Contracts & Artificial Intelligence: Are AI-Generated Contracts Enforceable?
Can a contract drafted by Artificial Intelligence (“AI”) be legally enforced? Yes, an AI-drafted contract can be enforceable. As an emerging issue in Canadian contract law, so far, the focus has not been on the fact that a contract was not created by human intelligence but rather on traditional principles of contract formation. If the necessary elements of a valid contract are present, the involvement of AI will not necessarily prevent a court from finding that a legally binding agreement exists. Importantly, however, the use of AI does not absolve parties of their responsibilities in properly contracting. Moffatt v. Air Canada provides insight into how courts interpret the use of AI in contract law.[i]
Contract Formation in Ontario
To create an enforceable contract in Ontario, four elements must be present: offer, acceptance, consideration, and a meeting of the minds. Contracts do not always need to be in writing to be legally binding; a verbal agreement can constitute an enforceable contract provided all four elements are present. Written agreements are generally required only in limited situations, including certain transactions involving real property, guarantees, trusts, and specific contracts involving minors, per the Statute of Frauds.[ii]
Canadian courts have also demonstrated a willingness to recognize modern forms of contracting. Electronic acceptance through email may be enforceable,[iii] courts have recognized emojis as capable of communicating acceptance,[iv] and online browse-wrap agreements may be binding in appropriate circumstances.[v] Ontario’s Electronic Commerce Act, 2000, further supports the validity of electronic contracting.[vi] The legislation expressly provides that offers and acceptances may be communicated electronically, that contracts are not invalid merely because they exist in electronic form, and that contracts may be formed through interactions involving electronic agents.[vii]
Moffatt v. Air Canada
The British Columbia Civil Resolution Tribunal’s decision in Moffatt v. Air Canada illustrates the legal risks associated with AI-powered communications methods. Mr. Moffatt booked a flight following the death of his grandmother and consulted Air Canada’s online chatbot regarding bereavement fare discounts.[viii] The chatbot advised that customers could apply for the discount retroactively within 90 days of the ticket being issued.[ix] Relying on that information, Mr. Moffatt separately purchased his tickets from Vancouver to Toronto and back, and later submitted the required documentation seeking reimbursement.[x] Air Canada denied the request and maintained that its bereavement policy did not allow for retroactive claims.[xi]
The central issue, therefore, was whether Air Canada could be held responsible for inaccurate information provided by its chatbot and whether that misinformation amounted to the tort of negligent misrepresentation.[xii] The Tribunal concluded that Air Canada was responsible for the chatbot’s representations because the chatbot formed part of Air Canada’s website and customer service infrastructure.[xiii] The Tribunal rejected Air Canada’s argument that the chatbot operated independently from the company and held that consumers are entitled to rely on information provided through official company channels, especially as a duty of care existed between the parties.[xiv] Because Mr. Moffatt reasonably relied on the inaccurate information and suffered a financial loss as a result, Air Canada was found liable for negligent misrepresentation and ordered to pay $650.88 in damages.[xv]
An Emerging Issue in Contract Law
The increasing use of AI has created new questions regarding offers, acceptance, and contractual liability in contract law. A recent example arose from a dispute involving a vehicle buyback quote allegedly generated through AI. According to a recent CBC News report in which Tanya Walker provided legal insight, a customer received a written buyback offer from a dealership that was subsequently withdrawn after the dealership asserted that the quote had been generated by AI and therefore should not be treated as valid.
The legal issue in situations such as this is not necessarily whether AI generated the offer. Rather, the key question is whether the customer acquired enforceable legal rights after receiving what appeared to be an official business communication.
The reported facts indicate that the quote was allegedly generated by AI, transmitted by a human sales consultant, identified the customer and vehicle, specified a purchase amount, and stated that it would remain valid until May 29, 2026. However, the dealership reportedly revoked the offer within minutes, before the customer accepted it.
From a contract law perspective, the timing of the revocation may be more important than the involvement of AI. Contract formation generally depends upon whether an offer was accepted before it was withdrawn. If the offer was effectively revoked prior to acceptance, a court may conclude that no binding contract was formed.
At the same time, the customer may argue that the stated validity period created an expectation that the offer would remain available until the specified date. The dealership, on the other hand, may contend that it discovered an error and successfully revoked the offer before acceptance occurred. Regardless of how a court ultimately resolves such disputes, it is important to note that parties cannot automatically avoid responsibility simply because an AI system generated the communication.
Key Takeaways
The growing use of AI in commercial transactions highlights the need to carefully monitor the information and documents generated by automated systems. Important takeaways include:
- AI-generated contracts are not automatically unenforceable simply because AI was involved in their creation.
- Traditional principles of contract formation continue to govern whether a binding agreement exists.
- Ontario law recognizes electronic contracting and permits contracts to be formed through interactions involving electronic agents.
- Businesses may be held responsible for representations made by AI systems operating on their behalf.
- Consumers may be entitled to rely on information communicated through official AI-powered channels.
Watch the interview and read the news report linked here.
How Our Team Can Assist You
Walker Law can assist you with a variety of legal matters, including disputes involving Civil Litigation Law, Contract Disputes, Fraud Litigation, and Negligence Liability and Regulation.
[i] Moffatt v. Air Canada, 2024 BCCRT 149 [hereinafter Moffatt].
[ii] Statute of Frauds, R.S.O. 1990, c. S.19 s. 4-9.
[iii] Thomas v BPE Solicitors, [2010] EWHC 306 (Ch); Electronic Commerce Act, 2000, S.O. 2000, c. 17 S. 22.
[iv] South West Terminal Ltd. v Achter Land, 2023 SKKB 116; Achter Land & Cattle Ltd. v South West Terminal Ltd, 2024 SKCA 115.
[v] Century 21 Canada Ltd. Partnership v Rogers Communications Inc., 2011, 338 DLR (4th) 32.
[vi] Electronic Commerce Act, 2000, S.O. 2000, c. 17
[vii] Ibid.
[viii] Moffatt at para. 13.
[ix] Moffatt at para. 15.
[x] Moffatt at paras. 18-22.
[xi] Moffatt at para. 22.
[xii] Moffatt at para. 24.
[xiii] Moffatt at paras. 27-29.
[xiv] Moffatt at paras. 26-29.
[xv] Moffatt at paras. 32 and 44.