Smart Contracts and the Theory of Detrimental Reliance: Exploring the Link

Abstract

A relatively recent phenomenon, smart contracts have slowly revolutionized the sphere of commercial transactions through faster, cheaper and automated means, by removing layers of unnecessary negotiation. A combination of law and coding, smart contracts have the potential to redesign our understanding of the basic doctrines of contract law. This article investigates the possible link which exists between smart contracts and the theory of detrimental reliance through the application of such contracts to certain age-old landmark cases, predominantly cited in the realm of contract law. It proposes the notion that issues pertaining to negotiation and miscommunication which have been the core matter of disputes in such cases, may have been easily avoided through an application of smart contracts, which compel enforcement at every stage. In particular, this article has explored the verdict of the jury in the matter of Pennzoil v. Texaco and construed that smart contracts have a key role to play even in instances of in-principle agreements. Further, this article has explored the possibility that, like any novel invention, smart contracts are not without their flaws and has examined the criticisms put forth regarding the applicability and adoption of such contracts, in certain instances. Finally, the author has concluded that a mechanism which would combine the strengths of both smart contracts and paper-based agreements is the need of the hour, to eliminate issues of ambiguity, enforcement and to permit the determination of more subjective legal criteria, as may be contractually required. Consideration, detrimental reliance, Pennzoil v. Texaco, promissory estoppel, smart contracts