Contracts Formed by Software: When Things Go Wrong

Abstract

The use of software in contract formation is likely to become increasingly pervasive in light of the digital economy. Consequently, software can also be expected to exhibit greater autonomy and take on increasingly complex transactions and contract negotiations. It is important that a legally coherent, fair, certain and economically justified approach be taken to regulate such contracts.

A ‘contracting problem’ arises when software is used to autonomously enter into contracts without human input. The formation of a valid contract requires, inter alia, an agreement between two or more parties, where each party exhibits an objective intention to be legally bound (the ‘Objective Theory of Contract’). As software develops to become more sophisticated, in some cases, it may act autonomously in forming contracts, requiring little to no human input. The contracting parties may well be unaware of the specific terms of each contract formed by the software they are using. Under the Objective Theory of Contract, no objective intention to be bound can be inferred and thus, theoretically, no binding contract will be created (the ‘contracting problem’).

Keywords: Contract Law, Law and Technology