‘Smart contracts’: When robots draft business deals

Can robots write contracts? This is a question that both the legal and the business communities in the Philippines should now consider asking,

In the three (3) years I have been practicing law, I read, wrote, reviewed, and revised a significant number of contracts. For a time, I always thought that only humans can draft contracts. I was under the impression that contract making is an activity exclusively reserved to humans. It only requires reason. This was my thinking for several years, including the time I was still studying contract law in law school.

Everything changed when I chanced upon journal articles that discussed “smart contracts”. Curious, I look into these articles and found that some jurisdictions abroad are already using these contracts. This term was first coined in 1994 by computer scientist Nick Szabo. It essentially means automated contracts—written and executed by a computer.

Before, computerized or automated contracts seem trivial or academic. It does not have much significance for everyone until chatbots like ChatGPT or Gemini came into the picture. Albeit not exactly the same as smart contracts, these chatbots can be prompted to write contracts. Not only that, it can also be instructed to make contracts reflect the factual context shared with the chatbot. In other words, these chatbots do not only provide a standard form (pro forma) contract, but can actually produce one that actually fits the needs of the contracting parties.

Then, the world now has smart contracts—automated or computerized from inception to execution. With smart contracts, parties can input their personal information into a computer program and the said program will set the terms and conditions that are presumably favorable to each party. Aside from the drafting or “coding” of the contract, the program also takes charge of the execution of the contract. Supposing there is breach in the agreement, the smart contract will automatically trigger that liability, which can then be used as basis for a case against the violator. These are just few things that smart contracts can make possible. Just imagine its potential later on as it continues to be developed.

Now, some proponents are of the view that smart contracts are necessary as it eases and hastens a traditionally costly and prolonged contract negotiation. In turn, it allows parties to save more time for the “more important” matters in businesses, like focusing on the means that will give them more money than expenses. 

Now, there is an important question here—is a smart contract legally feasible in the Philippine setting?  We are yet to find out the answer to this question. Definitely, it will later raise questions on potential privacy and confidentiality breaches, fraud, discrimination, and many more. Ultimately, it poses questions as to the ways technology can affect human dignity, especially in terms of privacy protection and the premium given to human reason.

I could not help but ask—once we begin normalizing the use of smart contracts, are we not exposing ourselves further to privacy breaches? Data privacy breach has been a hot topic in the Philippines since the beginning of the decade of 2020. And, if we allow technology to further permeate human relations through smart contracts, then are we not exposing private data or information also? For instance, by inputting in a computer program confidential business information for purposes of contextualizing the contract, there are risks that private information might fall into the wrong hands. Furthermore, assuming that negotiations become regularly automated, are we not now eliminating the need for a human insight and input? Do businesses really need to be fully automated? Should we now give up human reason in the name of efficiency and economy?

At any rate, my final take here is that the Philippines should, as early as now, consider thinking about these potential legal questions. This technological development is inevitable. It is bound to happen whether we like or not. In fact, it is already here—a power waiting to be tapped. It is a pertinent policy issue that needs our utmost attention. Scholars, businessmen, scientists, legislators, lawyers, and all other stakeholders should begin discussing this matter and collating proposals to prepare the Philippines for these upcoming technological issues.