Acquiring ownership of an immovable property through the use of cryptocurrencies
In the previous article, we analysed the issues raised by the interpretation of the legislation applicable to virtual currencies, as well as the potential risks arising from their use (commonly referred to as "cryptocurrencies") in various transactions, in particular for the acquisition of movable assets. However, where two persons have a particular interest in offering (respectively receiving) virtual currency in exchange for the right of ownership of an immovable property, and the parties' confidence in the chosen cryptocurrency is sufficiently high, and their solvency would not be so severely affected in the event of a devaluation of the cryptocurrency (there being no imminent risk of ruin), new legal issues arise with regard to agreements whereby one party undertakes to transfer a quantity of virtual currency to the other, and the latter undertakes to transfer to the former a right of ownership over an immovable property. The analysis below will address these legal relationships.
At the outset, we reiterate the point made in the previous article, namely that virtual currencies (Bitcoin, Ethereum, Binance Coin, Elrond, etc.) do not constitute "money", in the classic sense, in accordance with Article 2(t)1 of Legea nr. 129/2019 (Law no. 129/2019) for the prevention and combating of money laundering and terrorist financing.
Thus, given that the fixing of the price in the form of a sum of money (the monetary nature of the price) is of the essence [1] of the contract of sale (governed by Article 1650 et seq. of the Civil Code), according to a well-founded doctrinal opinion [2], there are four possible characterisations of the agreement whereby one party undertakes to transfer ownership of an immovable property and the other undertakes to transfer ownership of a quantity of virtual currency as consideration:
- Where the price is fixed in a virtual currency and payable in that currency, the nature of the contract will be that of a schimb, since the payer's obligation is non-monetary in nature, consisting in the delivery of a quantity of intangible assets.
Ex. 1: In exchange for acquiring ownership of the immovable property, A (the buyer) undertakes to transfer 1 Bitcoin to B's (the seller's) digital wallet.
- Where the price is fixed in a given currency, but it is simultaneously agreed that payment will be made in virtual currency, at a given exchange rate (e.g., the rate applicable on a given date, on a given trading platform), the contract will also be one of schimb, since the price-setting clause merely indexes the value of the non-monetary consideration in virtual currency by reference to the exchange rate against a national currency.
Ex. 2: In exchange for acquiring ownership of the immovable property, A (the buyer) undertakes to pay B (the seller) the equivalent of RON 206,042 in Bitcoin, at the Bitcoin-Leu exchange rate of 29.12.2021 as displayed on the platform https://tradesilvania.com/ro/prices/bitcoin.
- Where the price is fixed in a given currency, but it is simultaneously agreed that payment will be made in virtual currency, at a given exchange rate, and the parties, in this latter case, establish as the sole principal obligation the payment of the price in a given national currency, from which the debtor may discharge himself not only by paying the price in that currency, but also by paying it in virtual currency, the contract will be a sale with an alternative facultative obligation [3] of the buyer.
It has been shown in doctrine that "a facultative obligation has the following defining characteristics: a) the plurality that characterises the facultative obligation does not concern its object, but only its performance. Thus, it has a single object in obligatione, but two objects in solutione, so that the debtor may discharge himself by performing a different obligation than the principal one (e.g., the debtor undertook to deliver a telephone, but may discharge himself by delivering a tablet instead); b) the right of election always belongs to the debtor, who may choose between performing the principal obligation or the subsidiary one [...] the creditor may only demand performance of the principal obligation” [4].
Ex. 3: In exchange for acquiring ownership of the immovable property, A (the buyer) undertakes to pay B (the seller) the sum of RON 206,042, payable, at the buyer's election, either in Bitcoin, at the Bitcoin-Leu exchange rate of 29.12.2021 as displayed on the platform https://tradesilvania.com/ro/prices/bitcoin, or in the national currency (leu).
- Where the price is fixed in virtual currency and payable in national currency, at a given exchange rate (e.g., the rate applicable on a given date, on a given trading platform), the contract will be one of sale, since the price-setting clause indexes the value of the monetary consideration in national currency by reference to the exchange rate against a virtual currency.
Ex. 4: In exchange for acquiring ownership of the immovable property, A (the buyer) undertakes to transfer to B (the seller) the leu equivalent of 1 Bitcoin, at the Bitcoin-Leu exchange rate of 29.12.2021 as displayed on the platform https://tradesilvania.com/ro/prices/bitcoin.
In the case of the first two scenarios, we are dealing with a contract of exchange, governed by Articles 1763-1765 of the Civil Code, whereby each of the parties, referred to as co-exchangers, transfers or, as the case may be, undertakes to transfer an asset in order to acquire another.
Under the provisions of Article 1764 of the Civil Code, "[t]he provisions relating to sale shall apply, mutatis mutandis, to exchange as well. (2) Each of the parties shall be considered a seller, in respect of the asset which it transfers, and a buyer, in respect of the asset which it acquires." In line with the views of specialist authors, "only the rules that fit the nature and effects of the exchange may be applied, relating to consent (including the possibility of concluding preparatory contracts, namely a unilateral or bilateral promise of exchange, or an option pact regarding the exchange contract), to capacity, to the item sold (the reciprocal obligation of delivery and warranty against eviction and defects), etc., but not those relating to price” [5].
Thus, even where we are dealing with an exchange contract in which one co-exchanger transfers ownership of a property and the other transfers ownership of a quantity of Bitcoin, for example, the former will be bound (as in the case of an ordinary sale) to warrant the acquirer against hidden or apparent defects and against subsequent eviction following the exchange. However, provisions from the law of sale relating to price (e.g., art. 1670 C.civ. [6]) cannot be applied mutatis mutandis to exchange contracts.
Of course, we have considered, in all 4 scenarios, the case where the “buyer” has undertaken an obligation with a single object (depending on the scenario, either payment of a sum of money or the transfer of a quantity of virtual currency). However, nothing prevents one of the parties from undertaking, cumulatively, both the transfer of a quantity of virtual currency AND the payment of a price (an obligation with multiple objects). As has also been noted in the literature [7], in an exchange contract, one of the co-exchangers may undertake to deliver an item (the virtual currency), but at the same time also a sum of money (10,000 lei) by way of a balancing payment [8], in order to offset the value of the item received in exchange (the property).
Finally, art. 1764 C.civ. on the exchange contract provides that, absent a contrary stipulation, the parties bear the costs of concluding the exchange contract equally (unlike the sale contract, where the buyer bears the costs of the sale). Therefore transaction fees (e.g., the fee charged by the platform for transferring a quantity of virtual currency from one digital wallet to another) or other assimilated costs (e.g., the gas-fee [9] required for the execution of smart contracts on the Ethereum blockchain platform) are shared equally between the parties to the contract, in the absence of a contrary contractual clause.
In all cases, if the parties have concluded an exchange or sale contract regarding an immovable property under the scenarios presented above, this contract must be concluded in authentic written form, in accordance with art. 1244 C.civ. (“[a]part from other cases provided for by law, trebuie to be concluded by way of authentic instrument, under penalty of absolute nullity, agreements which transfers or establish real rights which are to be registered in the Land Book” - emphasis added). From the point of view of Romanian civil law, in the event that the parties have concluded only a smart contract (which is essentially, code in a programming language, entered into the blockchain system), they will separately have to conclude a written, “classic” contract, notarised, under penalty of absolute nullity of the agreement embodied in the smart contract.
REFERENCES
[1] „Tratat de drept civil: contracte speciale (Treaty on civil law: special contracts)” - F. Deak, L. Mihai, R. Popescu, 5th ed., updated and completed, Bucharest, Ed. Universul Juridic, 2017, 4 vol., Vol 1: “Vânzarea și schimbul” (Sale and exchange), p. 103, §19.
[2] Lucian BERCEA - “''Preţul constă într-o sumă de bani.'' De la moneda de cont la ''moneda'' virtuală (şi înapoi) (''The price consists of a sum of money.'' From account money to ''virtual'' currency (and back))”, published in Revista Română de Drept Privat, issue 3 of 2017 (accessed on 28.12.2021 at https://sintact.ro/#/publication/151011823?cm=SREST), §5.
[3] Art. 1468 C.civ.: “[a]n obligation is facultative when it has as its object a single principal performance, from which the debtor may nevertheless discharge himself by performing another specified act. (2) The debtor is discharged if, without fault on his part, the principal performance becomes impossible to perform”.
[4] „Curs de drept civil: obligațiile (Course on civil law: obligations)” - L. Pop, I.-F. Popa, S.I. Vidu, Bucharest, Universul Juridic, 2015, p. 459, §2.2, 410-41.
[5] „Tratat de drept civil: contracte speciale (Treaty on civil law: special contracts)” - F. Deak, L. Mihai, R. Popescu, 5th ed., updated and completed, Bucharest, Ed. Universul Juridic, 2017, 4 vol., Vol 1: “Vânzarea și schimbul” (Sale and exchange), p. 257, §2.
[6] Art. 1670 C.civ.: „[a]bsent a contrary stipulation, sums paid pursuant to a promise of sale represent an advance on the agreed price”.
[7] „Curs de drept civil: obligațiile (Course on civil law: obligations)” - L. Pop, I.-F. Popa, S.I. Vidu, Bucharest, Universul Juridic, 2015, p. 456, §2, 407.
[8] The balancing payment (sulta) has the same legal regime as the price in a sale contract.