In daily work, Lawyer Mankun encounters many parties involved in disputes arising from cryptocurrency transactions: 'A friend is in financial trouble, so the party casually lends out tens of thousands of USDT. Months pass with no news; or seeing others' good investment returns, they impulsively commission someone to invest, only to face significant losses due to market fluctuations; or some novice investors, unaware of the rules and tricks of the cryptocurrency world, directly enter the market and end up with nothing.'
During consultations, we learned that many transactions occur during online surfing or casual conversations with friends, so formal written contracts are rarely signed. Due to our country's policy reasons, contracts involving cryptocurrencies are likely to be deemed invalid. Some people may assume that since the contract is invalid, why should they sign? This article will combine Mankun's past case experiences to discuss in detail cryptocurrency trading and the potential roles of contracts.
Will the court look at the contract?
First, look at two cases:
In case (2024) Hu 0117 Civil First Instance No. 5661, in May 2021, the defendant Zhu promoted the high returns of cryptocurrency investment to the plaintiff Peng, encouraging the plaintiff to invest. Under the guidance of the defendant, the plaintiff paid a total of 1,000,000 yuan to purchase cryptocurrencies through multiple transfers. The defendant then transferred these cryptocurrencies to a designated wallet for trading. However, five months later, the plaintiff learned that the investment had suffered significant losses, with the value nearly zero. After multiple demands from the plaintiff, the two parties signed an (agreement) on December 5, 2021, in which the defendant confirmed that the 1,000,000 yuan was a loan and promised to repay it through a housing loan or direct return.
The court confirmed the lending agreement between the parties based on the (agreement) provided by the plaintiff. The plaintiff had actually paid the funds, thus the confirmation of the private lending relationship between the parties was also established. The agreement specified the loan amount lent by the plaintiff, the method, date, interest of the defendant's repayment, alternative solutions that could not be executed, and breach of contract responsibilities. Therefore, the plaintiff's rights were fully protected during the trial.
However, in case (2024) Lu 03 Civil Final No. 781, the plaintiff Zhao filed a lawsuit against Wang in the Zhangdian District People's Court of Zibo City, accusing Wang of disputes arising from their cryptocurrency entrusted wealth management contract. Zhao demanded that Wang return the entrusted wealth management funds and compensate for economic losses.
However, due to the lack of a written contract, the rights and obligations of both parties lacked clear written agreements. In this case, the court could only rely on other evidence (such as WeChat chat records, transfer records, call recordings) to determine whether there was a wealth management relationship between the two parties and even doubted whether they had reached a clear agreement. Therefore, the court tended to believe that the contract had defects or was invalid when recognizing the contractual relationship between the two parties.
Disputes over cryptocurrency trading contracts can easily be hindered at the filing stage, and contracts serve as significant evidence to assist in filing. During the substantive trial process, not all contracts are deemed invalid. A good contract can give you an advantage in court.
Furthermore, in criminal cases, if the contract specifies the true identities of both parties, and the identity information is consistent with bank statements, and the purpose of trading cryptocurrencies is legal, then if the subsequent bank card is frozen, the responsibility for that is clear. Even if the civil part of the contract is invalid, it can still play a significant role in criminal cases.
An invalid contract can still restore the essence of the transaction.
In case (2023) Gan 01 Civil Final No. 8416, the plaintiff Ma Ping initiated a private lending lawsuit based on the transfer voucher from a financial institution, while the defendant Ma Zhen argued that the transfer occurred due to a commissioned investment relationship between the two. However, the evidence submitted by Ma Zhen, which consisted solely of WeChat chat record screenshots, could not prove that there was a commissioned investment relationship between him and Ma Ping, thus the court did not accept Ma Zhen's defense. In litigation practice, the boundary between lending contracts and commissioned investment contracts is not clear, and many parties do not even reach an agreement on the type of transaction represented by the transfer behavior at that time. This is reflected in one party believing it is a loan contract and later requesting repayment, while the other party believes it is a commissioned investment and bears the risk themselves. Behind these two types of contracts, the rights and obligations of both parties are vastly different. If the two parties had signed a written contract, it would have reduced many unnecessary disputes.
Recently, a similar situation occurred in a case involving cryptocurrency represented by Lawyer Mankun. The plaintiff entrusted the defendant to purchase cryptocurrencies, while the defendant argued that no written contract was signed, and there was no established commissioned contract relationship, only a gratuitous helping behavior.
This case went through first instance, second instance, and retrial procedures, continually entangled in the essence of the transaction, incurring substantial litigation costs. Imagine if both parties had clearly stated the contract type in a written contract from the beginning and restored the trading scene; then there would be no need to spend a lot of time later arguing about the essence of the transaction.
Whether it is a private lending contract, a sales contract, a commissioned investment contract, or other contracts, once it involves cryptocurrency, it inevitably falls into the debate over validity or invalidity. In most cases, such as case (2024) Hu 0115 Civil First Instance No. 45503, between Chen and Luo concerning private lending disputes, the court usually rules that the private lending relationship between the two parties is invalid due to 'violation of national regulations on financial supervision of cryptocurrencies, harming social public interests, and violating public order and good customs,' and thus the private lending contract is naturally invalid.
The trading situation of cryptocurrencies in the country actually resembles dancing with shackles. Although contracts are easily deemed invalid, the invalidity also involves the consequences of invalidity, whether returns are needed, and other related issues. However, this does not affect their function of restoring the trading scene and essence. In the aforementioned case, the contract existed in the form of an IOU, and although the IOU issued by the defendant was deemed invalid by the court, the court confirmed the essence of the transaction between the two parties as a loan dispute and recognized the property attributes of cryptocurrencies, deciding that the defendant should return the virtual currency owed to the plaintiff. If the defendant is unable to return it, they must compensate the plaintiff with the corresponding amount in RMB.
In addition, there are numerous lawsuits involving cryptocurrency trading, with disputes focusing on whether the trading behavior constitutes buying and selling or lending, and whether entrusted investment is investing in cryptocurrencies or acting on behalf of the project party, all of which arise from not having a contract in place beforehand, leading to continuous troubles and disputes. Even if the court deems the contract invalid, it can still rely on the contract to restore the essence of the trading behavior and provide a fairer judgment.
Clarify the responsibilities of both parties through the contract
In case (2023) Qian 0103 Civil First Instance No. 769, the plaintiff transferred money to the defendant to purchase cryptocurrencies, and the court ruled the commissioned contract invalid. One major point of contention in this case was the allocation of fault between the two parties, and since no written contract was established between them, this could not be reflected. Given that the plaintiff is an educator in blockchain digital economy, it is presumed that they are aware of the risks of investing in cryptocurrencies. The defendant recommended cryptocurrency investment projects to the plaintiff and participated in guiding the plaintiff in operations while making a capital preservation promise, thus failing to fulfill the entrusted party's duty of care. The court considered comprehensively that both parties had comparable degrees of fault for the plaintiff's losses and should each bear 50% of the losses.
However, both the original defendant and plaintiff were dissatisfied with this judgment. The plaintiff believed that although they understood blockchain technology, they were completely unfamiliar with cryptocurrencies, so their previous industry experience was actually unrelated to the case, and all fault should be borne by the defendant; the defendant argued that they were only helping to purchase coins without any benefit, and that the investment behavior should be considered as the plaintiff taking on the risk, with all losses borne by the plaintiff.
Without a contract, the responsibilities of both parties are in a state of ambiguity. Cryptocurrency trading involves multiple areas, with varying risks and returns. For example, in a commissioned investment contract relationship, whether the client has taken on obligations of fund delivery, information disclosure, investment risk bearing, assistance obligations, and clear supervisory rights in the contract; whether the entrusted party has clearly defined obligations such as diligence, risk disclosure, and property independence protection will all affect the judge's judgment and present different results in fault allocation. When signing a contract, all parties should carefully choose based on their own needs and risk tolerance, and ensure that the contract content is clear and complies with relevant legal provisions.
How to write a contract?
Based on practical experience and related cases, to effectively protect rights in cryptocurrency trading contracts, the following clauses should at least be included:
·True identity information: Require both parties to provide identity information to ensure the authenticity of the contract. This can prove the legality of the transaction and is helpful in restoring the true trading scene in the event of a criminal investigation.
·Clear description of transaction terms: Clearly specify the type of transaction, such as if it is a loan agreement, then it must include key terms such as loan amount, purpose, repayment method, interest, repayment term, etc. The repayment method is best to use a traceable method (such as bank transfer) to retain records. In cryptocurrency transactions, because cryptocurrencies lack legal compensation and have significant value fluctuations, we recommend that both parties agree to use legal tender for repayment.
·Breach of contract liability clause: Specify the specific responsibilities that the breaching party must bear once a breach occurs, such as paying overdue interest, additional compensation, etc., to ensure the rights of the creditor are protected.
·Alternative solutions: In the event of performance obstacles, preset feasible solutions, such as third-party guarantees or installment repayments, to reduce repayment risks.
Summary by Lawyer Mankun
In the high-risk area of cryptocurrency trading, signing a written contract is a key step to reduce risks and protect one's rights. Although the regulatory policies for cryptocurrencies in our country are becoming increasingly strict, by clearly defining transaction terms, responsibilities, and identity information, contracts not only play an important role in civil litigation but can also provide necessary protection for the parties involved during criminal investigations.
In the face of the uncertainties of cryptocurrency trading, it is crucial to act cautiously and not assume that if the contract is invalid, it is useless.