Contracts among Corporations & Artificial Intelligence (AI) - The need for Legal Personhood of AI?

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Introduction

As the science around the subject advances, lawyers and legislators should consider when an advanced intelligent agent such as Artificial Intelligence (AI) is no longer in need of human intervention and acts with self-determination, therefore capable of being part of human and AI associations that would lead to according AI with its legal personhood and being able to form legal relations with other legal entities such as corporations.

This study argues that an AI as an advanced intelligent entity that has the ability to evaluate its environment and generate information on its own without human input may be established in a similar style to a corporation and become a legal person, an AI actor, and part of a human and AI associations, nexus for contract, an entity capable of forming legally binding relations with other legal entities.

In this study the author recognises the existing flaws in the US law. This is to say that if wants to grant legal personhood to AI, on a similar basis as it happened with relations to corporations, we wold need to establish a clear definition of a corporate 'person.'At present corporate personhood lacks clear definition of the latter. Interestingly, US legislation has included a corporation as a ‘person’. Yet an important question still remains unanswered. What is personhood as a legal concept adapted to corporations? The Court has never provided any type of test to determine what a legal person is or whether the corporation meets such an examination. The Court has simply constructed a legal fiction relying on the metaphor of a ‘person’ to establish the basis of corporate legal personhood. [1]

To overcome this inconvenience, corporate theorists have developed various interpretations or metaphorical descriptions providing a legal definition of the corporate entity and its personhood. On this basis this study will draft its own proposal for an AI legal status that would allow it to contract with other legal entities in a similar manner corporations do.

Corporate Personhood – Three Main Perspectives with a Special Focus on Nexus for Contract Theory

Despite many years of intense debate, corporate scholars have never come to an agreement on the one proper characterization of the corporate entity. The long-standing debate surrounding the nature of corporate personhood has focused on three main perspectives [2]:

(a) the ‘artificial entity’ theory, which describes the corporation as an artificial entity and a creation of the State, [3]

(b) the ‘real entity’ theory, which represents the corporation, not as an extension of the state or of its many constituencies, but as having a separate identity independent of both,[4] and

(c) the ‘nexus for contracts’ theory, which represents the corporation as ‘the common counterparty in numerous contracts with suppliers, employees, and customers, coordinating the actions of these multiple persons through exercise of its contractual rights. [5]

Philips favours the opinion that none of these theories is sufficiently well grounded to be a solid basis for legal or policy implications.’ [6] Although, from the perspective of a corporate entity and its interpretation, ‘none of these theories is sufficiently well grounded to be a solid basis for legal or policy implications,’[7] arguably all three views, linked together, would become a complementary image of what it means to be an inanimate object and a legal person all in one. With this in mind, we proceed to the first theory.

The Artificial Entity Theory

In the Trustees of Dartmouth College v. Woodward, the Supreme Court adopted an artificial entity theory describing a corporate entity as ‘an artificial being, invisible, intangible, and existing only in the contemplation of law.’ [8] According to the ruling a corporation is an artificial legal person or entity, having an existence separate from its shareholders or people who manage or direct it. Philips argues that if ‘corporates are creatures of state law and nothing else, they almost certainly must be artificial, invisible, intangible, and fictional entities.' [9] Yet some nagging uncertainties remain.what Broad names the genetic fallacy. For example, the fact that a corporation is formed by the concession of law does not imply that it becomes an artificial and intangible entity.

Furthermore, one may argue that in the Trustees of Dartmouth College v. Woodward, Chief Justice John Marshal, provided four defining futures, such as ‘artificial, invisible, intangible, and fictional [10] that in respect of corporations do not even denote the same referent as another. This is to indicate that if a corporation ‘derives its being’ [11] by concession from the State, then it has derived its being thus, it cannot be a fiction. How can fiction be ‘derived’? Was a corporation ‘derived’ by including this entity under the US legislation? Arguably, instead of forcing the corporate entity into a pre-existing legal structure there is another entity that would correspond well with this legal framework if only established in a similar style to a corporation, namely, AI.

The Artificial Entity Theory –

AI Actor more a Person than a Corporate itself?

This paper suggests implying the corporate theories to an artificially intelligent software –based entity, which is an artificial being capable of generating intangible work that would exist by virtue of the state authority. With this in mind, the fiction theory should simply be argued for by analogy to paradigmatic ontological fiction. Where AI is a fiction on the theory that all unforeseen and unpredictable work generated by them is explanatory scientific fiction. Yet, one may argue that even a code is tangible, thus real and as such AI itself is a real entity – not imaginary or fictitious, but a real entity. The crucial characteristic of AI is a link that connects AI not only with the fictional corporate personhood theory but with the real entity theory.

The Real Entity Theory

In the ‘real entity’ corporate theory, corporate theorists have attempted to analogize the corporation to a real entity, arguing that a corporation is a being with attributes not found among humans which are its components.[12] Philips favours the opinion that a corporate is a real thing, a real being. This is to suggest that it is not any longer an imaginary creature of the law. [13] The life of the corporation has been recognised as autonomous, as a product of its organisation and management. [14] Thus, the law does not create the corporation it only recognises its independent existence. [15] Put differently, a corporation is not a creature of law, but is an entity that has compelled the law to give it official recognition. Consequently, a corporation exists as an objectively real entity, to which law merely gives recognition and legal effect.[16] As argued by Laski, a corporation is distinct from its members, with a mind distinct from their minds.[17]

It can be contra-argued however, that even if the corporate components, such as management board, employees, shareholders are real entities, it does not make the corporation a real entity. With this in mind, one may argue that a corporation is a solely a rational entity distinguished from a real entity. Only a particular real entity has its being and existence. The mere fact that a corporation has what is called ‘logically emergent’ properties, i.e. properties not found among its parts, nor definable in terms of the properties of its parts,’[18] does not indicate that a corporation is a real entity. It might be a merely rational entity distinct in reason from its real parts.

The Real Entity Theory -

AI Actor more a Person than a Corporate itself?

Even though the corporate theorists have not agreed on the proper conception of the corporate entity, the use of corporate metaphors in both of the above examples brings about a perfect method of determining AI and its personhood adaptability. By any definition AI is (a) artificial and (b) a real entity. Many exponents of the ‘real entity’ corporate theory indicate the need for a real object the law could act upon. Yet the corporate’s lack of physical body brings about the invalidity of both theories. When considering AI, one finds that AI is a real entity, not an imaginary or fictitious, but a real, not an artificial but a natural one. By using the world ‘natural’, this study emphasises a view that distinguishes the real entity from merely being a creation of law. AI has its own independent existence. The grant of a legal personhood to AI would not create an AI; it would only recognise its independent existence.

With this in mind we have already established that these two theories would correspond particularly well with a legal framework for AI, if only established in a similar style to a corporation. There is one more theory that aims to describe a corporate legal personhood. This is the nexus for contract theory. Will it be the right match for AI as well? This will be analysed in the next section of this study.

Nexus for Contract Theory

AI Actor more a Person than a Corporate itself?

Some scholars are of the opinion that the most accurate way of describing a corporation is to define it as a ‘nexus for contracts.’ [19] This is to suggest that the corporation, in a primary respect, is the common counterparty in numerous contracts with customers, suppliers, and employees, bringing the different elements of the corporation into a harmonious or efficient relationship through exercise of its contractual rights. This permits the corporation to serve as a single contracting party that is separate from the various individuals who manage or own the corporation.[20] It may be argued that he nature of inanimate entities’ legal personhood is based on the law’s treatment of an entity as a legal basis for organizing complexities, internally and externally-related, and long term transactions by enabling them to be structured as bilateral arrangements with the entity itself. Thus entities, such as batting practice pitchers are not sufficiently applicable in a commercial context to be granted their legal status. The level of their valid utilization by other legal entities is far below the one human beings may acknowledge as profit wise. However, when taking into consideration the autonomous, inventive and unpredictable AI, one must acknowledge their ability to generate work that may be highly industrially utilitarian. Accordingly, this study steps further into the future and attempts to visualize AI as a legal actor granted with its legal personhood capable of entering a contractual relations.

Contracting with AI

In general, contracts can only be entered into by an entity recognized by law as having legal personality. An entity without legal personality has no right to sue or be sued. Advanced applications that do not satisfy the definition of an AI (autonomous, inventive, unpredictable, and agent of no one) can be considered to be agents of human principals (or nonhuman principals that have legal personality, such as a company). This is because the principal would have control over the actions of the application.

Contractually, the advanced applications are a medium through which the principal enters into binding agreements with another party. Vending machines or ticketing machines in carparks have no legal personality, but bind the users of the machines to the principals who have rights over the machines. However, as we inch closer to AI, one needs to start thinking about how the advanced applications can enter into contracts with a greater degree of flexibility. To avoid the possibility that a contract entered into by AI is void for lacking the human control, one may consider using standard contractual frameworks that have been pre-approved by parties with legal personhood. A framework that leaves blank precise details of the agreement is not uncommon, provided that the final terms are within the pre-defined boundaries. In these scenarios, the rights and obligations of the contracting smart applications are those of the principals who set the initial framework.[21]

In the not so distance future, arguably one might see AI that evaluates their environment and takes actions autonomously, as such, becoming an agent of on one. Hence the agency principles for those less advanced applications will not be suitable. How then one should consider the legal implications of the AI? To answer this question, one needs to determine whether AI has the capacity to become a legal person. Pure intelligence, however, is insufficient to generate legal interest in AI. Accordingly this research steps further into the future and attempts to visualize an AI as a legal actor.

AI Legal Actor

This study uses the term ‘AI actor’ to describe an AI as a legal agent placed within an environment in which it engages in economical, external and internal legal transactions. The term ‘actor’ has been used to avoid employing the word ‘agent’ which has different applications and interpretations in distinct sections of the law and computer science. If AI cannot become an AI actor it is:

1. a tool, whose actions can be attributed to already recognized legal persons

2. an AI unable to generate highly industrially applicable information that may be utilized in a design of a patentable inventions

3. an AI which actions are predictable

Conclusion In summary, the level of human input in the generation of information by the software itself will determine whether AI can be said to be ready to form a legal entity described as an AI actor or not. AI that is fully autonomous in the generation of unforeseen and therefore unpredictable information leading to the creation of industrially applicable work may be considered an entity fulfilling the requirements for legal establishment. This is to suggest that the only AI capable of making its own work on the basis of information received and the impact of their actions on their environment should result in legal recognition through its personification. As argued in this paper this could happen In a similar style to the process that led to the personification of the corporation and would allow for AI to be part of a human and AI associations, nexus for contract, and an entity capable of forming legally binding relations with other legal entities.

Bibliography

1. Minneapolis & St Louis Railroad v Beckwith (1889), Justice Stephen Field cited Santa Clara as precedent, giving it the force of law when the Court ruled that a corporation is a ‘person’ for both due process and equal protection under the Fourteenth Amendment.

2. Phillip I Blumberg, ‘The Corporate Entity in an Era of Multinational Corporations’ (1990) 15 DEL J CORP L 283, 300.

3. See Reuven S. Avi-Yonah, The Cyclical Transformation of the Corporate Form: A Historical Perspective on Corporate Social Responsibility (2005) 30 DEL J CORP L 767, 767.

4. Ron Harris,’The Transplantation of the Legal Discourse on Corporate Personality Theories: From German Codification to British Political Pluralism and American Big Business’ (2006) 63 WASH & LEE L REV 1421, 1424.

5. Michael J Phillips, ‘Reappraising the Real Entity Theory of the Corporation’ (1994) 21 FLA ST U L REV 1061, 1067–68.

6. To be checked

7. Michael J Phillips, ‘Reappraising the Real Entity Theory of the Corporation’ 21 Florida State University Law Review 1061, 1063.

8. Michael J Phillips, ‘Reappraising the Real Entity Theory of the Corporation’ (1994) 21 Florida State University Law Review 1061, 1063.

9. Trustees of Dartmouth College v. Woodward 17 US 518 (1819) 636.

10. Harry G Henn and John R. Alexander, Laws of Corporations and other Business Enterprises (3rd edn, 1983) 144-45.

11. John C Coates, State Takeover Statues and Corporate Theory: The Revival of an Old Debate (1989) 64 NYU L REV 806, 810.

12. To be checked

13. Charlie D Broad, The Mind and its Place in Nature (Routledge & Kegan Paul 1968) 11-13.

14. Ibid (n 12).

15. Harry G Henn and John R Alexander (n 67) 145.

16. William W Bratton, ‘The New Economic Theory of the Firm: Critical Perspectives from History’ (1989) 41 STAN L REV 1471, 1475.

17. Michael J Phillips (n 65) 1061, 1067-1070.

18. Gregory A Mark, ‘The Personification of the Business Corporation in American Law’ (1987) 54 U CHI L REV 1441, 1473.

19. To be continued ....