Portugal: Can Smart Contracts be Nullified?

For EU regulation, please visit Europe: Can Smart Contracts be Nullified?.

Again, in May, the Portuguese Parliament debated cryptocurrency payment regulations, with the aim of adopting a new legal framework for cryptocurrency payment services. The new Portuguese regulatory framework is configured to apply “new rules for accessing payment accounts” in order to avoid unjustified setbacks and ensure that payments are secure. The official document and regulation has yet to be released, and as a result language around the nullification of smart contracts, too.

There is existing literature on smart contracts, in general, however.

The enforceability of Smart Contracts is, however, not that obvious for several reasons discussed below, expressed by a Holland-based legal services business, AM Legal, here.

Contract law states that offer and acceptance shall be met in order for a contract to be formed.

Firstly, in contract law, certainty as to what constitutes the contractual terms is often a critical factor necessary to establish the formation of a legally binding agreement in many jurisdictions. Smart Contracts that purely digitize a particular process but do not include, or operate in conjunction with contractual terms, may not satisfy such requirements of certainty.

Secondly, in most jurisdictions, offer and acceptance are at the core of the formation of a legally binding contract. Without the existence of such elements, an agreement will generally not be binding between the parties. In a Smart Contract, these two elements are sometimes obscure or unclear, creating doubts in regard to the formation of a legally binding agreement.

Finally, a contract cannot be fully enforceable (or have real value) if I cannot protect my rights before a juridical body (e.g. a national court or an arbitral body). As mentioned above, including a dispute resolution clause (governing law and jurisdiction clauses) into a Smart Contract may help to address the issues around enforceability and give certainty to the parties’ contractual relationship.

According to Ethereum expert, Merunas Grincalaitis, contracts deployed on a blockchain are immutable, which means that the address and the code of that Smart Contract can’t be modified since it’s permanently written on the blockchain.

However there are ways to use a new contract instead of that one, which is similar to “updating” a contract. One way to update the code is to create an intermediary Smart Contract that will hold the address of the active Smart Contract. That way, one can use the same contract address but that contract will execute a different Smart Contract code in the end. From an “updated” contract.


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