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Are Smart Contracts “Legally Smart” for your Business?


Smart Contracts are contracts that exist on a blockchain, and typically on a private blockchain. This is a relatively new area of technology that promises efficiency and low cost for executing contracts, and usually advocates for the elimination of lawyers in the process. Some advocates go so far as to claim contract lawyers will replaced by Smart Contracts and technology. The fact that these advocates are usually not lawyers – and program Smart Contracts – should come as no surprise.

Smart Contracts can have a place in certain businesses and industries. However, there are some legal challenges that these Smart Contract advocators have not considered, thus substantiating the need for attorneys. 

In order to enforce any contract within the judicial system, certain elements must be present – and while Smart Contracts could check the box in many instances, there could be additional elements for certain types of transactions that could be left out if lawyers were not consulted. That is why some contracts, particularly mergers and acquisitions, can be hundreds of pages in length including the exhibits. Settlement agreements are often lengthy as well, as they set out the terms of the agreement, applicable payments, and ramifications if the terms are not followed. Even some logistics and supply chain contracts can run 30-40 pages if the agreement is for a large corporation and the transaction is complex. While many contracts can be shortened to be more concise, they are often lengthy because they contain needed elements in order to be legally enforceable, mitigate risk, and protect the company’s best interests. Smart Contracts would not be “legally smart” for these types of complex agreements.  

Among the challenges that Smart Contracts face, is whether they are legally enforceable. While some may tout the sidestepping of attorneys, it is wise, and in a company’s best interest, to initially seek legal counsel to make sure that their code (and thus Smart Contract) has the necessary legal elements. Otherwise, the perceived benefit that was sought originally, is all but lost. 

At the end of the day, Smart Contracts can be a useful technology for certain applications and industries. However, it is important for businesses to recognize their limitations, and have a lawyer review the terms of the Smart Contract prior to coding, to make sure it is “legally smart.”  

Disclaimer: This article is for general informational purposes, and is not intended to be given or taken as legal advice. If you have specific legal questions or concerns about your business, you should seek legal advice from an attorney. Choate Law welcomes you to contact us for a complementary consultation to discuss your individual business needs.