The Legal Implications of AI-Generated Contracts: Is AI a Legal Party?

Introduction

Artificial intelligence is revolutionising the legal profession, and nowhere more so than in contract drafting and contract management. Companies ranging from multinational giants such as Unilever to lean startups such as Robin AI are using AI-powered tools to speed up contract review, automate contract drafting, and interpret complex legal documents. The result? Less time, less expense, and fewer mistakes than conventional legal methods.

Yet, as more advanced artificial intelligence systems perform more functions—sometimes even generating entire contracts independently—many significant legal and ethical issues emerge. For example, should AI be considered a valid party in contractual terms? And if an AI program generates a defective contract or inserts unfair terms, who is to be blamed? Is there a potential future for artificial intelligence to be granted rights and responsibilities under legal systems, as they are awarded to human beings or corporate entities?

AI-Generated Contracts: Merits and Demerits

Artificial intelligence-based contract management software is significantly enhancing business operations by enabling the fast processing of contracts and reducing errors that are associated with human operations. The technology solutions are able to scan large amounts of legal data in a fast manner, detect areas of risk, and ensure compliance with the applicable laws and legislation. The solutions also serve to standardize contracts and consequently improve the readability and utilization of legal documents.

Though the benefits of AI contracts are apparent, they also pose challenging legal issues. Traditional contract law is based on the understanding that contracts are agreements between entities capable of showing intent, comprehension, and accountability. Artificial intelligence does not have consciousness or the ability to form intent—two fundamental qualities needed for the imposition of legal liability.

This situation presents some grave questions: In instances where artificial intelligence produces a contract that contains mistakes, ambiguous terms, or provisions that cannot be enforced, who is liable? Is liability left to the creators of the AI, the businesses that utilize it, or the parties who are relying on the AI's output? And, ethically speaking, should an AI hold responsibility for unknowingly producing contracts containing discriminatory or biased language?

Can AI Be a Legal Party?

Internationally, legal systems traditionally recognise two general classes of legal persons: natural persons, i.e., human beings, and legal persons, i.e., corporations or institutions. Granting similar legal status to artificial intelligence is a contentious issue, and there exist several good reasons for this debate. Artificial intelligence does not possess self-awareness, moral consciousness, or the ability to accept responsibility, essential attributes required to perform contract obligations.

Consider, for instance, Sophia, the humanoid robot that was recently granted citizenship by Saudi Arabia in a well-publicised event in 2017. Despite the fact that it gained a lot of attention and generated debates on the social applications of AI, it did not have any impact on any legal plans. No nation so far has legally established AI as a distinct legal person who has the capacity to enter into a contract.

A consensus exists among legal professionals on the inadequacy of artificial intelligence to fulfil the fundamental requirements of the law of contract. As AI machines are designed to operate on algorithms and pre-established guidelines rather than independent judgment, they cannot be held accountable just like individuals or corporate entities. The concept has been floated by some scholars that artificial intelligence can act like a corporation, thereby attributing responsibility to developers, organisations, or end-users. However, the proposition is still open and continues to be a debated topic in legal literature.

Apart from the legal status uncertainties, there is an even more fundamental philosophical inquiry: If legal status is given to artificial intelligence, should it be accorded rights and responsibilities like those given to corporations or individuals?

Legal Implications and Future Considerations

For AI-generated contracts to be legally enforceable, existing legal frameworks need to adapt to address fundamental problems:

1. Liability: Who is legally responsible for errors or disputes arising from AI-generated contracts? Are developers, companies, or users responsible?

2. Consent & Intent: Is the contract enforceable if AI, rather than a human, is its major author? How do courts interpret AI-generated contractual terms?

3. Regulation: Should governments pass AI-specific contract law to ensure fairness, transparency, and accountability in AI-facilitated legal contracts?

4. Ethical Issues: How do we design artificial intelligence systems so that contracts are equitable and follow legal and ethical standards?

   
   

As artificial intelligence continues to redefine the practice of contract law, it is only sure that human oversight is still necessary. AI cannot yet be considered a legal signatory in contracts. Yet, as these technologies become more pervasive in the practice of law, legislators and regulatory agencies come under greater pressure to enact specific laws addressing the parameters of operation of AI in the legal environment.

Artificial Intelligence is likely to have a much bigger role in the future when it comes to the preparation of contracts and assisting legal decision-making processes. Nevertheless, the prospect of AI being a completely independent legal entity appears distant—at least for now, until there are some fundamental alterations to legal frameworks and ethics.

At this time, a guarded attitude may be the most appropriate course of action. Artificial intelligence can heighten efficiency and reduce imprecisions; however, it is required that human beings have the final say regarding contracts and their legal outcomes.

References and Further Reading 

“Artist Lawrence Lek is using AI to explore whether robots can suffer” (Financial Times)

“Call for human right to have legal case heard by a person, not AI” (The Times) 

“In-house legal teams start to see AI gains” (Financial Times)

“Legal AI is reaching deep into the workplace” (Financial Times) 

“Robin AI” (The Times)