Contract as automaton: representing a simple financial agreement in computational form

Words or code first? Is the legacy document or a code statement the better starting point for complexity-reducing legal automation?

“…And fourth, it could allow – and encourage – the designers of laws, regulations and bargains to develop new approaches and formalisms that might have been hard to conceptualize using words but might be more easily envisioned in a code-first environment. By way of a partial example, some of the insights about the difference between the expected ‘happy path’ and the default paths in the loan agreement described by Flood & Goodenough [ 47 ] only emerged when they developed the graphical representation of the agreement as a deterministic finite automaton.…”

“…Some contracts involve a more elaborate branching structure of possible obligations and outcomes, such as the classic happy path/default path structure of many financial contracts (e.g. [ 47 ]). Programming such agreements may be best accomplished via a mix of imperative and declarative approaches (e.g.…”

Deontics and Time in Contracts: An Executable Semantics for the L4 DSL

“…Thus far, much of the work on analysing and reasoning about norms has been facilitated by encoding them into deontic logic and logic programs, see for instance [1]. On the other hand, Flood & Goodenough [2] propose that many financial contracts are inherently computational in nature, and can be formalized via deterministic finite automata (DFA). This is demonstrated by encoding a simple loan agreement as a DFA, with states representing various situations contemplated in the contract and transitions between them denoting events triggering a change in situation.…”

“…We propose an operational semantics for L4 that allows us to execute contracts, and lays the foundation for future work on formal analysis. To illustrate the usefulness of this approach, we implement this semantics in Maude and apply this to visualize the loan agreement in [2]. Limitations of the DFA approach.…”

“…Limitations of the DFA approach. While one can easily encode consequences of realworld events as transitions in a DFA as in [2], it is common in many legal traditions to reason about and specify contracts in terms of normative requirements that need to be fulfilled by various actors [1]. We believe that normative language embodies the psychology that many humans bring to questions of contractual compliance, with such language acting as a small "widget" for what could be broken out into a chain of smaller steps around a logic of event and consequence.…”