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Standard Legally Binding Contract
Although there may be different variations of legally binding contracts that the Phynite Protocol uses in the future, there is a set of information that will be required for the contracts to be legally binding, and also for the basic functionalities of the protocol. Simply put, the standard legally binding contract is a contract between the guardian company that agrees to store the physical asset, and the potential buyer of the CBNFT that corresponds to such physical asset.
As stated by Cornell Law School’s Legal Information Institute,  “The basic elements required for the agreement to be a legally enforceable contract are: mutual assent, expressed by a valid offer and acceptance; adequate consideration; capacity; and legality.” In addition to such components, the standard legally binding contracts will require contact information of the guardian company that is responsible for storing the physical asset in consideration, as well as the user who is agreeing to the conditions of the said contract. The following subsections will describe in detail these legally necessary components, as well as additional components that are required for the Phynite Protocol’s functionalities.
The first party, or the guardian company agreeing to safeguard the physical asset, must include the legal name of their organization as well as the address of their business.
The second party, or the potential buyer of the CBNFT that corresponds to the physical asset in consideration, must include their legal name, phone number, email address, and permanent address.
Although participants of the Web3 space may be opposed to the idea of trusting centralized entities with personal information, correct contact information is necessary for a contract to be legally binding, and will serve to protect their rights as well.
As previously stated in this section, an offer and an acceptance are necessary components to make a contract legally binding. Using software, guardian organizations can automate the process of creating offers, essentially generating legally binding contracts for CBNFTs whenever users request to buy a CBNFT. Furthermore, during this process of automatic generation, such companies can use cryptographic wallets to sign the legally binding contract, which can essentially prove that the contract was one that was authentically created by the company. The way in which this is done and how this further improves the security of storing users’ contact information will be explained later in the white paper.
When the offeree, or the user that is offered a contract, finishes reviewing the legally binding contract, they can sign the contract using their crypto wallets, and this can serve to prove that the user initiated an acceptance of the legally binding contract.
The consideration is the main part of a legally binding contract, and essentially what both parties promise each other in exchange for the other fulfilling their promise. The consideration that is used for the Phynite's Protocol will be written to include:
Party 1 (The company)’s Consideration:
Party 1 must maintain the physical state of the Physical Item, and deliver the Physical Item to the location of Party 2’s once Party 2 fulfills their consideration.
Party 2 (The user)’s Consideration:
Party 2 MUST first acquire the CBNFT with the TokenId of [TOKENID] within [EXPIRATION TIME] of the Effective Date, whether it is through Buying or by receiving the CBNFT with the TokenId of [TOKENID] through a Transfer. Then, Party 2 must Burn the CBNFT and pay for the shipping fee (a shipping fee that does not profit Party 1) to redeem the Physical Item.
First of all, the physical assets and digital assets in consideration must be identified. Furthermore, such assets should be tied to a term that can be used to easily identify the assets in the legally binding contract. For the physical item, the name of the item as well as the serial number or unique identifier associated with the physical item must be cited in the legally binding contract, and associated with a key term such as “Physical Item.” The digital asset on the other hand, which is the CBNFT that corresponds to the physical asset, needs to be identified using tokenId and smart contract address, which will be defined in the following paragraphs.
The American law system is a common law system, which is essentially a procedure of creating legal judgements based on precedent or comparable court cases. Crypto technology is still very new, and this means that there are not many precedents or comparable court cases that relate to such issues. This calls for companies that use the Phynite Protocol to concretely define unfamiliar terms in legally binding contracts to decrease ambiguity.
The terms that must be defined and their definitions are as follows:
CBNFTs (Contractually Bound Non-Fungible Tokens) - NFTs (Non-Fungible Tokens) that can determine the legal obligations of entities through the changes of its state. CBNFTs can be transferred or burned through our Phynite CBNFT Smart Contract.
Phynite CBNFT Smart Contract - PHYNITE LLC’s smart contract on the Ethereum Blockchain that allows the transaction of CBNFTs. The smart contract allows for anyone with an Ethereum wallet and a sufficient balance in such wallet to buy a listed CBNFT, and gives the rightful owner of the Ethereum wallet that holds the CBNFT the exclusive right of selling or burning the said CBNFT. The smart contract’s Ethereum address is: [SMART CONTRACT ADDRESS].
Burning - References to the term “Burning” in this Agreement mean specifically the burning of CBNFTs which is done through calling the “burnToken” function in the Phynite CBNFT Smart Contract; only the rightful owner of the Ethereum wallet that holds the CBNFT may execute this function. "Burning" a CBNFT causes it to no longer exist, meaning that it would not be owned by any Ethereum account.
Transferring - References to the term “Transferring” in this Agreement mean specifically the transferring of the ownership of a CBNFT to another Ethereum wallet which can be done through calling the “transferFrom” or “safeTransferFrom” functions in the Phynite CBNFT Smart Contract; only the rightful owner of the Ethereum wallet that holds the CBNFT may execute these functions.
Buying - References to the term “Buying” in this Agreement mean specifically the buying of a CBNFT with Party 2’s Ethereum wallet which has the wallet address of [WALLET ADDRESS]. This action should be taken through Phynite’s CBNFT marketplace web application. The web application uses the Seaport Protocol (a protocol that allows the sale/auctioning of NFTs for cryptocurrencies), and the protocol uses the “transferFrom” or “safeTransferFrom” functions in the Phynite CBNFT Smart Contract. One can officially buy a CBNFT by executing a buy order, or by bidding or offering a price for a CBNFT and getting that bid or offer accepted by the seller of the said CBNFT.
Selling - References to the term “Selling” in this Agreement mean specifically the selling of a CBNFT to another Ethereum wallet which can be done through Phynite’s CBNFT marketplace web application. The web application uses the Seaport Protocol (a protocol that allows the sale/auctioning of NFTs for cryptocurrencies), and the protocol uses the “transferFrom” or “safeTransferFrom” functions in the Phynite CBNFT Smart Contract. Only the rightful owner of the Ethereum wallet that holds the CBNFT may create sell or auction orders, and when a buyer executes a buying transaction or the seller accepts a bid or offer, the item has officially been sold.
TokenId - The TokenId is a positive integer that is the identification number of a CBNFT in a Phynite CBNFT Smart Contract.
The termination clause is a very necessary component of the Phynite Protocol’s standard legally binding contracts. This is due to the fact that a contract must be terminated if a user does not buy the CBNFT after signing the contract, or sells/transfers the CBNFT which they rightfully own. The contract should be terminated after the following events:
- 1.Party 2 does not acquire the CBNFT with the TokenId of [TOKENID] within [EXPIRATION TIME] of the Effective Date, whether it is through Buying or by receiving the CBNFT with the TokenId of [TOKENID] through a Transfer.
- 2.Party 2 Sells the CBNFT with the TokenId of [TOKENID] or Transfers it to a different Ethereum wallet.
For the ability to verify legally binding contracts as will be explained in the following section, users must hold the original legally binding contract which they have signed. This makes it important for guardian companies to send users a copy of such a contract immediately after they sign it. The legally binding contract will be emailed to the user after they have signed it, containing a PDF version of the contract that can be visually read, as well as the contract in JSON format for cryptographic verification. The email should also include the digital signature, wallet address used to sign the contract, as well as the IPFS URI which points to the digital signature publicly.