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

Cite as: 7 Geo. L. Tech. Rev. 69 (2023)

Developments in contract law are often driven by new technologies of contracting. Early in the twentieth century, for example, businesses began including contract terms on preprinted purchase orders, confirmations, invoices, packing slips, and other forms. That practice generated the so-called battle of the forms, which gave rise to section 2-207 of the Uniform Commercial Code (UCC). Around the same time, as consumer-facing companies began including contract terms on the backs of receipts, on parking stubs, and on cruise ship tickets, courts had to devise rules to determine the effectiveness of these new techniques. Later, businesses began providing their customers access to complete terms only after the sale, inside a shrink- wrapped box or in the mail with products ordered over the phone. Again courts had to figure out how to handle this new form of contractual writing. In the 1990s, the Uniform Law Commission and legislatures responded to new computer technologies with laws establishing the legal equivalence of electronic records and writings.1 More recently, clickwrap and browsewrap have come to dominate online consumer contracts. Courts and commentators are still working out the right rules for these technologies of contracting.

The next chapter in this history may well involve smart contracts. A smart contract is software, perhaps run on blockchain, designed to execute future exchanges or other coordinated actions between persons who might not otherwise trust one another to perform. Recent advancements in blockchain technology have led to an explosion of commercial interest in smart contracts. Blockchain computing platforms like Ethereum now allow users to lock themselves into smart contracts without using third-party platforms, enabling what some characterize as “trustless” transactions.2 Investment vehicles built on such smart contracts have attracted hundreds of millions of dollars in cryptocurrency,3with some scholars predicting more concrete applications in areas such as insurance, financial derivatives, consumer protection, corporate governance, tax filing, voting, supply chain management, bankruptcy, property rights, and repossession.4An auto loan company, for example, might use a smart contract to automatically lock the borrower out of the car if payment is not received. An insurer might employ a smart contract to make automatic payments to farmers based on temperature and rainfall data. An avocado wholesaler and a trucking company might install vibration sensors in the trucks connected to a smart contract that adjust payments up or down based on how bumpy the ride was.

Smart contracts interact in complex ways with legal contracts. Enthusiasts have suggested that smart contracts might eventually replace legal contracts for some applications. When and how that might happen raises an interesting set of questions. More likely, however, is that smart contracts will be used in tandem with legal contracts. Before implementing a smart contract, two businesses might enter a legal contract governing its use. Alternatively, the use of a smart contract itself might generate a legal contract. Here the legal questions will involve whether and how the use of a smart contract might affect the terms of a legal contract.

In the past few years, scholars have begun exploring the legal implications of smart contracts.5But these are still early days. Scholars disagree over foundational questions, such as whether smart contracts constitute promises or agreements, whether the use of a smart contract always produces a legal contract, and whether the code of a smart contract is comparable to a contractual writing.

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Gregory Klass

Frederick J. Haas Chair in Law and Philosophy, Georgetown University Law Center. I am grateful to Julie Cohen, James Grimmelmann, David Hoffmann, Paul Ohm, Jedidiah Purdy, and Madhavi Sunder for comments on earlier drafts of this Article or thoughts that went into it. Hannah Beiderwieden and Ceara Maria Burns provided excellent research assistance.