Boris N. Mamlyuk
Against Self-Enforcement: Smart Contracts & Superintelligence
Abstract
“Smart contracts” were sold as contracts that enforce themselves. They do not, and cannot. The claim confuses three different ideas. Economists call an agreement self-enforcing when the parties keep it because keeping it serves their interests. Engineers use code to execute conditions automatically. Lawyers use enforcement to mean a third party’s judgment backed by legitimate force. Code can automate performance. It cannot supply legal authority. When the mechanism works as intended, there is nothing to enforce. When it fails, enforcement begins off-chain. Smart contracts combine familiar legal forms: a formality, an express condition stripped of its excuse, and a pledge armed with self-help. Law already governs each of them. Code changes who holds the asset when a dispute begins and who must sue to recover it. Nick Szabo called this the “burden of lawsuit.” That is a choice about who bears the costs of litigation, made within law. The real novelty is speed: code removes the interval between trigger and consequence in which a person can object and law can protect them. This Article also reconstructs the public debates of 2018 and 2019 among Szabo, Vitalik Buterin, Vlad Zamfir, and the Crypto Law Review, an interdisciplinary law journal edited by the author. Zamfir’s manifesto against “Szabo’s law,” published there, credited the author with helping him “see through Nick Szabo’s crypto legal matrix.” Those debates anticipated conclusions later reached by courts, law commissions, and legislatures. The argument extends to autonomous AI agents and superintelligence. However capable machines become, enforcement remains a question of authority. A machine that compels performance without that authority exercises power. It does not enforce law.
Posnerian Contract Law And Fault: Revisiting Market Street Associates LP v. Frey
Abstract
Market Street Associates LP v. Frey is considered an influential case on the contractual duty of good faith, and is featured in a number of contracts casebooks, treatises, other books, and articles. The case involved a commercial lease for property that the lessor had acquired pursuant to a sale-leaseback agreement. The lease obligated the lessor to “give reasonable consideration to” and “negotiate in good faith” with the lessee over improvements to the property worth more than $250,000. If no agreement was reached, the lease gave the lessee the right to purchase the property at a fixed price. The lessee became interested in making improvements to the property and made a request for financing to the lessor. The lessor summarily refused the request based on the fact that the amount the lessee requested was less than the minimum investment the lessor usually made under its investment criteria. The lessee then attempted to purchase the property pursuant to the term in the lease. Judge Posner framed the issue as whether the lessee violated the duty of good faith by failing to notify the lessor that it planned to exercise its option under the lease to purchase the leased property if the lessor refused to finance improvements on the property. Judge Posner found that if the lessee “tried to trick” the lessor by knowingly taking advantage of the lessor’s negligent failure to consider the lease term, the lessee acted in bad faith.
In my view, Judge Posner misread the contract, incorrectly framed the issue, and unduly narrowed the good faith requirement to comport with his cramped view of the role of fault in contract law. Unfortunately, others who have analyzed the case have followed Judge Posner’s lead. In reality, the contract itself made the fault of both parties relevant to the performance of the lease term concerning financing for improvements. Because the lessor did not act in bad faith in failing to negotiate with the lessee over that financing, the lessee did not have the right to force a buyout on the lessor at the contractually stated, but below-market, price. The lessee’s attempt to exercise this right was therefore in bad faith, and the court was correct to reject it. The lessee’s bad faith was not in failing to provide notice to the lessor of the lease term or the lessor’s mistake; it was in attempting to enforce a buyout provision in a lease term in a situation where the provision did not apply, and the parties did not reasonably intend it to apply. My thesis is that Judge Posner instinctively and implicitly rejected such a broad conception of bad faith because he sees only a narrow role for fault in contract law.
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