Smart Contracts and Legal Enforceability
Domain overview
This domain tests whether automated code can form an enforceable contract and how courts treat code, incorporated terms, electronic signatures, and automated performance. The exam expects you to separate the smart contract, meaning code, from the legal contract, meaning obligations, and to identify which terms are on-chain, off-chain, or incorporated by reference.
Core concepts
- Formation: offer, acceptance, consideration, intention, and capacity still apply. Code can automate acceptance or performance, but it does not replace the legal test.
- Writing and signature: e-signature statutes such as ESIGN and eIDAS generally validate electronic records and signatures; some transactions still require specific formalities.
- Incorporation: terms in a whitepaper, website, or master agreement bind only if properly incorporated. A hash of terms on-chain does not automatically make them part of the contract.
- Performance and remedies: oracles feed external data; errors, outages, and exploits create breach, restitution, or negligence claims against the operator or oracle provider.
Worked example
A supply-chain escrow contract releases payment when an oracle confirms delivery. The oracle wrongly reports delivery, and funds move. The buyers claim is not that code is law; it is a contractual claim that the release condition was not met, plus a claim against the oracle or operator for faulty data. The exam answer should identify the legal contract, the incorporation of oracle terms, the dispute forum, and the remedy.
Traps that cost marks
Assuming code is self-enforcing or immune from law. Ignoring off-chain terms. Treating a wallet signature as always sufficient for consumer contracts. Forgetting that immutability can prevent cure or reversal.