Contract as an algorithm: Introductory considerations

Abstract

Legal norms contained in text-driven contracts (as well as in statutes and bylaws), which are written in natural language, can be subject of algorithmic conversion in certain phases of the contract circle (implementation, monitoring, control, interpretation). The application of the blockchain concept as a structural pattern opens the possibility of creating a code-driven contract with automated execution: a "smart" contract. Algorithmization is understood as a process which enables the text of the contract to be translated into a format that is understandable to software developers. To this end, the use of the following methodologies is proposed: design of a pseudocode, application of formal logic symbols and the use of flowcharts. Successful conversion of legal prose into a code calls for cooperation between lawyers and programmers. The framework of that cooperation is the establishment of the so-called "Legal Expert System" (LES). Originally conceived by lawyers, LES is a program which allows the algorithm to solve the problem of contract execution. Contract algorithmization should convert contracts from prose to a code, while preserving contract validity and efficiency. For the time being, smart contracts cannot regulate commercially complex scenarios; thus, the de lege lata application of smart contracts as a complete replacement for traditional (analogous) contracts is excluded. A potential object of algorithmization are the primary instructions aimed at executing the characteristic performance of the contract. Contract algorithmization is an ongoing process, which is here to stay. The significance of this process is indisputable but its scope, dynamics and assumptions are still only partially defined and tested. The necessary condition (but hardly a sufficient one) is to legitimize the conception of a contract as an algorithm in the process of defining contractual provisions. Further development of this concept will depend on the functioning of other elements in the environment where code-driven contracts would be used and, above all, on the commercial response to the entire process of contract algorithmization. In effect, in order to be widely applied, contract algorithmization must become a commercially viable activity.