Cryptocurrency transactions, how to sign a contract?

In his daily work, Lawyer Mankiw comes into contact with many disputes arising from virtual currency transactions: “A friend had difficulty with cash flow, so the client lent tens of thousands of USDT with a wave of his hand. After several months, there was no news; or he saw others doing well. The situation of investment returns, entrusting others to invest on a whim, resulted in heavy losses due to sudden market changes; some novice investors even entered the market directly without knowing the gameplay and routines of the currency circle, and finally lost all their money.

During the consultation process, we learned that many transactions occur while surfing the Internet or chatting with friends, so formal written contracts are rarely signed. Due to my country's policy reasons, contracts involving virtual currencies have a high probability of being deemed invalid. Some people will take it for granted that since the contract is invalid, why should I sign it? This article will combine Mankiw’s past case experience to discuss virtual currency transactions in detail and what role the contract can play.

Will the court look at the contract?

Let’s look at two cases first:

(2024) Shanghai 0117 Minchu No. 5661 case, in May 2021, the defendant Zhu promoted the high returns of virtual currency investment to the plaintiff Peng and encouraged the plaintiff to invest. Under the guidance of the defendant, the plaintiff paid a total of 1,000,000 yuan to purchase virtual currencies through multiple transfers. The defendants then transferred these virtual currencies into their designated wallets for transactions. However, five months later, the plaintiff learned that the virtual currency invested had suffered serious losses and its value was close to zero. Under the plaintiff's repeated urging, the two parties signed an "Agreement" on December 5, 2021. The "Agreement" stipulated that the defendant confirmed that the 1,000,000 yuan was a loan and promised to return it through a housing loan or directly. way to repay the loan.

Based on the "Agreement" provided by the plaintiff, the court confirmed that the two parties had reached an agreement on the loan and that the plaintiff had actually paid the money. Therefore, the establishment of a private lending relationship between the two parties was also confirmed. The agreement specified the loan lent by the plaintiff, the defendant's repayment method, date, interest, alternatives that could not be implemented as the original plan, and liability for breach of contract. Therefore, the plaintiff’s rights and interests were fully protected during the trial of the case.

However, in the (2024) Lu 03 Minzhong No. 781 case, the plaintiff Zhao filed a lawsuit with the Zhangdian District People's Court of Zibo City, accusing the defendant Wang of having a dispute over the virtual currency entrusted financial management contract between the two parties. Zhao asked Wang to return the financial management funds entrusted by him and compensate for economic losses.

However, because there is no written contract , the rights and obligations of both parties lack clear written agreement. In this case, the court can only rely on other evidence (such as WeChat chat records, transfer records, call recordings) to judge whether the two parties have an entrusted financial management relationship, and even doubt whether the two parties have reached a clear agreement . Therefore, when the court determines the contractual relationship between the parties, it is more inclined to consider that the contract is defective or invalid.

Disputes over virtual currency trading contracts are easily hindered during the filing process, and contracts are a major piece of evidence that can help with filing a case. During the substantive trial process, not all contracts are found to be invalid. A good contract can give you the upper hand in court proceedings.

In addition, in criminal cases, if the true identities of both parties are stated in the contract, the identity information is consistent with the bank statement, the purpose of buying and selling virtual currency is legal, and the responsibility for subsequent freezing of the bank card is clear, then even if the civil part of the contract is invalid, It can still play a significant role in criminal cases.

**Even if the contract is invalid, the essence of the transaction can be

restored**

(2023) Gan 01 Minzhong No. 8416 case, the plaintiff Ma Mouping filed a private lending lawsuit based on the transfer voucher from a financial institution. The defendant Ma Mouzhen argued that the transfer was due to the entrusted investment relationship between the two parties. However, the screenshots of WeChat chat records submitted by Ma Mouzhen alone cannot prove that there is an entrusted investment and financial management relationship between him and Ma Mouping, so Ma Mouzhen's defense opinions are not accepted. In litigation practice, the boundaries between loan contracts and entrusted investment contracts are not clear, and many parties do not even reach an agreement on the type of transaction represented by the transfer behavior at that time. Specifically, one party thinks it is a loan contract and can demand repayment later; the other party thinks it is an entrusted investment and bears the risk at its own risk. Behind these two types of contracts, the rights and obligations of both parties are very different. In this case, if a written contract was signed between the two parties, many unnecessary disputes could be reduced.

A similar situation occurred recently in a currency-related dispute represented by Mankiw lawyer. The plaintiff entrusted the defendant to buy virtual currencies. The defendant argued that the two parties did not sign a written contract and did not form an entrustment contract relationship, but were merely providing free assistance.

This case went through the first instance, second instance, and retrial procedures, and was always entangled in the nature of the transaction, which cost a lot of litigation costs. Just imagine, if both parties specify the type of contract in a written contract from the beginning and restore the scene of the transaction, they will naturally not need to spend a lot of words to prove the essence of the transaction in the later stage.

Whether it is a private loan contract, a sales contract, an entrusted investment contract or other contracts, once virtual currencies are involved, there is no escape from the debate about validity or invalidity. In most cases, such as (2024) Shanghai 0115 Minchu No. 45503, the private lending dispute case between Chen and Luo, the court will consider "violating the national regulations on virtual currency financial supervision, harming social public interests, and violating public order and good customs." For this reason, it is determined that the private lending relationship between the two parties is invalid, and the private lending contract is naturally invalid.

The domestic trading situation of virtual currencies actually appears to be dancing in shackles. Although a contract can easily be judged to be invalid, the invalidity of the contract also involves the consequences of invalidity, whether it needs to be returned, and other related issues. But it does not affect its function of restoring the transaction scene and essence. The circumstances of the case are still the same. The contract existed in the form of an IOU. Although the IOU issued by the defendant was deemed invalid by the court, the court confirmed that the essence of the transaction between the two parties was a loan contract dispute and recognized the property attribute of virtual currency. The defendant is ordered to return the virtual currency owed to the plaintiff. If the defendant is unable to return the virtual currency, the plaintiff will be compensated with the corresponding RMB.

In addition, there are a large number of virtual currency transaction lawsuits. The focus of disputes revolves around whether the transaction behavior is buying and selling or lending, whether the entrusted investment is to invest in virtual currency or to invest on behalf of the project party, etc. This is all because the contract was not written in advance, and the subsequent follow-up has a steady stream. Constant trouble and controversy. Even if the court determines that the contract is invalid, it can still use the contract to restore the essence of the transaction and give a fairer judgment.

Clarify the responsibilities of both parties through the contract

(2023) In the case of Qian 0103 Minchu No. 769 , the plaintiff transferred money to the defendant and entrusted the defendant to purchase virtual currency. The court ruled that the entrustment contract was invalid. A major focus of dispute in the case is the allocation of fault between the two parties, and since the two parties did not enter into a written contract, this cannot be reflected. Since the plaintiff is an educator and trainer of the blockchain digital economy, he is presumed to be fully aware of the risks of investing in virtual currency. The defendant recommended the virtual currency investment project to the plaintiff, participated in and guided the plaintiff’s operations, and also made a promise to guarantee capital, so it failed to fulfill its obligations. Fiduciary’s Duty of Prudence. After comprehensive consideration, the court held that both parties were equally at fault for the plaintiff's losses and should each bear 50% of the losses.

However, both the original defendant and the defendant were dissatisfied with the verdict. The plaintiff believes that although he understands blockchain technology, he has no understanding of cryptocurrency. Therefore, his previous industry experience is not related to this case, and all faults should be borne by the defendant; the defendant believes that he only helped to purchase coins for free, and that he had no To obtain any benefits, the investment behavior should be at the plaintiff's own risk, and all losses should be borne by the plaintiff.

Without a contract, the responsibilities of both parties are unclear . Cryptocurrency trading involves many areas, with varying risks and benefits. For example, in the entrusted investment contract relationship, whether the client has undertaken fund delivery, information disclosure, investment risk bearing, assistance obligations and clear supervision rights in the contract; whether the trustee has clearly stated its obligations such as diligence, risk disclosure, and property independence guarantee, etc. These will affect the judge's judgment and present different fault distribution results. When signing a contract, each party needs to make careful choices based on their own needs and risk tolerance, and ensure that the contract content is clear and complies with relevant legal regulations.

How to write a contract?

According to practical experience and relevant cases, if a virtual currency trading contract wants to effectively protect rights and interests, it should at least contain the following clauses :

·Real identity information : Require both parties to the transaction to provide identity information to ensure the authenticity of the contract. This can prove the legitimacy of the transaction and help restore the true transaction scenario if it is involved in a criminal investigation.

·Clear description of transaction terms : Clarify the type of transaction. If it is a loan contract, it must include key terms such as loan amount, purpose, repayment method, interest, and repayment period. It is best to use a traceable method of repayment (such as bank transfer) for record keeping. In virtual currency transactions, because virtual currency is not legal and has large value fluctuations, we recommend that both parties agree to use legal currency for repayment.

·Liability clause for breach of contract : stipulates the specific responsibilities that the defaulting party will bear in the event of a breach of contract, such as payment of overdue interest, additional compensation, etc., to ensure that the rights and interests of creditors are protected.

·Alternatives : In the case of performance obstacles, preset feasible solutions, such as third-party guarantees or installment repayments, to reduce repayment risks.

Mankiw Lawyer Summary

In the high-risk field of virtual currency trading, signing a written contract is a key step to reduce risks and protect your own rights and interests. Although China's regulatory policies on virtual currencies are becoming increasingly strict, by clarifying transaction terms, division of responsibilities and identity information, contracts not only play an important role in civil litigation, but can also provide necessary protection for parties in criminal investigations.

Faced with the uncertainty of virtual currency transactions, you must proceed with caution and never think that it is useless if the contract is invalid.