CONTRACT HEADACHES CAUSED BY AI: WHY YOU SHOULD NOT RELY ON CHATGPT TO DRAFT DOCUMENTS

​By Associate Attorney Ashley N. Bonomini

With various AI programs so readily available, many people have turned to using AI software to draft contracts and other legal documents. But when it comes to contracts, relying on AI can create significant legal and financial risks. Many of these AI generated documents are incredibly general and often lack specific terms that are essential to the enforcement of an agreement. A North Carolina man recently learned this the hard way when he sued to enforce a contract provision that was too vague and missing essential terms.

In Langley v. Autocraft, Inc., a former employee sought to enforce a provision in his employment agreement that stated he would receive a 10% ownership interest in the company after five years of continuous employment. Although the provision appeared to be straightforward, it failed to include terms regarding the purchase price of the ownership interest, how the price would be calculated, financing terms, payment schedules, or other terms that would be material to the transaction. Since North Carolina courts cannot create essential contractual terms that were never negotiated by the parties, the Court found the ownership provision was void for indefiniteness and thus unenforceable.

The inclusion of specific and essential terms in a contract is where AI falls short. AI programs and online templates can be exceptionally good at predicting what legal language should look like. However, they are far less capable of determining the legal language that is actually necessary for a particular transaction. AI does not know your business objectives, does not understand your industry, fails to look at your negotiating leverage, nor addresses state-specific legal requirements that it should address in the agreement.

Instead, AI generates language based on patterns it has learned from training models and other text. Even when you continue to use the same program and it learns more and more about your business and industry, it usually omits critical provisions or leaves out specific details necessary to ensure the agreement is enforceable. These omissions often lay dormant, only rearing their ugly heads when a dispute arises and fixing the problem becomes an incredibly tedious – and significantly expensive – undertaking.  It costs less to pay an attorney to draft the document correctly the first time than pay an attorney to litigate an issue later.

The Langley case is a reminder that just because AI can create a document that is professional and polished, it does not mean that it is the best contract for you.  You will not be protected using AI for your contracts.  Whether you’re entering into an employment agreement, buying or selling a business, contemplating a commercial transaction, or forming a new entity, the attorneys at Jesson & Rains, PLLC are ready and able to assist you in ensuring your contracts actually protect you.