Imagine closing a deal only to realize your contract relies on statutes that do not exist or holds you accountable for unreasonable costs. While tools like ChatGPT might offer speed in crafting professional documents, they often lack the nuance required for complex business agreements. This automated efficiency can inadvertently create significant legal vulnerabilities for your company.
The risk of automated drafting errors
Automated systems frequently struggle with the specificities of state-level statutes. These tools may generate citations for non-existent cases or apply legal standards that are several years out of date. Common issues include:
- Referencing laws that have been repealed or amended
- Applying state procedural rules to a federal matter
- Including contradictory terms within the same document
These errors often stem from generative AI training data that does not account for real-time legislative updates.
Current enforceability challenges
Courts in both California and Nevada maintain strict standards for contract formation and enforceability. For instance, using outdated automated terms can lead to direct financial and legal consequences that the software provider will not cover. An automated tool might also include unconscionable terms that a judge will strike down. When a contract contains ambiguous language, courts generally interpret those terms against the party who provided the document.
Beyond contract terms, business owners may be unaware of laws and rules directing companies to disclose when they use AI-generated content in certain commercial settings. Such requirements can create new risks for businesses that automate their marketing or legal documents.
The burden of liability remains with you
In the eyes of the law, the responsibility for a contract rests with the signatories, not the software provider. Businesses may face breach of contract claims or allegations of misrepresentation if they present flawed automated documents as valid. Relying on unverified technology does not eliminate the need to understand what you’re signing.
Further, issues related to confidentiality, ethics, bias and poor prompt quality can adversely impact you, your business and the enforceability of a contract.
Protecting your business interests
Technology continues to evolve much faster than the legal frameworks governing business relationships. The initial cost savings of an AI-generated contract can quickly vanish if the document leads to a courtroom. Taking the time to have these agreements drafted or, at the very least, reviewed by a legal professional can more effectively protect your business interests.