Smart Legal Contracts: A Model for the Integration of Machine Capabilities Into Contracts

Abstract

We set out a Smart Legal Contract (SLC) Model to facilitate the integration of computer code and natural language into a technically functional and legally enforceable contract. We propose a formal definition of an SLC for the purposes of scoping this Model, and within the SLC Model identify key foundational attributes that require a different approach to that of traditional contracting. We then use this framework to consider some legal principles and practical methodologies for ensuring that neither the legal nor code elements of the contract undermine the other’s fitness for purpose and effectiveness in their respective domains of operation.

We identify that there is a need for mechanisms of governance in the natural language over the status and effect of SLC coded elements. These mechanisms focus on the linking and integration of natural language to related code, and so also have the effect of enhancing the drafter’s ability to ensure the intended agreement of the parties is unaffected (and indeed enhanced) by the inclusion of code. Finally, we argue that the SLC Model will result in a viable legal contract with enhanced functional (‘smart’) capabilities that digitally automate the performance of certain (but not all) rights and obligations via the inclusion of coded instructions.

Keywords: Smart Legal Contracts, Smart Legal Contract, Smart Contract, digital law, automated law, self-executing code, contract law, Blycha and Garside model, Rule-Making Components, Active Components, Machine-readable contract, natural language, conjoined clause, SLC, smart policy document, SPD, conjoined

JEL Classification: K, L, P, O