Smart Contracts and Legal Enforceability: Closing the Gap Between Code and Law
Smart contracts execute automatically when conditions are met. But what happens when the code executes correctly and the legal outcome is wrong? We examine the enforceability of smart contracts under Lebanese and regional law.
A smart contract is a self-executing program stored on a blockchain that automatically enforces the terms of an agreement when predefined conditions are met. The appeal is obvious: no intermediaries, no ambiguity, no enforcement costs. The legal reality is considerably more complex.
The fundamental tension is between the deterministic nature of code and the interpretive nature of law. A smart contract does exactly what it is programmed to do. A legal contract does what the parties intended — and intention is frequently disputed. When the code executes correctly but produces an outcome that one party argues was not the intended agreement, the question of legal enforceability becomes acute.
Under Lebanese contract law, the essential elements of a valid contract — consent, capacity, object, and cause — must be present regardless of the medium of expression. A smart contract can satisfy these requirements, but the analysis is not automatic. Questions of consent (was there genuine agreement to the coded terms?), object (is the subject matter lawful?), and cause (is the underlying purpose legitimate?) must be addressed.
Our recommendation for clients deploying smart contracts is to use a hybrid approach: a natural-language master agreement that governs the commercial relationship, with the smart contract serving as the execution mechanism for specific, well-defined obligations. This preserves the efficiency benefits of automated execution while maintaining the interpretive flexibility that complex commercial relationships require.
This article is published for informational purposes only and does not constitute legal advice. For advice specific to your situation, please contact Orbilex directly.
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