Legal Tender Laws & Bitcoin

[sangaman]

I'm sorry if this has been discussed already in another thread, I did some quick searching and couldn't find an answer to my question.

Would US courts enforce a contract for payment in bitcoins, given that bitcoins are not legal tender?

For example, lets say I loan you 100 bitcoins and in exchange you sign an agreement to pay me 105 bitcoins one year from now. Next year rolls around, and you won't give me any bitcoins but you do offer me USD, which I refuse. If this went to court, would the court rule in my favor or would they consider the debt extinguished since you offered payment in legal tender? Would the answer depend on the terms of the signed agreement?

Many thanks to anyone who shares their knowledge on this.

[justusranvier]

You can't refuse legal tender as payment for a debt, regardless of the terms of your contract, and then expect the court system to enforce your contract.

You don't have to accept legal tender for a sale, but once a debt exists you'll only get to use the government's enforcement powers if you don't refuse legal tender.

[sangaman]

You can't refuse legal tender as payment for a debt, regardless of the terms of your contract, and then expect the court system to enforce your contract.

You don't have to accept legal tender for a sale, but once a debt exists you'll only get to use the government's enforcement powers if you don't refuse legal tender.

Thanks, that's what I thought but I wanted to make sure. In other words, contracts involving bitcoins are not enforceable in courts.

I'm wondering though, could you sue for breach of contract or something along those lines? And, in my first example, if you did accept $s but insisted on getting the going exchange rate for bitcoins (lets say 100 bitcoins at $11/each, $1100) would you expect the courts to rule in your favor in that full amount?

[TTBit]

You can't refuse legal tender as payment for debt, unless you are the state and it's inconvenient: http://lewrockwell.com/peters-e/peters-e245.html

(ericpetersautos.com was down when posted)

[justusranvier]

Thanks, that's what I thought but I wanted to make sure. In other words, contracts involving bitcoins are not enforceable in courts.

I'm wondering though, could you sue for breach of contract or something along those lines? And, in my first example, if you did accept $s but insisted on getting the going exchange rate for bitcoins (lets say 100 bitcoins at $11/each, $1100) would you expect the courts to rule in your favor in that full amount?

http://en.wikipedia.org/wiki/Damages

[Rudd-O]

You can't refuse legal tender as payment for a debt, regardless of the terms of your contract, and then expect the court system to enforce your contract.

You don't have to accept legal tender for a sale, but once a debt exists you'll only get to use the government's enforcement powers if you don't refuse legal tender.

Thanks, that's what I thought but I wanted to make sure. In other words, contracts involving bitcoins are not enforceable in courts.

That is not what your interlocutor said.  In principle, any contract specifying an agreed-upon mutual performance on both sides with consideration, regardless of the consideration, is enforceable by a court.  However, Legal Land being Legal Land, actually trying to get a judgment is going to be a shit pie, Bitcoin or not.

[reyals]

I'm sorry if this has been discussed already in another thread, I did some quick searching and couldn't find an answer to my question.

Would US courts enforce a contract for payment in bitcoins, given that bitcoins are not legal tender?

For example, lets say I loan you 100 bitcoins and in exchange you sign an agreement to pay me 105 bitcoins one year from now. Next year rolls around, and you won't give me any bitcoins but you do offer me USD, which I refuse. If this went to court, would the court rule in my favor or would they consider the debt extinguished since you offered payment in legal tender? Would the answer depend on the terms of the signed agreement?

Many thanks to anyone who shares their knowledge on this.

Why would it matter?  As long as he offers you the same value of the bitcoins in cash....
Really if you're worried about such an occurrence just tack in something that if the other party wishes to settle the debt in USD rather than bitcoin a 10% conversion fee will be added or some such.

[imfed]

Thanks, that's what I thought but I wanted to make sure. In other words, contracts involving bitcoins are not enforceable in courts.

I'm wondering though, could you sue for breach of contract or something along those lines? And, in my first example, if you did accept $s but insisted on getting the going exchange rate for bitcoins (lets say 100 bitcoins at $11/each, $1100) would you expect the courts to rule in your favor in that full amount?

It depends on the contract and the jurisdiction.

Are you talking about a contract to buy or sell BTC or a contract where you buy or sell goods and services and BTC is used as unit of account?

Agreeing on a fixed exchange rate would be possible but it has to be reasonable.

[twolifeinexile]

You can't refuse legal tender as payment for a debt, regardless of the terms of your contract, and then expect the court system to enforce your contract.

You don't have to accept legal tender for a sale, but once a debt exists you'll only get to use the government's enforcement powers if you don't refuse legal tender.

Thanks, that's what I thought but I wanted to make sure. In other words, contracts involving bitcoins are not enforceable in courts.

That is not what your interlocutor said.  In principle, any contract specifying an agreed-upon mutual performance on both sides with consideration, regardless of the consideration, is enforceable by a court.  However, Legal Land being Legal Land, actually trying to get a judgment is going to be a shit pie, Bitcoin or not.

In this case, the court should enforce the contract on the USD with reasonable exchange rate or enforce the contract as it is (pay and only pay by bitcoin)?

[21after2]

Essentially you're taking someone to court who owed you money and offered to pay you. The court would look at the value of the contract and would probably say that the value is owed, not the specific payment; it's like when a debt collector is allowed to seize property from a borrower to pay back the debt.

Since the guy in your example is offering payment, the courts would probably just tell you to take it. You'd have a case if the borrower wasn't offering to pay anything.

[franky1]

dont treat bitcoin as legal tender or a currency, when trying to go to court due to theft or non return of loan. and dont mention that you wish to seek damages.

the term damages is a FIAT legal tender compensation nothing else.

what you seek is return of goods or damages to cover the costs of re-obtaining the lost goods

bitcoin is a personal possession asset. much like a car, jewellery, artwork, etc.

i explained why its an asset in the first part of this link below, which is to do with tax

https://bitcointalk.org/index.php?topic=143425.0
so dont treat bitcoin as money.
using the OP's scenario

person A loans person B 100 pieces of jewellery with a contract that person B obviously makes profit somehow to be able to return 105 pieces of jewellery the following year. Person B refuses to give 105 pieces of jewellery but tries to palm person A off with USD to the value of 105 pieces of jewellery.

the question then becomes. does the amount of USD offered in year 2 cover the costs of Person A obtaining 105 pieces of jewellery to make the contract whole and complete without losses.

as long as the USD covers all costs for the recipient to re-purchase the contracted retuned product without loss. there would be no need to enforce return in bitcoins only.

this would only vary if the item to be returned was rare/impossible to reasonably obtain or that the value of USD did not cover the costs. then and only then can you request the original form of the asset to be returned, or a increase of the USD compensation to cover costs of any losses.

courts have been known to request parties to revoke ownership/holding of a products/property and to give it back to the intended victim. but where the USD would also be valued at resolving the contract by then repurchasing the product/asset. this would be deemed fine also. and some courts would deem it as just time wasting.

[Vladimir]

The courts will enforce contracts whether they about potatos or bitcoins or gold or silver or carrots. However, the courts will make a judgement to pay damages in fiat currency that has happened to be legal tender in the given jurisdiction.

[DeathAndTaxes]

In this case, the court should enforce the contract on the USD with reasonable exchange rate or enforce the contract as it is (pay and only pay by bitcoin)?

There is no "should" about it.  The court can ONLY award damages in legal tender.  The court isn't going to try an enforce a contract.  If one parties breaks the contract then the other party sues for DAMAGES (in legal tender).  That is the whole definition of legal tender.  When the contract is broken and you sue in court the court can award you damages as compensation for your loss.  The requirement that creditors must accept payment for debts in legal tender comes from this basis.  If a debtor doesn't pay a creditor what can the creditor do? Take the debtor to court right?  If the court agrees with the creditor what are they going to do?  Award damages right?  What form will those damages be in ... legal tender.  The requirement for a creditor to accept payment in legal tender simply shortcuts you right to the forgone conclusion (and hopefully avoid a lot of court cases).

For example, lets say I loan you 100 bitcoins and in exchange you sign an agreement to pay me 105 bitcoins one year from now. Next year rolls around, and you won't give me any bitcoins but you do offer me USD, which I refuse.

You have no legal right to refuse legal tender for a debt owed.  Your doing so would be looked upon dimly by the court.  Even if the court awarded damages expect an ass chewing by the court (potentially even a reduction in the damages awarded).  The only thing the court will do is award you damages in legal tender.  So for you to refuse legal tender and seek recourse in the court is a colossal waste of time for both parties and the court.

You prove to the court that you are owed x BTC (i.e. contract is valid), and you prove to the court that the value of a "BTC" is y USD and the court would award you damages in the amount x * y USD.

Now just because the court awards damages in US dollars (legal tender) doesn't mean that you and the counterparty can't reach an agreement out of court.  If the other party has the BTC and now having lost in court decides to pay up it in BTC that is fine.  It may be more economical for him to just give you the BTC directly (rather than sell it for USD, pay you the USD and then you use the USD to buy back the BTC). There is nothing which prevents settling a judgement by other than legal tender if both parties agree to it.  You would just draw up an agreement stating the transfer of X BTC satifies the judgement owed, conduct the transfer (possibly with escrow), sign the agreement and the counterparty could present it to the court to have the judgement satisfied.  So legal tender doesn't prevent conducting business using another asset.  However if one party doesn't agree then repayment will be in legal tender.

You can't write a contract which guarantees repayment in anything but legal tender.
If you lend me 100 oz of gold and I go into default, your only recourse is to sue for damages in legal tender.
If you give me 100 BTC for secure storage and I report it has been stolen, your only recourse is to sue for damages in legal tender.
If you lend me your priceless one of a kind antique vehicle and I destroy it, your only recourse is to sue for damages in legal tender.

The court can't force me to return the gold I spent on hookers and blow, the stolen BTC, or the one of kind antique which no longer exists.  The court can however find me liable and award you damages to compensate you for your loss.

TL/DR
You can write a contract involving any asset.  You could write a contract which contracts for difference on the value of oil measured in silver, with settlement in metric tons of potatoes.
The courts can ONLY award damages in legal tender.  A creditor MUST accept payment for a debt in legal tender.

[franky1]

the OP scenario never mentioned damages.
but as a few people including me have said .. if you go to court seeking damages all you will get back is fiat money.

so try going to court in pursuit of the return of goods/property. dont use the word damages if you dont want fiat

EDIT: to save adding more posts
indeed death and taxes is correct below, the person B may no longer have the bitcoin/jewellery. but filing for a lawsuit where its mentioned that what you request is damages only. will get you damages only before the court even begins

so as above dont mention you only seek damages. dont limit yourself before the court case. it may turn our that the person breaching the contract doesnt have the product nor able to obtain them for the return to the victim, that damages is the only solution left on the table. but just dont go into a court room metioning you want damages and then be saddened that, damages is all you get

[DeathAndTaxes]

the OP scenario never mentioned damages.
but as a few people including me have said .. if you go to court seeking damages all you will get back is fiat money.

so try going to court in pursuit of the return of goods/property. dont use the word damages if you dont want fiat

That will not always work.  The counterparty can claim he no longer has the BTC (or other property) at which point your recourse is limited to damages (in legal tender) or nothing.  No court is going to force someone to go out and buy property (including BTC) in order to it to you.  The court will want proof of the value of the property and then award damages.

If one party is unwilling to repay property owed it is very likely that damages are your only option.  Even under a scenario where ownership of the property can't be hidden, say a boat which is registered, if the counterparty wants to be vindictive they could simply sell it (or destroy it).  The counterparty now honestly no longer has the property.  The court can't force the return of property which is no longer owned by the counterparty.  Of course this doesn't make the liability go away you can still seek damages (in this example the fair market value of the boat).

It doesn't matter if it is your intent to seek damages or not.  The only guaranteed recourse you have is damages awarded in legal tender.  That is the whole point of legal tender.