The Royal Decree of July 24, 1889, which approved the Civil Code, already foresaw, in its Title II, the autonomy of will regarding the form in which a contract could be considered valid; it allowed from verbal agreements to the most complex and detailed merger and acquisition (M&A) contracts.

Notwithstanding that the codification of Civil Law in the 19th century represented a liberal vision of private law (remembering that our Civil Code still forms the basis 130 years after its entry into force), it raises doubts whether the 1889 legislator could even contemplate the emergence of Blockchain technology in the contractual world.

Let's start with the basics: What are Smart contracts and what is their underlying technology?

Engineer and cybersecurity expert, Mr. RODRIGO JIMENEZ VALVERDE, highlights that Blockchain technology originated from the Bitcoin cryptocurrency. A cryptocurrency is a digital currency based on a peer-to-peer transaction system without intermediaries, using a set of cryptographic technologies known as Blockchain.

Its main characteristics are (i) pseudo-anonymous identity (identification is only possible if the owner of the blockchain address is known), (ii) decentralization (operations are stored on independent nodes not controlled by any third party), and (iii) immutability (once an operation is executed, it cannot be reversed).

Ethereum is a cryptocurrency and a public Blockchain network characterized by the creation of applications capable of solving universal problems through its transaction language, enabling the existence of Smart Contracts. Smart Contracts are computer programs that facilitate, ensure, enforce, and execute agreements registered between two or more parties.

Therefore, in Ethereum, it is possible to register pieces of code to establish the premises and events of actions that may occur in the future between different parties, using the "If… Then" formula: if a condition is met, the contract executes.

The identity and capacity of the parties, the place of contract conclusion, or its subsequent execution are some of the doubts arising from this emerging technological implementation in the legal sector. But one of the most relevant points is understanding how the theory of title and mode fits into this unique form of contracting. That is, when can the contract be considered valid and at what point does it take effect?

There is scant regulatory regulation of these Smart contracts, with certain references regarding their validity found in Article 23 of Law 34/2002 on information society services and electronic commerce, which states that contracts concluded electronically will produce all effects provided for in the legal system from the moment their typical elements are present, namely: consent, object, and cause.

But we must not forget what was already advanced by the Roman Emperor named “Justiniano” back in the 6th century in the compilation of the Code that bore his name and on which our contractual law is based: for the valid transfer of a good, two acts must concur, (a) the contract by which the transfer is agreed (title including consent, object, and cause), and (b) the formal act of delivery of the thing (Article 1462 of the Civil Code reflecting traditio).

And when do these requirements occur in Smart contracts? A complex answer that can only be based on opinions from the most technological doctrines and one's own, since neither the legislator nor the judiciary have faced such a task.

It could be understood that consent is considered given from the moment the code owner adheres to the technological process to be bound by the contract, thus manifesting the offer and acceptance concerning the thing (Art. 1262 CC).

Continuing the analysis, the pieces of code corresponding to the registered agreements would constitute the object of the contract, provided that it is within the limits of social order and applicable regulations (a controversial issue due to the proliferation of off-the-record businesses using Blockchain technology).

And it seems clear that the agreed price between the parties constitutes the cause of the contract.

Once the title is defined, it remains to analyze the mode or when the thing is considered delivered, that is, traditio.

The axiom "If… Then" seems to answer the moment of transmission of the thing. This formula implies that when a condition imposed by the parties is fulfilled (If), the contract must then be executed (Then).

An illustrative example could be a real estate purchase contract, where the execution of the public deed of sale (If) means that the property is considered transferred (Then), thus complying with Article 1462 CC which states that "When the sale is made by means of a public deed, the granting of it will be equivalent to the delivery of the thing object of the contract."

However, this example, which simplifies the theoretical analysis of traditio, does not cover the source of conflicts that may arise in more complex agreements involving multiple parties. It is possible that the condition is fulfilled exclusively for certain contract parties or that cybersecurity issues thwart the purpose of this Smart contract.

Likewise, the Blockchain that guarantees the immutability of the executed agreement and the impossibility of retracting its effects can generate problems within certain contracts.

For example, in the context of a Business Sale transaction using typical M&A clauses, how would adjustments to the agreed price be made after the closing date of the transaction? Or simply, how could a material error in setting a certain amount be corrected? Due to immutability, subsequent modifications to the agreement become impossible.

In any case, it seems that Blockchain technology is here to stay and that, despite requiring further research and development, the legal system must also adapt to what could be considered the new contractual era.

This should not only alert the legislator or judiciary, but lawyers must also make an effort to include the use of more sophisticated technologies in the provision of professional advice if we do not want to lag behind the sector.

Borja García Rato | Director of Mercantile, Contractual, and Corporate Area at Summons

b.garciarato@summons.es

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