Escrow contracts in plain words

The problem on both sides

A buyer who pays first does not know whether the goods will arrive. A seller who ships first does not know whether the payment will come. Each side waits for the other.

What "escrow" means, and what is different here

Cornell's Legal Information Institute defines escrow as an arrangement in which "money, property, documents, or other assets are deposited with a neutral third party", the escrow agent, "who holds them until specified conditions in an escrow agreement are satisfied".^[1]

In an escrow contract on Kudu, the third party is a program. The buyer funds the contract, and the contract keeps the amount until its own rules say what happens to it. The buyer and the seller write those rules in advance and both sign them.

Compare it to a vending machine. A vending machine does what its rules say. It does not judge whether you are happy with the can.

The steps

1. Create the draft. One of you creates a draft in Kudu. At this step nothing is signed and no money moves. You choose your role, buyer or seller, and give the other person's name and phone number.
2. Write the terms. The type of contract (goods, digital services, works or transport), what is agreed, the quantity, the total amount in USDC, the deadline to fund the contract and the delivery date. You can choose a Simple level, where the delivery code, the check and the delays are set for you, or an Advanced level, with tranches, expected proofs and delays you can change.
3. Choose a mediator. You and the other person choose someone you both recognise: a person, or the contact of an institution. The mediator creates a signing key on their phone, and a check by phone confirms that the key belongs to the person you chose. Both of you must accept the mediator.
4. Choose the final exit. If a disagreement drags on and nobody decides, the contract applies the exit you chose together: a 50/50 split, a refund to the buyer or a release to the seller. None is ticked in advance.
5. Read the delays. Each delay has an exit written in the contract.
6. Sign. You send the other person a single-use invitation link, for example by WhatsApp. Each of you reads the draft and signs it with your code.
7. The buyer funds the contract. The contract is created on the Stellar network when the setup is paid. Each tranche has its own funding date. If the contract is not funded by its date, it is cancelled and everyone gets back what they deposited.
8. The seller ships and proves it. The seller proves shipping with a photo of the sealed parcel and the carrier's ticket. Without that proof by the date, the exit written in the contract applies. In a Simple contract, that exit is a refund of that tranche to the buyer.
9. The buyer gives the delivery code once the goods are in their hands.
10. The buyer checks. After delivery, the buyer has a set number of days to confirm or to report a problem. Without an answer, the tranche is released to the seller.
11. The contract carries out the result: a release to the seller, a refund to the buyer, or the decision of the mediator.

What a contract can check, and what a person decides

A contract can check that two signatures are present, that a date has passed, that an amount was paid in, and that a code matches. It cannot check whether the cloth looks right or whether the goods match the description. A person decides that.

The app explains the delivery code this way: the code shows that the seller entered the right code. The seller can calculate the code without the buyer, so the code proves neither the handover nor that the parcel arrived. If the goods have not arrived, do not give the code. If the seller declares delivery anyway, report a problem before the check window ends: without an answer in that window, the contract releases the tranche to the seller.

When the buyer reports a problem, the other person has a set number of days to reply. After that, the person who reported can call the mediator, and the mediator has a set number of days to decide. If the two people chose a replacement mediator, the replacement takes over when the first does not decide in time. If nobody decides, the contract applies the final exit that you chose.

If nobody acts

Each situation has an exit date written in the contract:

• A draft that one person signed and the other did not expires.
• A contract that is not funded by its date is cancelled.
• If the seller does not prove shipping by the date, the exit written in the contract applies. In a Simple contract, that exit is a refund of that tranche to the buyer.
• If the buyer does not answer in the check window, the tranche is released to the seller. This is the buyer's main risk, so read the window length before you sign.
• If nobody decides, the final exit applies.

What it costs

Kudu charges a fee at setup and a fee on each release. A mediator may charge a fee. The Stellar network charges network fees. The screens show them before you sign. This guide gives no figure, because the figures are data on the screen.

Limits

The app refuses a contract when your country of residence is not accepted, and when the total is above the maximum amount of a contract.

Questions

Next guide How group buying works Reach a minimum order together. How you join, how the group fills, and what happens to your payment. Read the guide