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2019 June 24 and July 15 Notes of Rapid Hack Scenario Sessions

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Dazza Greenwood edited this page Jul 16, 2019 · 1 revision

Livenotes: https://hackmd.io/7JZ6BpNMT5i1goVmKOoamQ?both

July 15 Working Notes for Automated and Autonomous Legal Entity Hack

Key Links:

Scenarios

Scenario 1

PRINCIPAL/ALICE IS A DAO (DAO-lice):

  • Third party accepts payment plan proposed by Agent
  • Third party delivers book to agent and no money changes hands
  • Agent delivers book to principal and principal accepts the book
  • Principal fails to pay after first installment because Alice/Principal claims agent had no authority to bind her to a payment plan.

IS anything different if Alice is a DAO?

  • Note - if Alice accepts the book, then Quantum Meruit applies. Let's say there is no proof that Alice wanted Bob to propose a payment plan or take other such actions; nonetheless the fact of acceptance of the book by Principal may create an impied contract that is enforceable.
  • Right now a DAO would default to general partnership. If this scenario assumes even one person "of" the DAO accepts the book then Charlie/3rd Pty has claim again all members of the DAO jointly and severally.

DESIGN MEASURES TO ENSURE INTENDED LEGAL RESULTS

  • For agent's benefit: Principal/DAO has communications that explitly define scope of authority and require Agent go back to Principal with proposal for unanticipated payment plan offer and Agent is constrained to abide by further instructions (yes/no re payment plan and defining the circumstances deemed "acceptance" of the book. Design the process to ensure intended legal consequences.

  • Above is assuming agent was provided the relevant parameters needed to negotiate and conclude a contract to purchase the book and get explicit instructions on any other plan and further than the action deemed "acceptance" is not permitted to happen absent correct approvals by DAO.

  • Above should result in agent being liable for acting outside authority. To ensure this, would be good to engineer the transaction so as to ensure third party/Charlie is appraised of and agreed to operate under the explicit authority granted to the agent/Bob by the principal/Alice.

  • Incorporating reference to things like private signing keys controlled by the DAO in accordiance with it's operating procedures would make a lot of sense to bind together such a transactional structure.

  • Above could also be generalize to building in reference to certain oracles (or other authoritative sources of information).

    • Query - what happens when the Oracles are themselves automated processes based on multiple inputs and dynamics that may be beyond the control (or even the knowledge) of the directy transacting parties.

  • Escrow processes may also be useful here. This is a great way to really hedge against risk and is a lot easier with blockchain systems.

  • Emphasis - Good to get records at key moments that the key actors undertand and agree to key terms. Note that some standardization of such terms and forms of expression of binding assent may be needed for this to operate at high speed and in automated fashion (ie: without need for human review or approval in order to become a complete and binding contractual automated transaction)

  • "Trustless systems" in terms of competance verification; which also ensures "veridical reality" (shared semantic perception) of what intention was in the particular situation, which helps settle issues for DAOs that include participants across jurisdictions.

  • How does legal notice operate under these circumstances? See the "Open Notice" Project by law.MIT.edu and the taxonomy of types of notice (actual, constructive, judicial, etc) and consider how these can/should play out in a fully automated system...

  • Thought: How can an automated system be constructed such that at any given point in time the relevant roles/relationships and rights/responsibilities and hence most probably legal outcomes can be assessed at any moment in the transaction or workflow etc. Note: a very well b/l/t engineered system should afford this type of monitoring and reporting "out-of-the-box".

Scenario 2

Same-ish but third party takes money yet never delivers book to agent

NOTES:

  • The principal should have the same rights against the third party as a human or traditional legal entity would have.
  • But how would an automated and autonomous legal entity actually form a client/lawyer relationship to retain counsel and manage/pay for litigation, if that were needed? What processes, procedures and practices would be needed for this?
  • What ADR processes could be baked into the process to avoid litigation?

Scenario 3

Same-ish but agent absconds with: Just book or Just money or Book and money

NOTES:

  • If DAO is general partnership the liability of the DAO to the 3rd pty would be first issue. Charlie lost the book. It is now the problem of the DAO to find the agent as they were in "the best position to have avoided the loss" by selecting a reliable agent to start with. The seller didn't take the money and is not in a good position to provide any reimbursement or restitution or other grounds for providing the money back to the buyer/principal/alice.

  • Regarding reputation, the court may need to provide an actual value of that.

  • Give the third party is presumed innocent (and has clean hands) if agent takes off with money and book or just with the book probably the principal is left owing the money (again) to the third party.

  • If the scenario were about services which can not be returned or a thing of value that lost value as result of the first transfer (or result of passage of time) then probably the court would try ot make innocent party whole and order restitution.

  • Perhaps a legal result would include proportional damages split among the principal and 3rd pty.

  • How do we deal with garbled messages or situations with instructions that seemed clear from principal but were misinterpreted by or confusing to the agent?

Working Topics:

Starting with the basic agency law analysis conducted during our prior session focused on the roles, relationships, rights and responsibilities of the Principal, Agent and Third Party in the three scenarios involving the sale of a book, as a next step we ask:

  • What are the issues, options and opportunities presented when one of the Actors in each scenario is itself a DAO or other type of automated and autonomous legal entity?
  • Specifically, what issues, options and opportunities arrise with respect to the legal concepts:
    • Binding Assent to Agency Relationship and Contract Formation (lots of open questions)
    • Scope and Type of Authority (addressed above and more questions identified)
    • Estoppel and Detrimental reliance (addressed above and more questions identified)

Some open questions:

  • Is Scope of Authority defined by stake or node status?
    • Interesting question. In BBLLC context, there is no requirement that every manager handles every activity. If there are 1,000 members of a BBLLC DAO that combine to share expenses and stake to control real estate then we know those voting members are responsible. Others that may be non-votingh or non-manager members would reply on the managing members (ie the "board of managers").
    • Good practice would to construct the governance and management organization to support and reflect the anticpated decision and operations to be conducted by the DAO. For instance, there maybe should be an identified sub-group that is responsible for selecting and managing agents and that maybe should be very explicit to all agents and maybe to some extent even to third parties.
    • NOTE: Aragon is rolling out "Agents" soon. This may be providing capabilities for more explicit ways to be more explicit about stuff like authorizations and maybe approvals/notifications/etc. Perhaps legal contracts can be proposed by a manager and a process could require that to be reviewed by other members (perhaps with adequate stake and responsibity) to approve such proposals resulting in enforceable contracts.
    • One could imagine authoring specific manager(s) power to make conrtracts
  • If someone is an imposter how does this affect transactions and Estoppel(Ibility)?
  • How does Detrimental reliance Relate to agency transactions of the DAO as a whole Or individuals?
  • Should DAO’s put up stake as a whole to disIncentivize Detrimental reliance of individuals?

NOTE: It matters a LOT whether the DOA is a default general partnership (joint and several) or a LLC or Corp of some type in terms of individial liability of "members".

NEXT STEPS

  • Beth will host third meeting TUESDAY next week (TUE noon NYC/Eastern) example of publishing DAO (DAO is third party seller and maybe also principal as employer or staff and writers etc).

June 24 Working Notes for Automated and Autonomous Legal Entity Hack

Initial Notes on Scenario

I’d suggest doing a quick initial run through with three humans and one simple transaction so everybody gets how it works.

Common Facts

  • Principal engages agent to find and purchase a rare book.
  • Agent finds book seller and makes an offer
  • The seller now becomes the third party.

Scenario 1

  • Third party accepts payment plan proposed by Agent
  • Third party delivers book to agent and no money changes hands
  • Agent delivers book to principal
  • Principal fails to pay after first installment because she claims agent had no authority to bind her to a payment plan.

Scenario 2

  • Same-ish but third party takes money yet never delivers book to agent

Scenario 3

  • Same-ish but agent absconds with:
  • Just book
  • Just money
  • Book and money

What are the rights and responsibilities of each part to each of the other two and how does that play out under each of the three permutations of the scenario.

Analysis of Scenarios

Scenario 1:

  • If principal was "undisclosed" the agent may (would?) also be liable for the obligation.
  • The third party can't "double dip" and get contract amount from BOTH the agent and principal
  • If the agent is acting in the scope of its authority from the third party perspective (i.e. apparent/ostensible authority) but if the agent went outside scope of actual authority then the principal may have a claim against the agent, for example, for the money obligation above the set amount that the agent agreed to pay.

Scenario 2:

  • Some arguments third party can make: perhaps agent had no authority to accept book on behalf of principal but they would (presumably) still have an obligation to deliver the book to the principal
  • Seller could also be liable to principal and/or agent under tort of conversion
  • Agent may have breached duty of care to principal by doing insufficient due diligence into seller or structuring transaction poorly (i.e., giving money w/o getting book at same time).
  • Section 7 of the restatement of agency speaks to what needs to happen in specific vignettes when relations break down.

Scenario 3:

  • Agent liable to principal -- breach of fiduciary duties, conversion, possibly fraud if this was a premeditated scheme

  • Is principal liable to seller for the $ even though agent stole book (and money)? Does it make a difference whether seller knew agent was acting agent for principal and relied on that in transacting?

  • In the scenario where agent stole book but seller got the $, does principal have a claim to get the $ back? [Under English law, maybe: if seller knew or had constructive knowledge (wilfully turned a blind eye; contrived ignorance), then seller may be constructive trustee of the $ for the principal.]

  • Need a good way to identify the legal parties

Points of Failure {Brenden DRAFT not verified for correctness}

  • Fraud
  • Fiduciary Duty
  • Incorrect Belief
  • Proof of Agreement {How do we know that we agree that we agree}
  • Presumed Due Diligence
  • Duty of Care
  • Agent Absconds with something
  • Not in Scope of Authority
  • Failure to recognise poor Intent
  • Principle Un-Disclosed

Point of Failure of Transfer {Brenden DRAFT not varified for correctness}

  • Object not transfered
  • Information Corrupted
  • Failure of State Change

Binding to Kind of Law {Brenden DRAFT not varified for correctness}

  • Agency Law
  • Contract Law {e.g. Music}

Binding To Entity Type

Agency that has duty of care Foundation vs LLc {Beth}

Action Items for July 8th DAO/AALE Scenario

Beth: Would be helpful to have a high level framework of how agency law works and maybe a simple diagram of the key rights and duties of each party.

General Notes

Simplify scenario till it’s basic first year law school level with no argument over the operation of applicable law and predicted legal results. Then and only then assume the principal is a DAO (say, the dOrg BBLLC of Ori) ask what, if anything, is different in the predicted legal results compared to if the principal was a human. Then swap in. DAO for thé agent and ask the same questions. Then do same for the third party. That would be the way to get a baseline level and at that point a strong and well enough understood foundation should be set for anybody to extrapolate to more (but not too crazy) complex scenarios other areas of law like contracts and torts and property and sales/UCC2, etc.

Resources:

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