Smart contracts and consumer protection in Spain
Smart contracts can be described as electronic contracts in the form of a computer based code that can automatically and independently monitor, execute and enforce agreements between a buyer and a seller.
The smart contract is one of the applications of blockchain, a database containing all data of transactions sent and delivered within a network.
A traditional written contract contains terms and conditions agreed upon between contracting parties, which needs to be handled mainly by themselves. Meanwhile, the smart contract is programmed to independently enforce transactions once the agreed terms and conditions have been met. In other words, the execution of the agreement is verified and handled by the network of computers connected to that specific contract.
The contractual process of the smart contract is as follows:
- the terms and conditions of the contract are agreed upon;
- transactions or information received triggers the execution of the contract;
- based on the terms of the contract the code will follow the movements needed for the conditions to be met;
- the value of assets or assets as agreed in the contract is transferred to the buyer or recipient; and,
- finally, the contract is settled as will be shown in the ledger of the seller and buyer or sender and recipient.
“Traditional contracts” are regulated by the Spanish Civil Code. While traditional contracts can be modified, amended and terminated based on the provisions of the contract law, the smart contracts cannot be modified. To be modified the whole program needs to be changed, which, of course, costs money and time. For the moment, a legal framework of the smart contracts has not been established yet, however, some countries are already looking for ways to handle all the legal aspects related to this special kind of contract.
Consumer protection can be defined as group of laws and regulations ensuring that the rights of consumers are protected. In Spain, consumers are protected by the Spanish Constitution and the Consumer Protection Act (Ley General para la Defensa de los Consumidores y Usuarios). Article 51 [Consumer Protection] of the Constitution and Articles 59-61 of the Consumer Protection Act provide general rules and requirements for the protection of consumer contracts.
A problem that may arise is that consumers do not have a record of the smart contract process. In the event of a computer error or a mistake made by the seller, which results in an automatic processing, consumers will have difficulties proving that they could not have prevented such processing. In other words, if there is an error or a breach of the contract, the consequences are immediate without a timely warning to inform the parties involved.
Smart contracts are currently still in their infancy, however, more and more business sectors, especially financial institutions, are starting to use them. Companies using the smart contracts should ensure that their websites are in compliance with the legal requirements. Consumers will benefit from this new technology as it will reduce costs and maintain their rights. On the one hand smart contracts will offer benefits to consumers but on the other hand they may offer challenges with regard to consumer protection. Enterprises and lawyers need to be aware of the smart contract developments in order to assist their clients and offer the best solutions to avoid problems regarding breaches of contracts or other issues.
Charline M. Hoever
This article is not considered as legal advice