For the past 200 years, contracts haven’t really changed. Yes, we did evolve from using ink and parchment to typewriters and then word processing software but that was just the form of documentation. The actual wording and composition of contracts have remained pretty much the same. The future of contracts looks quite different!
Imagine a bank loan agreement that automatically verifies whether the borrower maintains its required loan ratios. Or imagine a trademark license that automatically files a trademark renewal upon expiration. Or imagine the sale of business contract that automatically computes the value of inventory, makes closing adjustments, and verifies each condition for payment.
Last night, I attended a “Crash Course” on Automating Contracts at CU Law School, which was a fascinating look at how contracts can be reinvented to transact more efficiently using computers. Harry Surden explained how contract terms can be written in computer code and APIs can be used to tell computers whether the contract terms are in compliance. This is what he calls “computable contracts”, as further explained in his law review article. Vikas Reddy also made a compelling case for how contracts are similar to software applications, and therefore could be written more concisely and save time in reviewing and negotiating legal terms by using programming methodology.
The goal is to make the process of writing contracts and enforcing them more efficient. The end result is that computers would no longer be written in plain English, but in computer language. According to Harry Surden, this is already happening in the financial world. Contracts for option trading or derivatives are created by computers and questions are displayed to the investor or broker. Simple clicks of the mouse or keyboard are all that is necessary to complete the transaction and the contract is retained on a server in the form of data.
In order to expand contract automation beyond the financial world, the speakers seem to agree that the key was in developing standardized terms. However, the audience consisting mostly of lawyer, expressed some doubt about whether contracts can or would be standardized. From my perspective, standardized language is already happening. You see it in real estate agreements, loan contracts, and even venture capital deals. Translating those contracts into machine language is only a matter of time.
So, the next time you want to see a copy of your contract, you may have to ask your computer. What do you think of the future of contracts – will it make our lives better?
Roger Glovsky is a business lawyer who believes legal documents should be accessible, affordable and comprehensible. As author of ContractsGuru.com, Roger coaches business owners how to draft and negotiate their own contracts through workshops, teleseminars and online programs. As founder of LEXpertise.com, he plans to make it easier for business owners to find the right legal documents when they need them. Originally from Massachusetts, he now lives in Boulder, Colorado.