Artificial intelligence (AI) is here to stay.
Clients are now using it all the time. For many it is the first step before contacting a lawyer, if they contact a lawyer at all now. And yes, people are absolutely using ChatGPT and other AI tools to draft contracts.
Recently, a client sent me an agreement they had prepared using AI and asked me to take a look.
Here is the honest truth.
It was surprisingly good.
The structure made sense. The language was generally clear. It even covered many of the basics you would expect in a simple agreement. It probably was about 75-80 percent of what I would consider a usable contract.
But it’s the other 20-25 percent that often matters most.
Contracts are about protection, intent, and consequences.
That is where AI still misses some very important things.
When I reviewed this agreement, there were several issues that had nothing to do with grammar or formatting and everything to do with risk and liability. These are the types of issues that rarely jump out unless you look at agreements every day and have seen how small mistakes turn into big problems.
Here are a few examples.
First, the agreement identified the licensor (my client) as the individual, not the company. That may seem harmless, but it is not. The client operates through an LLC for a reason. If the agreement names the individual instead of the entity, you may have just given up your limited liability protection without realizing it. I revised the agreement to clearly identify the licensor as the company, not the individual.
Second, the limitation of liability language needed help. AI included something, but not enough. We strengthened the limitation of liability provisions and added an indemnification clause to better protect against claims, damages, and legal fees. This is one of those areas where a few sentences can make a massive difference if something goes wrong.
Third, the agreement did not specify governing law or where disputes would be resolved. That might not matter until it really matters. I added Iowa as the governing law and an exclusive jurisdiction provision requiring that any claims be brought in Polk County, Iowa. Clarity and predictability are your friends when disputes arise.
Finally, the signature block needed cleanup. The agreement needed to show that the company is the licensor and that the individual is signing in their capacity as President. That reinforces the entity protection and avoids confusion later.
None of these issues mean AI failed.
They simply highlight what AI does not do yet.
AI does not know your business context.
AI does not understand how courts interpret risk.
AI does not appreciate how liability actually plays out in real disputes.
AI is only as good as your prompts, and if you do not have legal training and education, your prompts are likely to fall short.
AI is a tool. A very useful tool. It can save time and help you get started. But it is not a substitute for judgment, experience, and legal review.
Think of AI as a first draft assistant, not your final safety check.
If you use AI to prepare an agreement, that is fine. In fact, it can be a smart starting point. Just make sure you have a lawyer review it before you sign or send it out into the world. The goal is not just to have an agreement, but to have one that actually does what you think it does and protects you the way you expect.
That last step is still very human.
And for now, that is a good thing.