Smart Legal Contracts on Enterprise Blockchains: A Corda Example
Another example of smart legal contracts gaining traction. Today the Accord Project, the industry-led, non-profit, open-source initiative and codebase for smart legal contracts, released its work with R3, a leading enterprise blockchain platform. R3 and Clause are both members of, and contributors to, the Accord Project.
The collaboration centers on technology that enables smart legal contracts to be developed on Corda, R3’s open-source blockchain project designed for businesses. Built with the Accord Project stack, smart legal contracts are able to bind the grammar layer of legal agreements to data and code. This makes contracts easily connectable to software, such as enterprise systems and distributed ledgers, to automatically execute transactions, perform obligations, and have continuous visibility into contract states.
The smart legal contract in this case is a promissory note. Promissory notes are debt contracts that, beyond creating an obligation for the borrower to repay the lender, specify under what specific payment terms the debt will be settled. They are common instruments in the provision of non-bank financing, such as trade or supply chain finance. Sellers can offer credit to buyers through promissory notes to accommodate buyers’ budgetary constraints while guaranteeing sellers access to cash flow through defined payment dates.
The AP-Corda “smart” promissory note expresses the legal prose of the contract in code, allowing contract events to be executed and recorded on the Corda ledger, e.g. issuance of the note, what the interest amount at each period calculates to, assignment and settlement of the debt. On-ledger representation matters because it makes more efficient and transparent transactions possible; to assign the debt in conformance with the assignment clause of the contract, for example, the keys (or signatures) of both parties are required, without on-ledger evidence of which the smart legal contract code would not permit assignment.
The Corda ecosystem has more than 300 ecosystem participants, including firms like Intel, Microsoft, LG, and MetLife. Corda’s emphasis on security and privacy, and its backing by important names in financial services and the enterprise, makes this partnership a notable feat in further driving the commercial adoption of smart legal contracts.
Read about the partnership and the related technology here.