Nature of Smart Contracts
What is the legal status of Smart Contracts? Are they legally binding?
The law surrounding Smart Contracts is yet to be fully developed, and remains uncertain for the time being.
"There are many unresolved legal issues surrounding smart contracts, such as certainty of terms and formality requirements. Some of these legal issues may be settled by the courts, but others need to be addressed by legislation. In Singapore, the Infocomm Media Development Authority has started reviewing the Electronic Transactions Act to assess how it applies to smart contracts and blockchains."
Source: Mondaq, last revised on15 January 2020
"In Singapore, requirements for a binding contract include an offer and acceptance of the offer, made with the intention to create legal relations and, the provision of consideration (something promised or given in exchange)."
"Generally, as long as smart contracts fulfil these legal requirements for binding contracts, they are legally enforceable in Singapore, although the local courts have not explicitly confirmed this as of writing."
"Each smart contract would have to be individually examined to determine enforceability."
Smart Contracts may be defined as a set of legally enforceable rights and obligations between parties that have been formalised, interpreted and encoded into software for automatic execution [*].
To date, there is a dearth of precedents on enforcing smart contracts that constitute binding legal obligations. In Singapore, the requirements for a binding contract include (1) an offer of some goods or services; (2) acceptance of the offer; (3) made with some consideration i.e. something promised or given in exchange).
Generally, as long as smart contracts fulfil these three legal requirements for binding contracts, then they are legally enforceable in Singapore.
Since smart contracts are purely written in code and have a self-executing nature, it may be difficult to attribute responsibility to any one person on the network. However, well-developed smart contracts network may potentially avoid or resolve disputes by itself without recourse to legal proceedings.
[*] Source: Kelvin Low and Eliza Mik, “Pause the Blockchain Legal Revolution” (2019) International & Comparative Law Quarterly Review(Forthcoming) (“Low and Mik”) <https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3439918>, 24-25.