Decades in Business, Technology and Digital Law

AI Impact on Contract Law

by | May 12, 2024 | Firm News

Artificial intelligence (AI) is transforming the landscape of traditional contract law, introducing new complexities in contract formation, performance, and enforcement. As AI systems increasingly negotiate and perform contracts on behalf of humans, legal professionals and lawmakers face the challenge of integrating these technological advances into the existing legal framework. This blog post explores how AI is reshaping the principles of contract law and the implications for legal practice and enforcement.

AI’s Impact on Contract Formation

1. Capacity and Intent: In traditional contract law, the formation of a contract requires that parties have the legal capacity to enter into an agreement and mutual assent (or intent). With AI, determining capacity and intent becomes problematic, as these systems are programmed to make decisions but do not possess legal personhood or independent intentions.

Example: When an AI system autonomously negotiates terms with another AI or human, it raises questions about whether true “intent” exists, especially if the AI’s actions reflect its programming rather than a human’s explicit intentions.

2. Transparency and Understanding: The principle of transparency in contract negotiations, ensuring that parties clearly understand the terms, is challenged by AI’s inherent complexity. This can lead to issues of fairness and informed consent, particularly if one or both parties are unaware of an AI’s involvement in drafting or negotiating the contract.

3. Electronic Contracts: AI’s role in creating and managing electronic contracts (e-contracts) complicates matters further. Although e-contracts are legally binding like traditional contracts, the automation and speed of AI-driven transactions could lead to binding agreements before parties have had the chance to review the terms adequately.

AI’s Role in Contract Performance

AI can enhance contract performance through efficiency and precision in executing contractual obligations, such as automatic payments and performance monitoring. However, this also introduces risks:

1. Dependence on Data Accuracy: AI systems rely on data accuracy and completeness to perform tasks. Inaccurate or biased data can lead to breaches of contract, for which determining liability can be challenging.

2. Adaptability Challenges: Traditional contracts allow for some degree of interpretation and flexibility by human agents. AI systems, however, might strictly adhere to the programmed parameters, potentially leading to disputes if unexpected situations arise that were not accounted for by the data or algorithms used.

AI and Contract Enforcement

Enforcing contracts involving AI poses unique challenges, particularly in determining liability and jurisdiction:

1. Attribution of Liability: If an AI system causes a contract breach, it’s unclear who should be held liable—the developer, the user, or the AI itself (which isn’t possible under current laws). This issue is compounded by the difficulty in tracing decisions back to their source due to AI’s complex decision-making processes.

2. Jurisdiction and Cross-border Issues: AI can operate across borders, which complicates jurisdictional issues. Determining which laws apply and where enforcement actions should be taken can be problematic, especially if parties are in different countries with diverse regulatory frameworks regarding AI.

Legal Adaptations and Future Outlook

To address these challenges, adaptations in legal frameworks might include:

  • Updating Legal Definitions and Concepts: Revising legal definitions to accommodate AI’s role in contracts, perhaps recognizing AI as a new type of legal entity or agent.
  • Creating AI-specific Regulations: Implementing regulations that address the nuances of AI in contract law, such as specific rules for AI contract formation, performance, and dispute resolution.
  • International Cooperation: Developing international standards and agreements to manage cross-border legal issues arising from AI contracts.

Conclusion

As AI continues to integrate into the commercial and legal landscapes, the implications for contract law are profound and require proactive measures from the legal community. By reevaluating traditional doctrines and adapting legal frameworks, we can harness AI’s potential while safeguarding the foundational principles of contract law. This journey is not just about legal adaptation but also about ensuring that technological progress aligns with ethical standards and justice.