[EDU] Sample Lending Contract

[DiamondCardz]

This is an idea I've mulled around in my head for a while. There can often be petty disagreements on this forum regarding loans, trades, etc, and it normally comes down to the fact that a proper contract was never used. So here is my sample contract for reducing the likelihood that lender and lendee get in a disagreement, negative trust gets exchanged, 500 threads get made accusing each other of being a scammer, and so on and so forth.

I'd recommend signing all important loan correspondence with either a known PGP key or a Bitcoin address that you have previously staked on the forum. Both parties should insist on this to ensure a compromised account has a lower chance of causing loss of monies.

My Bitcointalk username is {lender_name}. The current date is {current_date}. This is a contract governing a loan to be granted to {lendee_name} by myself.

The loan will be for the amount of {loan_amount}. Interest will be charged at {interest}% daily/weekly/monthly. Interest will be added onto the remaining loan balance at {calc_time} every {calc_specified_day}. In the case of the lendee falling behind, the balance remaining on the loan will be capped at {cap_amount}.

The minimum repayment on this loan will be {min_repayment}, to be paid by {repay_time} every {repay_specified_day}.

The following collateral will be given to the lender by the lendee before the loan payment is made: {collateral}

The loan payment will be made to this address controlled by the lendee: {lendee_address}
Loan repayments will be made to this address controlled by the lender: {lender_address}

The terms of this contract can only change if agreed by both parties. Messages affirming an agreement to this contract must be signed by {auth_method}.

Blanks to fill in -

Code:

{lender_name} - Bitcointalk username of lender
{current_date} - Current date, use an unambiguous format such as 23-Oct-2019
{lendee_name} - Bitcointalk username of lendee
{loan_amount} - Original amount to be loaned
{interest} - % Interest charged per period. Delete daily/weekly/monthly as appropriate

{calc_time} and {calc_specified_day} - These blanks avoid ambiguity on when interest should be added to a balance. 
If you charge interest daily, when should interest be considered to be 'added' to the balance? 
Does the lendee need to pay an extra day's interest if they pay off a loan at 00:01am, for instance? 
Most reasonable lenders would say no. 
The specified day is for contracts where interest is calculated weekly or monthly, e.g. calc every Tuesday.

{cap_amount} - You don't have to include this, but it helps add legitimacy.
Many courts will scoff at loan contracts where you charge a % daily.
If your 0.01 BTC loan has become 0.25 BTC due good luck ever getting a delinquent lendee to consider paying it back. 
A cap amount provides an incentive for lendees to eventually square up.

{min_repayment} - The minimum repayment to be made at each specified interval. Can be a flat amount or a %
{repay_time} and {repay_specified_day} - When the repayment should be made by. Could be daily, weekly, monthly, etc.

{collateral} - Self-explanatory

{lendee_address} - Where the loan payment will be made to
{lender_address} - Where the repayments will be made to

{auth_method} - I recommend requiring a PGP or Bitcoin address signature from both parties to change terms.

Yes - I know it's a bit 'complex' - but a written contract like this will help to cover almost all bases in case something goes wrong. A written contract like this makes it trivially easy to handle disputes, scam accusations, settlements and so on and so forth.

If anyone has any feedback for what could be added, just let me know.

[Vod]

In the case of the lendee falling behind, the balance remaining on the loan will be capped at {cap_amount}.

Isn't that opening it up to abuse?   Once there is no more interest, and no set deadline, why would the borrower even need to pay back?

[DireWolfM14]

It's definitely a noble effort on DiamondCardz part, but realistically there's no verbiage that will make a borrower pay back once he determines to not to.  There's no verbiage that will cause a lender to furnish the loan once collateral has been sent.  There's no verbiage that will prevent a scammer from abandoning his account once he's chosen to scam.  

As for contracts; they are worthless unless we can identify to "the courts" those who've breached it.  In it's infancy the culture of crypto adopted the acceptance of anonymity.  That's unlikely to change in the foreseeable future.   Even if it's abated at some point, it'll never completely go away.  It's an ingrained part of why crypto exists.  As it is, the best we can do is red-tag the anonymous account of a borrower that doesn't pay back a loan, or a lender that doesn't return collateral (or doesn't furnish the loan once collateral has been sent.)

As a lender I've issued many non-collateralized loans, for which I must be willing to assume the risks involved.  If a borrower sends collateral to a lender (even a "trusted," yet anonymous third-party escrow agent) he must also assume the risks involved.  Both parties should know these risks before entering into such arrangements.  

I realize that being fair, patient, and generous are more likely to prevent me from being scammed than all the words in my terms of service.  We're all human, we run into unforeseen circumstances, lenders and borrowers alike.  The best we can hope for a contract to accomplish is to establish the guidelines for amounts, duration, interests, and repayment.  Only those who intend to will honor the contract, and any who intend not to will not.  Regardless of how many mediation clauses you include in your contracts, that's not going to change.

[PrimeNumber7]

In the case of the lendee falling behind, the balance remaining on the loan will be capped at {cap_amount}.

Isn't that opening it up to abuse?   Once there is no more interest, and no set deadline, why would the borrower even need to pay back?

If a person defaults on a loan, ideally they will receive negative trust and a flag, which would hamper their ability to earn money on the forum by conducting business. The ability to conduct business is valuable, but is limited. If the amount of the loan exceeds the value of the ability to conduct business, there is a lessor incentive to repay. Each day or month a person is unable to conduct business efficiently, is one month or day they are not earning money.

As for contracts; they are worthless unless we can identify to "the courts" those who've breached it. 

Even when this is true, it is very common for banks to not pursue unsecured loans in cases involving less than $5,000 owed.

[DiamondCardz]

In the case of the lendee falling behind, the balance remaining on the loan will be capped at {cap_amount}.

Isn't that opening it up to abuse?   Once there is no more interest, and no set deadline, why would the borrower even need to pay back?

If they aren't going to pay back at the cap amount, they certainly aren't going to pay back a higher amount. The idea was because interest rates on Bitcoin loans are what pretty much everyone outside of the community would consider loanshark rates, and I feel that a max cap, arbitrarily agreed by both parties, makes it a little fairer on both parties. For instance, if something horrible happens to the lendee but they still want to make good on their liabilities, then a cap stops them from coming back to a loan which is 10x what they originally borrowed.

It's definitely a noble effort on DiamondCardz part, but realistically there's no verbiage that will make a borrower pay back once he determines to not to.  There's no verbiage that will cause a lender to furnish the loan once collateral has been sent.  There's no verbiage that will prevent a scammer from abandoning his account once he's chosen to scam.  

Absolutely. If someone is going to scam they'll do it anyway. The idea behind a contract is to reduce conflict and arguments over small details, and to remove ambiguity.