In his daily work, Mankiw has come into contact with many disputes caused by virtual currency transactions: "A friend had difficulty in cash flow, so the client lent tens of thousands of USDT. After several months, there was no news; or seeing others' good investment returns, he entrusted others to invest on a whim, but suffered heavy losses due to market changes; there are also some novice investors who directly enter the market without knowing the rules and routines of the currency circle, and finally lost all their money.
During the consultation process, we learned that many transactions take place 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 are likely to be deemed invalid. Some people will take it for granted that if the contract is invalid, why should I sign it? This article will combine Mankiw's past case experience to discuss in detail virtual currency transactions and what role contracts can play.
Will the court look at the contract?
Let’s look at two cases first:
In the case of (2024)沪0117民初5661 , in May 2021, the defendant Zhu promoted the high returns of virtual currency investment to the plaintiff Peng, encouraging the plaintiff to invest. Under the guidance of the defendant, the plaintiff paid a total of RMB 1,000,000 for the purchase of virtual currency through multiple transfers. The defendant then transferred the virtual currency to his designated wallet for trading. However, five months later, the plaintiff learned that the virtual currency he invested in had suffered serious losses and was close to zero in value. After repeated demands from the plaintiff, the two parties signed an Agreement on December 5, 2021, which stipulated that the defendant confirmed that the RMB 1,000,000 was a loan and promised to repay the loan through a housing loan or direct repayment.
Based on the Agreement provided by the plaintiff, the court confirmed that the two parties had reached a loan agreement and that the plaintiff had actually paid the money, so the establishment of a private loan relationship between the two parties was also confirmed. The agreement stated the loan lent by the plaintiff, the method, date, interest of the defendant's repayment, the alternative plan that could not be implemented in the original plan, and the liability for breach of contract. Therefore, the plaintiff's rights and interests were fully protected in the trial of the case.
However, in the case (2024) Lu03 Minzhong No. 781 , the plaintiff Zhao filed a lawsuit with the People's Court of Zhangdian District, Zibo City, accusing the defendant Wang of a dispute over a virtual currency entrusted financial management contract between the two parties. Zhao demanded that Wang return the entrusted financial management funds and compensate for the economic losses.
However, because there is no written contract , the rights and obligations of both parties lack clear written agreements. In this case, the court can only judge whether there is a financial management relationship between the two parties based on other evidence (such as WeChat chat records, transfer records, and call recordings), and even doubt whether the two parties have reached a clear agreement . Therefore, when determining the contractual relationship between the two parties, the court is more inclined to believe that the contract is defective or invalid.
Virtual currency trading contract disputes are easily hindered in the case filing stage, and the contract is a major piece of evidence to help file a case. In the substantive trial process, not all contracts are deemed invalid. A good contract can give you the initiative in the court trial.
In addition, in criminal cases, if the contract states the true identities of both parties, the identity information is consistent with the bank statements, the purpose of buying and selling virtual currency is legal, and the responsibility for the 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 the criminal case.
Even if the contract is invalid, the essence of the transaction can be restored
In the case (2023) Gan01 Minzhong No. 8416 , the plaintiff Ma Mouping filed a civil loan lawsuit based on the transfer voucher of a financial institution, and the defendant Ma Mouzhen argued that the transfer was due to a commissioned investment relationship between the two parties. However, based solely on the screenshots of WeChat chat records submitted by Ma Mouzhen, it is impossible to prove that he and Ma Mouping have a commissioned investment and financial management relationship, so Ma Mouzhen’s defense opinion is not accepted. In litigation practice, the boundaries between loan contracts and commissioned 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 the time. Specifically, one party thought it was a loan contract and could ask for repayment later; the other party thought it was a commissioned investment and borne the risk. Behind these two types of contracts, the rights and obligations of the two 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 in a recent currency dispute represented by Attorney Mankiw. The plaintiff commissioned the defendant to buy virtual currency, and the defendant argued that the two parties did not sign a written contract and did not form a commission contract relationship, but were merely gratuitous acts of 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. Imagine if both parties had clearly stated the type of contract in the written contract from the beginning and restored the scene of the transaction, there would naturally be no need to spend a lot of time and effort to argue the nature of the transaction later.
Whether it is a private loan contract, a sales contract, a commissioned investment contract or other contracts, once virtual currency is involved, it is inevitable to fight for validity or invalidity. In most cases, such as the case of (2024) Hu0115 Minchu 45503 between Chen and Luo, the court will rule that the private loan relationship between the two parties is invalid on the grounds of "violating the state's regulations on virtual currency financial supervision, damaging social public interests, and violating public order and good customs", and the private loan contract is naturally invalid.
The transaction of virtual currency in China actually presents a posture of dancing with shackles. Although a contract can be easily judged invalid, the invalidity of a contract also involves the consequences of the invalidity, whether it needs to be returned, and other related issues. However, it does not affect its function of restoring the transaction scene and essence. Still in the aforementioned case, the contract exists in the form of a promissory note. Although the promissory note issued by the defendant was found 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 attributes of virtual currency. The defendant was ordered to return the virtual currency owed by the plaintiff. If the defendant cannot return it, he shall compensate the plaintiff with the corresponding RMB.
In addition, there are a large number of virtual currency transaction lawsuits, and the focus of the dispute revolves around whether the transaction behavior is a sale or a loan, whether the entrusted investment is an investment in virtual currency or an investment in the project party, etc. This is because there is no contract written in advance, which leads to endless troubles and disputes later. Even if the court determines that the contract is invalid, it can still use the contract to restore the essence of the transaction behavior and give a fairer judgment.
Clarify the responsibilities of both parties through the contract
In the case of (2023) Guizhou 0103 Minchu No. 769 , the plaintiff transferred money to the defendant to entrust the defendant to purchase virtual currency, and the court ruled that the entrustment contract was invalid. A major controversial focus of the case is the allocation of faults between the two parties, which cannot be reflected because the two parties did not enter into a written contract. Given that the plaintiff is an education and training staff of the blockchain digital economy, it is presumed that he is 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 to operate, and made a promise to protect the principal, so he failed to fulfill the trustee's prudent obligations. The court considered comprehensively and believed that both parties had a similar degree of fault for the plaintiff's loss and should each bear 50% of the loss.
However, both the plaintiff and the defendant were dissatisfied with the verdict. The plaintiff believed that although he understood blockchain technology, he had no knowledge of cryptocurrency, so his previous industry experience was actually irrelevant to this case, and all faults should be borne by the defendant; the defendant believed that he only helped to purchase the currency for free and did not gain any benefits. The investment behavior should be the plaintiff's own risk, and all losses should be borne by the plaintiff.
Without a contract, the responsibilities of both parties are unclear . Virtual currency transactions involve multiple areas with different risks and benefits. For example, in a trust investment contract, whether the principal has assumed the obligations of fund delivery, information disclosure, investment risk assumption, assistance obligations and clear supervision rights in the contract; whether the trustee has clearly defined the obligations of diligence, risk disclosure, and property independence protection, etc., all of which will affect the judge's judgment and present different fault allocation results. When signing a contract, all parties need to carefully choose according to their own needs and risk tolerance, and ensure that the content of the contract is clear and complies with relevant legal provisions.
How to write a contract?
Based on practical experience and relevant cases, if a virtual currency transaction contract is to effectively protect rights and interests, it should at least contain the following clauses :
· Real identity information : Both parties are required to provide identity information to ensure the authenticity of the contract. This can prove the legality of the transaction and help restore the real transaction scenario if it involves criminal investigation.
· Clear description of transaction terms : clarify the type of transaction. If it is a loan agreement, key terms such as the loan amount, purpose, repayment method, interest, and repayment period must be included. It is best to use a traceable repayment method (such as bank transfer) to keep records. In virtual currency transactions, because virtual currencies are not legal tender and have large value fluctuations, we recommend that both parties agree to use legal currency for repayment.
Breach of contract liability clause : It stipulates the specific responsibilities that the breaching party must bear once a breach of contract occurs, such as paying overdue interest, additional compensation, etc., to ensure that the rights and interests of creditors are protected.
Alternative solutions : In the event of performance obstacles, feasible solutions can be pre-set, such as third-party guarantees or installment repayments, to reduce repayment risks.
Attorney Mankiw's Summary
In the high-risk field of virtual currency trading, signing a written contract is a key step to reduce risks and protect one's own rights and interests. Although China's regulatory policies on virtual currencies are becoming increasingly stringent, by clarifying transaction terms, division of responsibilities and identity information, contracts not only play an important role in civil litigation, but also provide necessary protection for parties in criminal investigations.
Faced with the uncertainty of virtual currency transactions, you must act with caution and never think that a contract is useless if it is invalid.
