MAHARASHTRA NATIONAL LAW UNIVERSITY, MUMBAI

LAW OF CONTRACTS– II, SEMESTER– III

TITLE - ANALYSIS OF ARTIFICIAL INTELLIGENCE IN CONTRACT LAW AND ITS

LEGAL IMPLICATIONS.

FINAL DRAFT

SUBMITTED TO: SUBMITTED BY:

MR. SANGRAM JADHAV AMEY KALAMKAR

ENROLMENT NUMBER: 2022 011

YEAR & SECTION: 2ND YEAR, SECTION A

COURSE: B.A. LL.B. (HONS.)

SUBMITTED ON- 30TH OCTOBER, 2023

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TABLE OF CONTENTS

INTRODUCTION ..................................................................................................................... 3

RESEARCH OBJECTIVES ...................................................................................................... 5

RESEARCH QUESTIONS........................................................................................................ 5

MAIN BODY (CRITICAL ANALYSIS) ............................................................................................. 6

1. THE ROLE OF ARTIFICIAL INTELLIGENCE IN CONTRACT FORMATION AND ENFORCEMENT

6

1.1. AUTOMATION OF CONTRACT FORMATION .............................................................. 6

1.2. IDENTIFICATION OF RELEVANT CLAUSES AND PROVISIONS .................................... 7

1.3. ENFORCEMENT AND COMPLIANCE .......................................................................... 8

2. THE USE OF AI IN CONTRACT REVIEW AND ANALYSIS ................................................... 9

2.1. LIMITATIONS AND DIFFICULTIES OF MANUAL CONTRACT ANALYSIS ....................... 9

2.2. FUNCTIONING OF AI IN CONTRACT REVIEW AND ANALYSIS................................... 9

2.3. PROS AND OPTIMAL APPROACHES FOR EMPLOYING AI IN CONTRACT ANALYSIS. 10

3. THE IMPACT OF AI ON CONTRACTUAL INTERPRETATION .............................................. 11

4. ETHICAL CONSIDERATIONS & THE LEGAL IMPLICATIONS OF USING AI IN CONTRACT

LAW 12

4.1. ETHICAL CONSIDERATIONS OF USING AI IN CONTRACT LAW ............................... 12

4.2. LEGAL RAMIFICATIONS OF USING AI IN CONTRACT LAW ..................................... 13

COMPARATIVE STUDY .............................................................................................................. 14

SUGGESTIONS AND CONCLUSION .............................................................................................. 16

1. SUGGESTIONS FOR FURTHER ANALYSIS OF AI IN CONTRACT LAW AND ITS LEGAL

IMPLICATIONS ................................................................................................................... 16

2. CONCLUSION............................................................................................................. 16

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INTRODUCTION

“The development of full artificial intelligence could spell the end of the human race…. It
would take off on its own, and re-design itself at an ever-increasing rate. Humans, who are
limited by slow biological evolution, couldn’t compete, and would be superseded.”

— Stephen Hawking told the BBC

Artificial intelligence (AI), within the field of computer science, focuses on developing and
overseeing technology that has the ability to make judgements and act on behalf of people on
its own1. In recent years, AI technologies have witnessed remarkable advancements, leading
to their increasing utilization in various aspects of contract law2, from drafting and reviewing
contracts to dispute resolution. Numerous businesses encounter challenges in effectively and
efficiently creating and managing contracts, and AI can revolutionize the instruments
employed by companies for contracting purposes3. This paradigm shift has generated
significant interest and concerns regarding its implications for the legal profession, businesses,
and society at large.

Contract law is an academic discipline concerned with the formation, implementation, and
finalisation of all legally binding contracts and agreements4. A contract is a mutually binding
agreement between parties that establishes legally enforceable obligations. Legal
enforceability of a contract is contingent upon several fundamental elements: mutual consent,
which is manifested through a valid offer and acceptance; sufficient consideration; capacity;
and legality. Legally, a contract is formed when the parties exchange assurances regarding
conditions and provisions that are reasonably comprehensible. A contract underpins every
business relationship, and contract law regulates the exchange of commodities and services
between businesses5.

1
by Margaret Rouse, A. P. (2023, August 15). Artificial Intelligence. Techopedia.
2
Indian Contract Act, 1872
3
“How Artificial Intelligence is Transforming the Legal Profession,” ABA Journal, posted April 1, 2016 (Julie
Sobowale).
4
What Is Contract Law Definition? (n.d.). UpCounsel. https://www.upcounsel.com/what-is-contract-law-
definition
5
contract. (n.d.). LII / Legal Information Institute. https://www.law.cornell.edu/wex/contract

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The intersection of Artificial Intelligence (AI) and contract law presents a compelling and
dynamic area of study within the legal field. The potential for integrating artificial intelligence
inside the legal sector, particularly in legal departments, is positioned to elevate computers
beyond mere keyword search tools. AI and Contracts can function as collaborative partners,
working alongside attorneys to enhance the provision of legal services to companies in a more
efficient and cost-effective manner, with machine learning improving this practise6. Cognitive
computing's three fundamental processes underpin this learning, that are collecting
information, analysing and comprehending it, and making decisions7. This process is iterative
and there is scope of improvement with each instance, especially if we are reprimanded and
guided by a more experienced lawyer, and AI operates similarly in the law industry.

Numerous businesses have difficulty creating and maintaining contracts in an efficient and
effective fashion. The increasing prevalence of AI contracting software has the capacity to
enhance the manner in which all businesses contract. It can alter the contracting instruments
utilised by businesses, and the substance of contracts may be impacted. It also has the potential
to enhance the procedures through which organisations formulate and implement contractual
agreements. By reducing the amount of personnel needed to manage contracts and the
contracting process as a whole, these innovative technologies have the capacity to provide
substantial value to the entire organisation. These emerging technologies offer the possibility
of substantially reducing the human resources needed for overseeing contracts and the overall
contract management process, thereby delivering significant value to the entire organization.
Overall, this project aims to delve into the multifaceted landscape of AI in contract law,
exploring its current applications, analysing its potential legal implications, and proposing
insights for the future.

6
AI and its Impact on Legal Technology. (n.d.). AI And Its Impact on Legal Technology | Thomson Reuters.
https://legal.thomsonreuters.com/en/insights/articles/ai-and-its-impact-on-legal-technology
7
“Cognitive Computing: Under the Hood,” Thomson Reuters “Answers On” Blog, posted January 27, 2017
(Bob Arens).

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RESEARCH OBJECTIVES

1. TO EVALUATE CURRENT AI APPLICATIONS IN CONTRACT LAW: This research seeks to

comprehensively examine the existing AI tools and technologies employed in contract law,
including contract analysis, drafting, and management. It will assess the extent to which AI
is currently integrated into legal practice and the benefits it brings.
2. TO ANALYSE THE LEGAL IMPLICATIONS OF AI IN CONTRACT LAW: One of the key
objectives of this study is to critically assess the legal implications arising from the use of
AI in contract law. This includes an exploration of issues related to liability, data privacy,
security, and ethics, as well as their impact on contract formation, enforcement, and dispute
resolution.
3. TO EXAMINE THE ROLE OF AI IN LEGAL PRACTICE AND EDUCATION: This research will
investigate how AI technologies are reshaping the roles of legal professionals, paralegals,
and educators in the field of contract law. It will explore the changing nature of legal
practice and the evolving skill sets required.
4. TO PROPOSE GUIDELINES AND RECOMMENDATIONS: Based on the analysis of AI
applications and their legal implications, this study aims to offer practical guidelines and
recommendations for legal practitioners, businesses, policymakers, and educators on
effectively integrating AI into contract law while navigating potential challenges.

RESEARCH QUESTIONS

1. How is AI currently being utilized in contract law, and what are its main applications in
contract analysis, drafting, and management?
2. What are the legal challenges and implications associated with the use of AI in contract
law, particularly concerning issues such as liability, data privacy, and ethics?
3. How is the role of legal professionals and educators evolving in response to AI's integration
into contract law practice and education?
4. What practical guidelines and recommendations can be proposed for legal practitioners,
businesses, policymakers, and educators to maximize the benefits of AI while managing its
legal and ethical implications in contract law?

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MAIN BODY (CRITICAL ANALYSIS)

1. THE ROLE OF ARTIFICIAL INTELLIGENCE IN CONTRACT FORMATION AND

ENFORCEMENT

Artificial intelligence companies are always looking for new methods to build technology that
can manage arduous jobs in many sectors with greater speed and precision. AI has already
made its way into the legal profession, assisting both attorneys and clients. The increased
interest in using artificial intelligence in law is gradually altering the profession and
encroaching on the job of paralegals, legal scholars, and litigators8.

Artificial intelligence plays a diverse and transformational role in contract formulation and
enforcement. AI technologies are progressively being integrated into numerous parts of the
legal profession in order to expedite and improve the whole contract lifecycle. AI is also
making considerable gains in the realm of contract generation and enforcement, significantly
easing the legal process, along with producing game-changing breakthroughs in the field of
contract creation. Overall artificial intelligence plays a diverse and transformational role in
contract formulation and enforcement, and below are the key roles of the same-

1.1. AUTOMATION OF CONTRACT FORMATION

Contract drafting tools powered by artificial intelligence are becoming more and sophisticated,
and by analysing predefined templates with machine learning and deep learning algorithms,
they are able to generate customised contracts. For instance, the LawGeex AI-powered
platform, expedites deal closure and reduces expenses by automating the tedious legal tasks of
pre-signature review, redlining, and contract negotiation. By delegating mundane tasks, legal
teams can reallocate their resources to strategic concerns while mitigating risk and expense9.

In the domain of artificial intelligence, the identification and extraction of clauses is an

essential undertaking, in which Natural Language Processing (NLP) assumes a central position.
This capability enables artificial intelligence systems to analyse and comprehend contractual

8
Juumta, S. (2021, September 7). AI in Law and Legal Practice - A Comprehensive View of 35 Current
Applications. Emerj Artificial Intelligence Research. https://emerj.com/ai-sector-overviews/ai-in-law-legal-
practice-current-applications/
9
Lawgeex - Conquer Your Contracts. (n.d.). Lawgeex. https://www.lawgeex.com/

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language, deriving specific clauses and terms. Legal terminology and context can be identified
by NLP algorithms, thereby assuring the identification of critical clauses. The ability of
artificial intelligence to perform contextual analysis is predicated on machine learning
principles10. By conducting in-depth analyses of vast quantities of data, AI systems have the
ability to discern the intricacies of contract context. This is exemplified by the capability to
identify changes or discrepancies between multiple versions of contracts, thereby substantially
reducing the risk of blunders during the review process11.

1.2. IDENTIFICATION OF RELEVANT CLAUSES AND PROVISIONS

AI systems utilise a sophisticated methodology in the field of contextual analysis to

comprehend the precise requirements of a contract, and possess the ability to identify pertinent
clauses through the examination of the contract type under consideration, including partnership
arrangements, employment contracts, and real estate transactions12. The possession of this
contextual comprehension not only facilitates the process of contract formulation but also
guarantees that the resultant contracts are customised to suit the specific requirements of every
circumstance.

AI is of utmost importance in the realm of risk assessment as it analyses potential liabilities

and obstacles linked to various contractual provisions13. This evaluation enables legal
practitioners to make informed judgements regarding the incorporation or omission of
particular provisions in the agreement. In addition to risk mitigation, the benefits entail an
overall improvement in the quality and dependability of contracts.

In conjunction with contextual evaluation and risk assessment, artificial intelligence can offer
significant assistance by suggesting clauses, and by leveraging past data and adhering to
established protocols, AI systems possess the capability to propose additional or substitute
clauses for incorporation into contracts. Through this action, individuals aid in the development

10
Stanford Artificial Intelligence Laboratory. (n.d.). Stanford Artificial Intelligence Laboratory.
https://ai.stanford.edu/
11
How AI Is Changing Contracts. (2018, February 12). Harvard Business Review. https://hbr.org/2018/02/how-
ai-is-changing-contracts
12
Can Today’s NLP technology really comprehend legal contracts? | ContractAI. (n.d.). Can Today’s NLP
Technology Really Comprehend Legal Contracts? | ContractAI. https://contractai.apporchid.com/can-todays-
nlp-technology-really-comprehend-legal-contracts.php
13
What Is the Doctrine of Utmost Good Faith in Insurance? (2021, February 3). Investopedia.
https://www.investopedia.com/terms/d/doctrineofutmostgoodfaith.asp

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of all-encompassing contracts that adhere to established legal norms and industry standards.
Consequently, contracts are guaranteed to be comprehensive and devoid of deficiencies14.

1.3. ENFORCEMENT AND COMPLIANCE

Contract monitoring is an area where AI systems prove to be indispensable. These AI-powered

systems are equipped to continuously monitor contracts in real-time, providing stakeholders
with timely alerts regarding impending milestones or deadlines. By doing so, they play a crucial
role in ensuring compliance with contractual obligations, thus reducing the likelihood of
breaches and non-compliance. In a related context, predictive analytics is another significant
facet of AI's involvement in contract management. Leveraging historical contract data, AI can
forecast potential issues or disputes that may arise in the future. This predictive capacity allows
organizations to take proactive measures, preventing conflicts and non-compliance before they
materialize15. It serves as a valuable tool in risk management and conflict prevention within
the context of contract enforcement. Furthermore, the integration of blockchain technology
stands out as a ground-breaking development in contract enforcement16.

AI is instrumental in the creation and execution of smart contracts, which are built on
blockchain technology. A smart contract is a programme that executes itself and automates the
necessary actions outlined in a contract or agreement. The transactions are irreversible and
trackable once they have been finalised. Smart contracts enable anonymous, dispersed parties
to conduct trusted transactions and enter into agreements without requiring a central authority,
legal system, or external enforcement mechanism. The use of blockchain ensures an immutable
and transparent mechanism for contract enforcement, enhancing trust and reliability in
contractual relationships while minimizing the need for intermediaries or manual oversight

14
ELEMENTS OF A CONTRACT | Law 101: Fundamentals of the Law. (n.d.). ELEMENTS OF a
CONTRACT | Law 101: Fundamentals of the Law. https://courses.lumenlearning.com/suny-monroe-
law101/chapter/elements-of-a-contract/
15
What is predictive analytics? Transforming data into future insights. (n.d.). CIO.
https://www.cio.com/article/228901/what-is-predictive-analytics-transforming-data-into-future-insights.html
16
What Are Smart Contracts on the Blockchain and How They Work. (2023, May 31). Investopedia.
https://www.investopedia.com/terms/s/smart-contracts.asp

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2. THE USE OF AI IN CONTRACT REVIEW AND ANALYSIS

Contract review and analysis is a crucial task for business development professionals, who
need to understand the terms, risks, and opportunities of various agreements. Determining the
precise meaning of extensive sections of text that delineate the terms, conditions, provisions,
obligations, and possible hazards of a contract can prove challenging when contract analysis is
conducted manually. An impact can be generated by artificial intelligence in this regard.
Indeed, numerous enterprises have commenced utilising AI contract management technology
for the purpose of contract analysis17. AI has demonstrated its ability to optimise contract
analysis by implementing functionalities such as intelligent search, automated data extraction,
clause-level text recommendations, and more. This has resulted in time savings, diminished
likelihood of human error, and mitigation of risk concerns18.

2.1. LIMITATIONS AND DIFFICULTIES OF MANUAL CONTRACT ANALYSIS

Manual contract analysis presents several challenges and limitations. It's a time-consuming
process, demanding meticulous attention to detail as legal teams scrutinize lengthy and
complex contracts page by page. Human errors are a risk, and complexities within contracts,
such as bespoke structures, multiple parties, and language differences, further complicate the
analysis. Additionally, ensuring compliance with evolving legal landscapes and identifying
potential risks can be daunting, particularly if contracts lack standardized structures19.

2.2. FUNCTIONING OF AI IN CONTRACT REVIEW AND ANALYSIS

The implementation of artificial intelligence in contract analysis improves the efficiency and
accuracy of a laborious procedure that was previously monotonous. Contract analysis
software’s that are propelled by artificial intelligence promptly detect essential contractual
provisions, including key terms and clauses, by employing techniques such as predictive
coding, clustering, concept search, and topic modelling. Prominent AI technologies encompass

17
Understanding The Role of AI In Contract Analysis. (n.d.). Understanding the Role of AI in Contract
Analysis. https://www.spotdraft.com/blog/ai-contract-analysis
18
How do you use AI to automate contract review and analysis? (2023, September 6). How AI Can Automate
Contract Review and Analysis. https://www.linkedin.com/advice/3/how-do-you-use-ai-automate-contract-
review
19
Supra 17

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Natural Language Processing (NLP) and Machine Learning (ML), which empower AI systems
to comprehend the structure and language of contracts20. These technologies improve the
automated identification of significant contract clauses by facilitating duties such as entity
recognition and semantic analysis. Through the process of parsing contracts into machine-
readable text, analysing structural elements, and identifying particular language or patterns, AI
also automates contract review and key-term extraction. This facilitates expedited and precise
contract analysis, which is advantageous for organisations managing substantial quantities of
contracts as it guarantees uniformity and accuracy.

2.3. PROS AND OPTIMAL APPROACHES FOR EMPLOYING AI IN CONTRACT ANALYSIS

The utilisation of AI in contract analysis provides legal fraternity with a multitude of

advantages. To begin with, it substantially optimises productivity and reduces downtime
through the rapid examination of contracts, detection of irregularities, revelation of patterns,
and proposal of enhancements. This expedites the contract review procedure and enables legal
professionals to allocate their attention towards more strategic endeavours. Additionally, AI
reduces human error and improves the precision of contract analysis. It functions impartially,
devoid of any predispositions, establishing uniform formatting standards, and guaranteeing
adherence to regional regulations. Furthermore, artificial intelligence facilitates scalability,
thereby empowering organisations to effectively oversee substantial quantities of contractual
obligations. By automating data extraction, optimising operations, and managing contract
records, it generates significant time and cost savings. In conclusion, AI demonstrates
exceptional proficiency in discerning critical terms, clauses, and hazards within contracts
through the utilisation of technologies such as NLP, which has been discussed above. The
automated extraction of critical information can expedite negotiations and reduce sales
cycles21.

20
The Power of Natural Language Processing. (2022, April 19). Harvard Business Review.
https://hbr.org/2022/04/the-power-of-natural-language-processing
21
Rai, D. (2020, October 24). Use of artificial intelligence in contract review - iPleaders. iPleaders.
https://blog.ipleaders.in/use-of-artificial-intelligence-in-contract-review/

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3. THE IMPACT OF AI ON CONTRACTUAL INTERPRETATION

The integration of Artificial Intelligence (AI) in contractual interpretation is reshaping the

landscape of legal practice. AI algorithms, with their capacity to analyse and interpret contracts,
present both opportunities and challenges. While they can enhance efficiency and accuracy,
discrepancies between AI-generated interpretations and those of human legal professionals
may lead to disputes22.

When AI algorithms are employed to interpret contract language, the potential for disparate
interpretations compared to those made by human judges or lawyers can lead to disputes. This
discrepancy poses a complex challenge, as it involves the intricate task of understanding legal
language and context. One of the central legal issues surrounding AI in contractual
interpretation pertains to liability. Determining responsibility in the event of an error resulting
from an AI algorithm's interpretation remains an unanswered question. Whether it falls upon
the company that developed the algorithm or the user who relied on it is a matter yet to be
resolved.

Another crucial aspect is transparency, as AI algorithms may lack transparency in their

interpretation process. Parties involved in the contract may find it challenging to comprehend
how an algorithm reached a specific interpretation, potentially eroding trust between them.
Furthermore, the use of AI algorithms in contractual interpretation raises concerns regarding
data protection. These algorithms often process personal data subject to protection under data
protection laws. Companies employing AI must ensure compliance with these laws in their
contract interpretation practices.

A significant concern revolves around the vulnerability of certain parties, such as consumers
or small businesses, who may be disproportionately affected by AI's interpretation. These
parties may lack access to legal expertise and resources to challenge an algorithm's
interpretation, making them more susceptible to adverse outcomes. Overall, while the use of
AI in contractual interpretation holds promise for companies, it simultaneously introduces a
host of legal issues that require careful consideration and resolution.

22
High, J. (2023, August 15). AI contract review: How tech can ease the headache of tedious tasks | Legal Blog.
Thomson Reuters Law Blog. https://legal.thomsonreuters.com/blog/how-ai-enabled-tech-can-ease-the-
headache-of-contract-review/

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4. ETHICAL CONSIDERATIONS & THE LEGAL IMPLICATIONS OF USING AI IN

CONTRACT LAW

4.1. ETHICAL CONSIDERATIONS OF USING AI IN CONTRACT LAW

The incorporation of artificial intelligence into contract law presents a collection of ethical
concerns that necessitate careful scrutiny. The presence of bias and impartiality is a significant
concern, because a biased algorithm that has been trained on biased data may generate biased
results, which may ultimately result in unjust outcomes. An additional ethical concern pertains
to privacy. The application of AI algorithms to contract law may necessitate the processing of
personally identifiable information protected by data protection laws, and ultimately,
apprehensions arise regarding responsibility and accountability.

To begin with, transparency becomes a primary concern. Transparency may be compromised

in the application of AI to contract interpretation, leaving parties in the dark as to how an AI
system arrived at its conclusions. Ensuring transparency is crucial for preserving confidence
and adhering to ethical standards23. Furthermore, it is critical to resolve bias and guarantee
fairness in the contract outcomes generated by AI. The inheritance of prejudices from the
training data of AI algorithms may result in outcomes that are unjust. In order to ensure that all
parties are treated fairly, proactive measures are necessary to identify and mitigate bias in
accordance with ethical considerations24.

The establishment of accountability presents a substantial ethical dilemma25. The assignment

of liability in cases of errors or disputes that arise due to AI-generated contract interpretations
is a multifaceted task. Precise lines of responsibility between the developers of AI systems and
the users who depend on them ought to be delineated in ethical guidelines.

23
Martin-Bariteau, Florian and Pavlovic, Marina, AI and Contract Law (February 1, 2021). in Florian Martin-
Bariteau & Teresa Scassa, eds., Artificial Intelligence and the Law in Canada (Toronto: LexisNexis Canada,
2021), Available at SSRN: https://ssrn.com/abstract=3730385
24
Diakopoulos, N. (2014, November 7). Algorithmic Accountability. Digital Journalism, 3(3), 398–415.
https://doi.org/10.1080/21670811.2014.976411
25
Hricik, D., Morgan, A. L. S., & Williams, K. H. (2018, April). Ethics of Using Artificial Intelligence to
Augment Drafting Legal Documents. Symposium Edition - Artificial Intelligence and the Legal Profession,
4(5), 465–484. https://doi.org/10.37419/jpl.v4.i5.3

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4.2. LEGAL RAMIFICATIONS OF USING AI IN CONTRACT LAW

Numerous legal ramifications necessitate clarification and regulation in relation to the

application of AI to contract law. In the realm of contract formulation, acknowledging AI as a
competent party is predominately a legal consideration. This scenario gives rise to inquiries
concerning the ability of artificial intelligence to demonstrate the necessary intent for the
formulation of contracts and its adherence to legal principles26. Additionally, it is necessary to
provide legal clarification on the issue of liability in situations where errors transpire or
conflicts emerge concerning contract interpretations produced by artificial intelligence. It is
imperative from a legal standpoint to determine whether the user, the AI system's developer,
or both bear liability27.

Adherence to existing contract law and regulations when incorporating AI into contract
processes is a legal necessity. This encompasses compliance with data protection laws when
handling personal information through AI systems28. Intellectual property, particularly
concerning the ownership and licensing of AI-generated contracts or clauses, presents complex
legal implications. Resolving questions about ownership and intellectual property rights is
essential for legal clarity29. Safeguarding the interests of consumers and smaller businesses,
which may be more vulnerable to the impacts of AI-generated contracts, demands special legal
attention and regulatory measures30. The legal implications and ethical considerations
associated with AI in contract law necessitate the development of a comprehensive legal and
ethical framework. This framework must ensure fairness, transparency, and accountability
while upholding the principles of contract law. Legal professionals, policymakers, and the tech
industry must collaborate to effectively address these multifaceted issues31.

26
Kingston, J.K.C. (2016). Artificial Intelligence and Legal Liability. In: Bramer, M., Petridis, M. (eds)
Research and Development in Intelligent Systems XXXIII. SGAI 2016. Springer, Cham.
https://doi.org/10.1007/978-3-319-47175-4_20
27
Ronald Leenes, Erica Palmerini, Bert-
Jaap Koops, Andrea Bertolini, Pericle Salvini & Federica Lucivero (2017) Regulatory challenges of robotics:
some guidelines for addressing legal and ethical issues, Law, Innovation and Technology, 9:1, 1-
44, DOI: 10.1080/17579961.2017.1304921
28
Geiger, "Regulating AI: The New European Artificial Intelligence Act" - Social Science Research Network,
2021
29
Duffy & Helmers, "Artificial Intelligence: Intellectual Property and Liability Perspectives" - Springer, 2020
30
Floridi, "The Fourth Revolution: How the Infosphere is Reshaping Human Reality" - Oxford University Press,
2014
31
Radin, "Boilerplate: The Fine Print, Vanishing Rights, and the Rule of Law" - Princeton University Press,
2013

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COMPARATIVE STUDY

In the ever-evolving landscape of law and technology, the integration of Artificial Intelligence
into contract law has brought about a significant transformation. As AI continues to redefine
the way contracts are formed, interpreted, and enforced, it has become imperative to undertake
a comprehensive comparative study that delves into the multifaceted aspects of AI's role in
contract law. This project overall seeks to not only analyse the application of AI in contract
processes but also to scrutinize the legal implications and ethical considerations that arise from
this technological evolution. By examining the global landscape and various jurisdictions, the
comparative study in this segment of the project aims to provide a holistic understanding of
how AI is reshaping the practice of contract law and the profound legal consequences that
accompany this paradigm shift.

Numerous legal concerns have been raised in relation to the integration of Artificial
Intelligence into the execution of contracts, and the interpretation of contractual language by
AI algorithms may diverge from that of human judges or attorneys, which could potentially
lead to conflicts32. The implementation of artificial intelligence in contract formulation,
formation, or enforcement presents a multitude of hazards, specifically for controllers,
attorneys, and vulnerable parties. It is important to highlight that the legal framework
concerning this subject is still in its early stages, and it is anticipated that additional cases will
emerge to examine the consequences of integrating AI with contractual liability principles.33

Contractual language interpretation is a complex undertaking that requires an in-depth

understanding of legal terminology and context. The utilisation of AI algorithms for this
objective could result in interpretations that deviate from the judgements of human legal
experts, which could potentially spark conflicts. Concerns arise regarding the allocation of
liability in the event that an error arises from the interpretation of an AI algorithm; should the
responsibility be borne by the algorithm's developer or by the user who placed reliance on it,

32
Egeruoh-Adindu, I.E. (2021). Technology and the Law: The Impact of Artificial Intelligence (AI) on
Litigation and Dispute Resolution in Africa. In: Eboe-Osuji, C., Emeseh, E., Akinkugbe, O.D. (eds) Nigerian
Yearbook of International Law 2018/2019. Nigerian Yearbook of International Law , vol 2018/2019. Springer,
Cham. https://doi.org/10.1007/978-3-030-69594-1_18
33
Hacker, P., Krestel, R., Grundmann, S. et al. Explainable AI under contract and tort law: legal incentives and
technical challenges. Artif Intell Law 28, 415–439 (2020). https://doi.org/10.1007/s10506-020-09260-6

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regarding which nothing has been resolved. Furthermore, the implementation of AI algorithms
for contractual interpretation might demonstrate a lack of transparency, as it might be difficult
for the involved parties to ascertain the specific methodology that the algorithm utilised in
order to derive its interpretation. The lack of transparency may foster scepticism among the
stakeholders involved. Additionally, data protection concerns arise due to the potential for
algorithms to process personal data that is protected by data protection laws. When AI
algorithms are implemented, compliance with these regulations becomes of the utmost
importance. Moreover, susceptible stakeholders, including consumers and small enterprises,
might be disproportionately affected by the implementation of AI algorithms for contractual
interpretation. Such stakeholders might be devoid of the necessary legal knowledge and
resources to contest algorithmic interpretations34.

Priority is given to ethical considerations when incorporating AI into contract law. The
presence of bias and fairness is a substantial concern due to the possibility that algorithms
trained on biased data could generate prejudiced outcomes, which could result in inequitable
outcomes. Due to the potential processing of personally identifiable information safeguarded
by data protection legislation, privacy concerns arise. Subsequently, concerns regarding
accountability and responsibility arise, specifically regarding the allocation of liability in the
case of an error stemming from the interpretation of AI. It is crucial to confront these ethical
dilemmas when incorporating AI into the field of contract law. In conclusion of the
comparative analysis, the incorporation of AI into contract law presents numerous prospects
for organisations, but it also introduces a multitude of legal and ethical dilemmas that require
thoughtful examination and resolution35.

34
Linarelli, John, A Philosophy of Contract Law for Artificial Intelligence: Shared Intentionality (June 29,
2021). Martin Ebers, Cristina Poncibò, and Mimi Zou eds., Contracting and Contract Law in the Age of
Artificial Intelligence (Hart, Forthcoming), Available at
SSRN: https://ssrn.com/abstract=3876606 or http://dx.doi.org/10.2139/ssrn.3876606
35
Zuckerman, Adrian A. S., Artificial Intelligence – Implications for the Legal Profession, Adversarial Process
and Rule of Law (March 10, 2020). Forthcoming in (2020) 136 Law Quarterly Review, Oxford Legal Studies
Research Paper No. 9/2020, Available at
SSRN: https://ssrn.com/abstract=3552131 or http://dx.doi.org/10.2139/ssrn.3552131

ANALYSIS OF ARTIFICIAL INTELLIGENCE IN CONTRACT LAW AND ITS LEGAL IMPLICATIONS. 15

 MAHARASHTRA NATIONAL LAW UNIVERSITY, MUMBAI
LAW OF CONTRACTS– II, SEMESTER– III

SUGGESTIONS AND CONCLUSION

1. SUGGESTIONS FOR FURTHER ANALYSIS OF AI IN CONTRACT LAW AND ITS LEGAL

IMPLICATIONS

Conducting in-depth case studies on the integration of AI in contract law serves as a vital step
in recognizing potential legal and ethical quandaries. These case studies not only shed light on
practical applications but also offer invaluable insights into the evolving legal terrain
influenced by AI. The development of comprehensive regulatory frameworks tailored to the
utilization of AI in contract law can play a pivotal role in addressing these legal and ethical
challenges. Such frameworks should extend guidance on critical aspects like liability,
transparency, and data protection, providing a structured foundation for responsible AI
application. To foster a culture of responsibility and ethics, fostering collaboration among legal
professionals, judges, and AI experts is indispensable. This collaborative approach can yield
best practices that promote ethical AI usage in contract law, ensuring adherence to established
standards.

In parallel, the education of lawyers, judges, and other legal practitioners is paramount.
Equipping these professionals with the knowledge and awareness of AI's role in contract law
is essential for effectively navigating the complex challenges it presents. Furthermore,
continuous research into the use of AI in contract law is pivotal. This ongoing exploration can
unveil emerging legal and ethical issues, while offering deeper insights into AI's practical
impact on the legal landscape.

2. CONCLUSION

In contract law, the application of Artificial Intelligence (AI) presents both opportunities and
hazards. Although AI has the potential to assist businesses in streamlining operations and
reducing expenses, it also presents a number of legal and ethical concerns that demand
attention. The use of artificial intelligence in contractual interpretation has prompted a number
of legal concerns, including data protection, liability, and transparency. As the law in this area
continues to develop, we anticipate additional cases concerning the ramifications of AI
integration on contractual liability principles. Organisations that incorporate AI into their
processes must guarantee adherence to these regulations when implementing AI algorithms.

ANALYSIS OF ARTIFICIAL INTELLIGENCE IN CONTRACT LAW AND ITS LEGAL IMPLICATIONS. 16

 MAHARASHTRA NATIONAL LAW UNIVERSITY, MUMBAI
LAW OF CONTRACTS– II, SEMESTER– III

The use of artificial intelligence in contract law gives rise to ethical concerns pertaining to
privacy, accountability, responsibility, and equity. All of these are significant ethical concerns
that must be taken into account when implementing AI in contract law. Although the
implementation of AI in contract law offers numerous prospects for organisations, it also gives
rise to a number of legal and ethical concerns that demand attention. Businesses should address
legal concerns regarding the acquisition, development, and use of AI. Additionally, they should
contemplate the ethical ramifications of employing AI in contract law and implement measures
to reduce any possible hazards.

ANALYSIS OF ARTIFICIAL INTELLIGENCE IN CONTRACT LAW AND ITS LEGAL IMPLICATIONS. 17

 MAHARASHTRA NATIONAL LAW UNIVERSITY, MUMBAI
LAW OF CONTRACTS– II, SEMESTER– III

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