The Hangzhou Internet Court in Zhejiang Province recently ruled in a contract dispute case that a non-fungible token (NFT) is a virtual asset. Furthermore, the transaction of such a digital item is subject to the regulatory rules in the e-commerce law of the People’s Republic of China.
In February 2022, the defendant buyer ordered a “NFT digital collection” – a blind box for a limited edition of a work of art – for approx. 1,000 CNY or 150 USD during a shopping trip hosted by an e-commerce platform. However, the platform (or seller) did not transfer the ordered NFT immediately. Ten days later, the seller canceled the agreement and forcibly refunded the plaintiff. In a fit of anger, the plaintiff sued the buyer for breach of contract, claiming damages of CNY 100,000 or about US$15,000.
The defendant seller claimed that before the transaction began, it had made the terms of purchase quite clear and stated that it would perform real-name authentications by verifying the last digits of the buyer’s cell phone number along with their ID number. This was aimed at curbing abnormal activities involving the use of snap-up bots and ensuring that each buyer buys only one NFT. Since the plaintiff’s personal information did not match that at the time the order was made, the defendant subsequently canceled the order. In order to terminate this agreement fairly, the defendant returned the payment to the plaintiff accordingly.
The court found that, at the time of purchase, the plaintiff had not provided real personal information that was required according to a number of terms in the contract. The defendant’s advertisement for the sale of NFT equated to an invitation to tender. When the plaintiff made a choice about which blind box of NFT to buy, the advertisement became an offer made to the plaintiff by the seller. Later, when the buyer’s order submission was completed, this was considered a promise to the seller. At this point, a contract was created that bound both parties to comply with any related terms therein.
The sales notice, which formed part of the contract, clearly specified that valid personal information was required to make a successful order. In response to inaccurate personal information being entered into the online order form, the platform has the right to terminate the contract. In the transaction in question, the fourth digit of the mobile phone number and the sixth digit of the ID number that the plaintiff had provided could not be authenticated. The defendant therefore exercised its contractual right to cancel the order and reimbursed the plaintiff.
The defendant was lawful in rescinding the contract; thus, the court rejected the plaintiff’s claim for CNY 100,000. The case was dismissed.
According to the judgment, an NFT collection is endowed with the usual characteristics of a physical property, including its value, scarcity, disposability and marketability, as well as the special characteristics unique to a virtual property, such as being intangible and technical. .
An NFT digital collection is a virtual work of art, the court stressed. As an original expression of the creator’s artistic presentation, it shares the value of being an intellectual work. Meanwhile, as formed between the nodes based on consensus in the blockchain, it is a digital commodity that has unique properties.
Furthermore, in contrast to the purchase of tangible products, the NFT in this case was traded on the Internet. Essentially, this particular trade as a means of digital information exchange is a kind of business event for selling virtual goods. As an e-commerce activity, it shall be subject to the rules of the E-commerce Law of the People’s Republic of China.
In particular, the legitimacy of a contract termination clause in a standardized agreement that gives an NFT seller the right to unilaterally terminate the contract must be decided on a case-by-case basis. The court in the above dispute supported the NFT seller’s termination of the contract on the basis of anti-fraud management and consumer protection.
