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A JOURNEY FROM TRADITIONAL CONTRACT TO SMART CONTRACT

AUTHOR- Rohan Kumar Singh, Asian Law College

INTRODUCTION

Contact refers to an agreement enforceable by law as per section 2 of Indian contract act, 1872. In other words, contract is any type of agreement which is enforceable by law of the land. Agreement refers to when 2 or more parties comes together and agree on some points or promises which form consideration for each other. To form an agreement there must be offer + acceptance.

Every contract is an agreement but not every agreement is a contract. To form a contact there should be acceptance of proposal + enforceable by law. one of the main differences between contract and agreement is contract create a legal obligation where no such legal obligation is formed.

Traditional contract refers contract which involves one or more companies, a gaggle of lawyers, several rounds of negotiations, back and forth drafting phases, and then the often-lengthy administration of the finalized agreement. The outcome of the negotiations and drafting process is always a detailed document that is signed by all relevant parties, and it often contains various attachments, addenda, and amendments. Of course, prior to the digital age, there were paper copies of these agreements that were stored in file cabinets, but nowadays, most versions are no doubt created and stored electronically, ideally in a sophisticated contract management system.

Smart contract is so named because, as with many technology-derived solutions, they are the product of computer programming. These computer programs, also called blockchain contracts or digital contracts, create and enforce an agreed upon performance between two parties, much like the traditional counterpart. The difference, of course, is that smart contracts are computer-generated and thus it is the code itself that explains the obligations of the parties. In many cases, the parties to a smart contract are essentially strangers on the internet bound by this digitally-produced but binding agreement. The goal is obviously to facilitate business arrangements without the formality and cost associated with the traditional route.

ORIGIN

The contract act was enforced in India on 1st September 1872. Traditional contract has been there in our country from the very beginning. To get better idea about the topic lets understand this with an e.g.

1) Traditional contract

A owns a bakery and for grocery A went to his nearby grocery shop owner B and propose a promise of buying all the grocery from B shops only in exchange B have to give him grocery on credit and every month end A will pay each month’s debts.

(references = https://www.contractworks.com/blog/smart-contracts-vs.-traditional-contracts and Indian contract act 1872 )

So, in this contract 2 company were included lawyer was involved and there was a physical contract between both parties. Such contract is called traditional contract.

2) Smart contract

We take part or we can say everyone of us are one of the parties involve in smart contract as smart contract refers to online contract like if we wants to access very common apps like WhatsApp and Facebook we have to first agree to some of there policy those are also a type of smart contract where every contract is stored in computer system.

NEED

1) Contract divide the work between the parties involve in it and it describe the work they are liable to do. It helps in avoiding confusion between parties regarding the work they are suppose to do its better to have very thing written rather then confusion.

2) Contract binds the parties to perform their duty as we have read that contract is enforceable by law and thus it binds the parties involved to perform their duties on which they have agreed under the contract.

3) Contract set a time frame for the work i.e. every contract is formed with a specific date on which it will end and the work has to be completed till that time or else the parties can held the other one liable who failed to complete his part of contract in the allocated time.

4) Contract also ensure that no one is stiffed for payment, contract provide security of payment and if a person in performing his duties as per contract then there will be payment for the services rendered.

5) Contracts provide recourse when the relationship falters. If the relationship between the contracted parties deteriorates, a contract outlines the previously agreed upon steps required for dissolving the relationship without punitive measures.

CURRENT STATUS

If we talk about the current scenario of contract in India we can see still most of the contract that are been made and performed are using traditional method, in companies and other institution also still we use physical or we can say traditional contract where as smart contract are used but there use is limited to cyberspace only like apps and webpages ask user to agree to there terms and conditions to use there product i.e. there sites or apps.

Although people within the tech industry would no doubt proclaim smart contracts as the future of contracts, it is unlikely that they will ever completely replace the traditional versions. Smart contracts may make sense for brief, one-off transactions, but for longer relationships and high value deals, it is unlikely that businesses would be willing to forego the legal recourse that a traditional contract affords. Nonetheless, it would not be surprising to see some kind of melding of the two agreements, allowing for faster, simpler arrangements to be established digitally, yet also providing an avenue for judicial review.

Human society is constantly changing and development take place every second so there can be a shift from traditional contract to smart contract but for that law has to be amended in order to use smart contract at the place of traditional contracts and we also need some new laws to make a shift from traditional contract to smart contract as smart contract is made by a computer and all the data is stored there it can be hacked and manipulated by hackers thus for complete shift from traditional method to smart method we also need a better cyber security.


LAND MARK CASES

1) Carlill v. Carbolic Smoke Balls Company

In this case, a company carried out advertisements about their product, carbolic smoke balls, that claimed that any person who took the smoke balls in the prescribed manner (i.e., three times daily for two weeks) will not catch influenza. In case someone does, the company promised to pay 100£ to them immediately. To show their sincerity regarding this offer, the company deposited a sum of 1000£ in a public bank. Now, the plaintiff, Carlill bought the smoke balls and used them as prescribed in the advertisement, but still ended up catching the flu. She filed a suit for the recovery of 100£ as promised in the advertisement. The company denied the payment saying there existed no contract between them and the plaintiff. It was held that a contract came into existence between the plaintiff and the company as soon as the plaintiff bought the smoke balls and used them as prescribed.

2) Balfour v. Balfour

In this case, Mr. and Mrs. Balfour, who used to live together as a married couple in Sri Lanka, went for a vacation to England. During this time, Mrs. Balfour developed rheumatic arthritis. The doctor advised Mrs. Balfour to stay back in England as, according to him, Sri Lankan climate would worsen her health. Before Mr. Balfour returned to Sri Lanka, he promised to send £30 to her per month. During their stay away, the parties drifted apart and separated. It was held in this case that Mr. Balfour’s promise to pay a monthly sum of £30 did not amount to a contract, as there was no intention to create a legal relationship on part of either of the parties.

Both the cases we see above are some of the land mark cases of traditional contract where we see mere acceptance is not consider a contract in balfour v. balfour case. And in the carlill case we can see a general offer can form a contract as soon as the plaintiff purchased the product on which the offer was made.

(reference = Indian contract act 1872 bareact)

CONCLUSION

Now that we have cover all the important topic like meaning and origin of contract, difference between agreement and contract, valid contract and need of contract now let me end this blog with some of my personal suggestion on the topic of traditional and smart contract.

1) Contract as we have studied is when parties involved agree on some points and proposal acceptance and enforceable by law all these factors are there then it forms a contract but as our society is changing, we can see people adopting new methods like smart contract and block chain method to create contracts.

2) Contract is changing and with this change we need to change the way we use to protect it earlier contract use to be placed in files and it was hard to manipulate the facts of contract but now we are moving towards smart contract which is formed by computer and thus if a person is skilled he /she can easily manipulate the contract by not even going anywhere out from their residence.

3) Smart contract as per the people working in IT department is the new flow for contract and thus our government should put efforts on developing safe method by which general public can use smart contract for there work this will save money and time of people.



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