Virtual goods are protected; the spirit of contracts must be followed

[2] Compiled from: People's Court Daily
 
Case review
Xiaolin and Dapeng are a couple. They reached an agreement via WeChat that Dapeng would help Xiaolin trade Bitcoin for profit and financial management.

 
 

December 24, 2019 to March 30, 2020
Xiao Lin transferred a total of 195,000 yuan to Dapeng in multiple transactions for the purpose of investing in Bitcoin.
 
January 10, 2020, January 18, 2020, January 29, 2020, February 14, 2020, March 12, 2020
In WeChat chats with Xiao Lin, Da Peng sent screenshots of his contract account and fiat account balances, as well as Bitcoin price trend charts, to Xiao Lin.
 
Additionally, during Da Peng's trading period, Xiao Lin frequently logged into the Huobi investment account on his own to check the relevant situation.

 
 

It was not until April 5 of this year that Xiaolin discovered something was wrong and questioned Dapeng via WeChat. Only then did he learn that Dapeng had not purchased spot Bitcoin, but Bitcoin futures, and that all the money in the account had vanished. In response, Dapeng explained that the funds had all been transferred as margin, and that if the margin later proved insufficient, the entire investment would be lost.
 
On April 24, 2020, Xiaolin filed a lawsuit with the Haicang Court, asserting that Dapeng had unilaterally used his investment funds as margin to purchase Bitcoin futures and concealed the losses, which constituted a fundamental breach of contract, severely violated the principle of good faith, and caused financial losses to him. Therefore, he was entitled to demand that Dapeng return the funds and compensate for the losses.
 
Dapeng believes that the decline in Bitcoin prices is a normal investment risk, not caused by his intentional or gross negligence; moreover, Xiaolin logged into the Huobi investment account multiple times during the trading period to check the account status, so he should have been fully aware of the actual trading situation but raised no objections, which should be considered as consent. Therefore, Xiaolin's claim for the return of investment losses and interest has no legal basis.
 
 
Relevant legal provisions
Contract Law of the People's Republic of China, Article 60
The parties shall fully perform their obligations as agreed. The parties shall follow the principle of good faith and perform the obligations of notification, assistance, and confidentiality in accordance with the nature, purpose, and trading practices of the contract.
 
Contract Law of the People's Republic of China Article 406
In a gratuitous entrustment contract, if the trustee causes losses to the principal due to intentional or gross negligence, the principal may claim compensation for the losses. If the trustee exceeds the authority and causes losses to the principal, compensation shall be paid.
 
 
[1] Court Opinion
The court held that, according to the WeChat chat records between the parties, the oral agreement between Xiaolin and Dapeng was for the purchase of spot Bitcoin, and the terms “futures” and “margin” had not appeared in their prior conversations. It was not until April 5, 2020, that Dapeng admitted to the fact that he had used the funds entrusted to him by Xiaolin for wealth management as margin to purchase Bitcoin futures without Xiaolin’s knowledge.
 
According to common sense, the risks of investing in Bitcoin spot and Bitcoin futures are vastly different. As a trustee, Dapeng should have been diligent and conscientious, handling the entrusted matters according to the client's instructions and reporting the status. In fact, without Xiaolin's consent, he unilaterally changed the investment purpose of the funds entrusted by Xiaolin, which constitutes a breach of contract. Therefore, Dapeng should bear the responsibility for the total loss of Xiaolin's investment funds.
 
Even if Xiaolin logged into the Huobi investment account multiple times during Dapeng's trading period, it does not necessarily mean that he was aware of Dapeng using the investment funds as margin to purchase Bitcoin futures. Moreover, Xiaolin's act of logging into the account on his own does not relieve Dapeng of his duty as a trustee to be diligent and conscientious and to report in a timely manner.
 
In summary, Xiaolin's claim for compensation for investment losses and interest is supported by facts and legal basis and should be upheld.
 
After the first-instance judgment, Dapeng, dissatisfied with the outcome, filed an appeal. The second-instance court ruled to uphold the original judgment.
 
 
[1] The author's perspective
It is noteworthy that Bitcoin should be protected by law but does not have the legal status of a currency.
 
The People's Bank of China and other ministries and commissions have issued documents such as the Notice on Preventing Bitcoin Risks (2013) and the Announcement on Preventing Risks of Token Financing (2017), which did not deny Bitcoin's property attributes as a commodity, nor did Chinese laws and administrative regulations prohibit the holding of Bitcoin. The Notice on Preventing Bitcoin Risks further stated that “in nature, Bitcoin should be a specific virtual commodity.” Therefore, Bitcoin possesses the attributes of virtual property and virtual commodity and should be protected by law. However, documents such as the Notice deny the legal status of such “virtual currencies” as currency, and Bitcoin and other “virtual currencies” cannot and should not circulate in the market as currency.
 
The author reminds investors to invest rationally, reasonably control risks, and protect their property safety.