? The Technicals

Legal Contracts

In order to innovate traditional agreements, one must first understand the definition of a contract. The Draft Common Frame of Reference (DCFR) is a draft for the codification of the European contract law and related fields of law and it states the following:

Article II. 1:101: Meaning of Contract

A contract is an agreement, which gives rise to, or is intended to give rise to, a binding legal relationship or which has, or intended to have some other legal effect.

In general, a contract can be concluded if the following points are met:

1. At least two parties are involved — natural persons or legal persons.
2. There is an intent of the parties to have legal consequences.
3. A sufficient agreement is reached.

Next, let us compare its properties with those of the novel technology, Smart Contracts.

Blockchain and Smart Contracts

A Smart Contract is a computer program that allows for credible transactions without third parties. These transactions are trackable on the blockchain and have an immutable character. It is, in essence, a piece of code, designed to perform pre-defined actions when certain conditions are met.

The irony of the situation is that it is neither smart nor a legally binding contract. The protocol is subject to the quality of the written code. It can contain bugs and is irreversible. It is, however, able to self-execute transactions, which is why it is a core building block of a Smart Legal Contract.

Smart Legal Contracts

Smart Legal Contracts are legal agreements that can be read and executed by a machine. It contains the legal prose of a lawyer, a digital signature and finally hashes the document.

The Accord Project’s open source technology enables the creation of legally binding contracts that become ‘self-aware’ through connection to external data sources and other information systems. This enables automation of transactions and other contract management processes.

They provide open source software tools that form a triangle of model-logic-language of functionality. The combination of these three elements allow for contract templates to be edited, analysed, queried and executed.