Electronic promissory note

An electronic promissory note (전자어음/電子期票) or electronic note is a promissory note (약속어음/期票) issued and used in an electronic manner.

In March 2004, the Act on Issuance and Negotiation of Electronic Promissory Notes (the "Electronic Note Act", 전자어음의 발행 및 유통에 관한 법률) was enacted to facilitate electronic payment of B2B e-Commerce and to avoid some problems related with paper-based promissory notes.

The Electronic Note Act declares that the nature of the electonic promissory note is a promissory note in terms of the Bills of Exchange and Promissory Notes Act (어음법). So the legal issues regarding the substantial matters of electronic promissory notes should be governed by the latter Act.

Key words
electronic promissory note, bill of exchange, account receivable, e-Commerce, authentication

Background
The concept of the electronic notes came from the following business practices:
 * Big businesses engaged in B2B transactions are uged to pay to small enterprises (SMEs) account receivables in cash in view of shared growth.
 * Most banks are ready to extend necessary loans to their big customers in terms of relationship banking.
 * Such receivables are usually granted as collateral of the above-mentioned loans.
 * Off-line certification or notarization of such assignment of receivable as collateral is inevitable for perfection (대항요건/對抗要件) under Articles 450 and Addenda Article 3 of the Civil Act.
 * As witnessed during the IMF Crisis, a number of businesses are troubled with dishonored promissory notes and go insolvent with effective claims on their books.
 * Transactions with electronic notes are transparent ruling out any possible tax evasion.

Legal treatment
Electronic notes have the same legal effects as the paper-based promissory notes except that the Act otherwise specifically provides. But the conventional notion that negotiable instruments should be based on real paper and effective signature of issuers and endorsers to prove and transfer legal rights in a tangible manner.

The bill of exchange (환/換어음), which necessitates another acceptor/payor (인수인/지급인), is beyond the scope of this Act on electronic notes between olny the issuer and payee.

In consideration of the cyberspace particulars of digital nature and only certified authentication method, conventional legal theories on the paper-based negotiable instruments should be modified.

The electronic notes are different from the ordinary promissory notes as follows:
 * Maturity is within one year.
 * Endorsement is up to 20 times.
 * No blank note is permitted.
 * Signature is replaced by the digital certificate for authentication (공인인증서).
 * Payment is requied to be conducted at the banks.
 * The electronic notes are centrally administered by u-Note under the Korea Financial Telecommunications and Clearings Institute (KFTC, 금융결제원).
 * Since the amendment to the Act as of November 2009, big corporations subject to the external audit under the Act on External Audit of Stock Companies (주식회사의 외부감사에 관한 법률) are required to issue only electronic notes.