What if a contract could be enabled to perform itself? It would know, for example, when delivery was made and whether the conditions of the delivery were met and then automatically execute payment of the transaction.

A legal startup called Clause is aiming to make contracts “come alive” using a combination of data and the Internet of Things (IoT). It just received an investment as a portfolio company from Seedcamp and Nextlaw Labs — the Dentons subsidiary that helps incubate legal technology companies.

We saw a real-world example of this just last week, when Commonwealth Bank of Australia, Wells Fargo and Brighann Cotton began conducting the world world’s first interbank trade transaction that combined blockchain technology, smart contracts and the IoT.

The transaction involves shipment of 88 bales of cotton from Texas to China. A GPS device is tracking the location of goods during shipment. Once they arrive, the smart contract will automatically trigger the release of funds.

Although Clause is not involved in this transaction, it has developed its own IoT-enabled legal contract, which it has privately demonstrated to Seedcamp and Nextlaw Labs and says it will publicly demonstrate later this year.

In a recent Medium post, it offers this example of how the technology can work:

When a manufacturer orders parts and there are a lot more defects than expected, an autonomous contract will reduce the invoice price, extend the warranty coverage, and refund payments automatically. An autonomous legal contract can also search for and replace an existing supplier in response to persistent part defects. But these contracts can also help suppliers: severe weather conditions or an earthquake that delays delivery or drives up supply costs could immediately be reflected in a price increase or revised delivery schedule.

And in a post yesterday, it offered details of the IoT contract it has developed. The contract, it said, takes the form of a data-augmented natural language supply agreement. The agreement links to an IoT platform to draw in humidity and temperature data to monitor breach conditions and provide dynamic pricing. A contract dashboard displays the state of the contract in real-time.The legal contract also auto-reconciles with accounting and invoicing software in real-time.

From the Medium post:

Today, we live in world where data and computation is being used in transformational ways; from guiding self-driving vehicles to providing real-time information to farmers about soil conditions. Clause is part of this transformation by pioneering a revolutionary new contracting paradigm that uses proprietary technology developed over the last year to enable commercial contracts to ‘come alive’ and autonomously manage themselves in response to the state of the physical world. Business relationships and the terms and conditions of contracts should be as dynamic and data-oriented as the world that surrounds them.

More information about Clause can be found at AngelList.

Photo of Bob Ambrogi Bob Ambrogi

Bob is a lawyer, veteran legal journalist, and award-winning blogger and podcaster. In 2011, he was named to the inaugural Fastcase 50, honoring “the law’s smartest, most courageous innovators, techies, visionaries and leaders.” Earlier in his career, he was editor-in-chief of several legal publications, including The National Law Journal, and editorial director of ALM’s Litigation Services Division.