How to Interpret a Vending Machine: Smart Contracts and Contract Law

Georgetown Law Technology Review, Vol. 7, Forthcoming.
(2022). Georgetown Law Faculty Publications and Other Works. 2433.

63 Pages Posted: 4 Mar 2022 Last revised: 8 Apr 2022

See all articles by Gregory Klass

Gregory Klass

Georgetown University Law Center

Date Written: February 10, 2022

Abstract

A smart contract is software designed to do the job of a legal contract: ensuring the performance of parties who might not otherwise trust one another to do so. By running a smart contract on blockchain, users can lock themselves into future performances without relying on a third-party enforcer or platform host, thereby realizing a “fully trustless” exchange. This new technology has wide range of potential applications, and contracts are likely to become an increasingly common part of the economy.

Some have argued that smart contracts represent a new type of legal contract, analogizing the software’s code to a contractual writing. Others have suggested that smart contracts might in some transactions replace legal contracts. But the relationship between smart contracts and legal contracts is more complex than either claim acknowledges. Although using a smart contract can figure into the formation of a legal contract, it is a mistake to analogize a smart contract’s code to a contractual writing. Unlike writings, code should rarely figure into to the interpretation of a legal contract; and when it does, its interpretation is different in kind. And though some have tried to use incorporation, integration or TINALEA clauses to substitute smart contracts for traditional contractual protections, it is not clear that courts would or should always enforce such provisions. And even if they do, governance by code rather than law comes at a significant cost to the parties. Smart contracts work better when they supplement, rather than supplant, legal contracts.

This article analyzes the many ways a smart contract might interact with the law of contracts by taking seriously the comparison, common in the literature, of smart contracts to vending machines. A series of thought experiments is used to explore when and how the mechanisms inside a machine, analog or digital, can affect the terms of a legal contract between its users. The resulting detailed doctrinal analysis provides support for a broader thesis about the relationship between technology, law and society. Smart contracts, though useful tools, instantiate an anemic form of human sociability as compared to the complex, even trusting, relationships for which contract law is designed.

Keywords: contract, legal theory, smart tech

JEL Classification: K00, K12

Suggested Citation

Klass, Gregory, How to Interpret a Vending Machine: Smart Contracts and Contract Law (February 10, 2022). Georgetown Law Technology Review, Vol. 7, Forthcoming.
(2022). Georgetown Law Faculty Publications and Other Works. 2433., Available at SSRN: https://ssrn.com/abstract=4045711 or http://dx.doi.org/10.2139/ssrn.4045711

Gregory Klass (Contact Author)

Georgetown University Law Center ( email )

600 New Jersey Avenue, NW
Washington, DC 20001
United States

HOME PAGE: http://www.law.georgetown.edu/faculty/klass-gregory.cfm

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