nebraska has also chipped away at some of this case law. See, e.g., Federal Farm Mortg. Corp. v. Fischer, 137 Neb. 559 (Neb. 1940) (notary who was a stockholder in The First National Bank of Madison not disqualified from taking the mortgagor’s acknowledgment on a mortgage deed running in favor of a third party, even though some proceeds from the mortgage transaction would be used to pay amounts owed to the First National Bank of Madison).

Section 4(b) of the Revised Uniform Law on Notarial Acts, although well-intentioned, creates unnecessary roadblocks to individuals’ access to notarial services, without solving or improving upon an existing problem. There is no indication that existing state law governing notaries public is inadequate in this regard or that additional restrictions need to be placed on a notary public’s ability to notarize signatures.

Elizabeth C. Yen is a partner in the Connecticut office of Hudson Cook, LLP. She can be reached at 203-776-1911 or by email at eyen@hudco.com.