Lawyers like to use fact patterns to explore a legal question because application of legal logic to facts is more useful than a discussion of law in the abstract. For smart contract leases, I’ve started with a finite business application from my experience: a mid-size commercial equipment leasing company.
Ed’s Equipment and Leasing, Inc., is a private corporation, incorporated in Delaware with its principal place of business in Atlanta, Georgia. Ed’s business sells and leases construction equipment and machinery. Ed’s operates as two separate companies: Ed’s Equipment and Leasing, which is a vendor of equipment, and Ed’s Acceptance Corporation, a finance company that provides leasing and secured financing options for buyers. Ed’s has seventeen brick-and-mortar locations in four U.S. states: FL, GA, NC and SC. These are the primary kinds of deals Ed’s engages in:
1. Sale of equipment, machinery
a. cash sale
b. installment financed sale
2. Lease of Equipment
a. short term equipment leases
b. long term equipment leases
c. finance leases
Ed’s executes contracts in paper triplicate, keeping one copy and giving one to the customer. A scanned image of each contract is stored on legacy systems. Ed’s uses a typical account management system to track and apply payments. Ed’s corporate HQ prefers all payments be collected electronically, but some construction crews still pay in cash. Ed’s gross receipts are approximately $25MM. Ed’s pays about $250,000 per year in attorney’s fees, mostly for collection services, including recovery of equipment and construction liens on sites developed with Ed’s equipment.
Ed is interested in data automation, payment automation, sensors to track the location of leased equipment, reduction of his legal costs and other benefits smart contracts may provide.
1. Is this feasible? How?
2. What are the legal implications of each of the kinds of deals above?
3. Should Ed create a new organization? What kind?
4. Can smart contract technology improve Ed’s bottom line? How? (this is a business question, not a legal question, but it’s important to understand the client’s motivation)
5. How much will it cost to build?
6. Draft an enforceable smart contract for each deal above.