AI Agents Can Sign Contracts. But Who's Liable When They Get It Wrong?

On January 1, 2026, two major state AI laws took effect: California's Transparency in Frontier Artificial Intelligence Act (TFAIA) and Texas's Responsible Artificial Intelligence Governance Act (RAIGA). Colorado delayed its AI Act to June 30. Meanwhile, a December 2025 executive order from the White House cast doubt on whether any of these state laws will survive federal preemption.

In the middle of this legal confusion sits a deceptively simple question that no court has definitively answered: if an AI agent signs a contract on your behalf and something goes wrong, who's liable?

For small businesses increasingly using AI tools to manage documents and contracts, this isn't an academic question. It's a practical one.

The Legal Gray Zone

US contract law is built on centuries of precedent about human intent. When you sign a contract, courts assume you read it, understood it, and intended to be bound by it. When you authorize an employee or agent to sign on your behalf, there's a clear legal framework (agency law) that defines responsibilities.

AI agents break this framework in several ways:

• AI agents don't "intend" anything. They execute instructions based on patterns and prompts. If an agent commits you to unfavorable terms, it didn't make a decision — it followed a probability distribution.
• Hallucinations are unpredictable. An AI agent might fabricate contract terms, insert incorrect figures, or misrepresent your position. Unlike a human employee who makes a mistake, the AI failure mode is fundamentally different.
• The authorization chain is unclear. Did you authorize the agent to sign that specific contract, or just to "handle contracts"? How granular was the permission? Where's the proof?

Courts have not issued definitive rulings on any of these scenarios. And the new state laws, while addressing AI governance broadly, don't specifically resolve contract liability for autonomous agents.

What the New Laws Actually Say

California TFAIA (effective January 1, 2026)

Focused primarily on transparency requirements for frontier AI models. Developers must disclose safety evaluations and potential risks. It doesn't directly address contract formation or agent liability, but it establishes the principle that AI systems must be transparent about their capabilities and limitations.

Texas RAIGA (effective January 1, 2026)

Creates a governance framework for AI use in state agencies and establishes principles for responsible AI deployment. For private businesses, it signals the direction of future regulation but doesn't create specific contract liability rules.

Colorado AI Act (delayed to June 30, 2026)

The most aggressive state-level AI regulation, requiring bias audits, impact assessments, and consumer protections for "high-risk" AI systems. Contract management tools could qualify as high-risk depending on implementation.

The federal wildcard

The December 2025 executive order favors a light-touch federal approach to AI regulation and signals potential preemption of state laws. This creates uncertainty: should businesses comply with state requirements that might be invalidated, or wait for federal guidance that might never come?

The Practical Risk for SMBs

Forget the legal theory for a moment. Here are concrete scenarios that could happen to any small business using AI tools for contracts:

Scenario 1: Wrong terms

You ask an AI assistant to send a standard consulting agreement. The AI pulls from a template but modifies the payment terms — maybe it hallucinates a different rate, or it uses an outdated template version. The client signs. You're now bound to terms you didn't intend.

Scenario 2: Wrong recipient

An AI agent sends a confidential agreement to the wrong person. The document contains proprietary pricing, client names, or business terms that you never intended to share. The NDA is now in the wrong hands, and you may have breached existing confidentiality obligations.

Scenario 3: Unauthorized scope

You give an AI agent broad permission to "manage contracts." The agent interprets this as authorization to not only send agreements but also accept incoming proposals, modify existing terms, or sign amendments. You discover weeks later that the agent committed you to obligations you never reviewed.

In each case, the key question is: could you have prevented this with better authorization controls? If yes, a court is more likely to hold you responsible.

How to Protect Yourself

1. Never give AI agents unrestricted signing authority

If you use AI tools that connect to your e-signature platform, ensure they can only draft and prepare documents — not send them for signature without your explicit approval. A human should always be the final checkpoint before a document goes out.

2. Maintain clear authorization records

Document what your AI agents are authorized to do, in writing. Keep logs of every action they take. If a dispute arises, you need to show either that the agent acted within its authorized scope (making you liable but predictably so) or that it acted outside its scope (potentially shifting liability to the AI vendor).

3. Review your vendor contracts

Check the terms of service for every AI tool that touches your document workflows. Look for indemnification clauses, liability caps, and — critically — whether the vendor covers damages caused by AI hallucinations or errors. Most don't.

4. Use e-signature platforms with robust audit trails

Your e-signature audit trail is your best evidence in a dispute. It should show exactly who initiated the signing request, what document was sent, when each party viewed and signed it, and from what device. If an AI agent was involved, the audit trail should make that clear.

5. Keep high-stakes documents human-only

For employment agreements, partnership contracts, IP assignments, and anything involving significant financial commitments, keep AI out of the signing workflow entirely. Use AI for drafting and review, but handle the signing process manually.

The International Dimension

It's worth noting that international law is slightly ahead of the US here. The UNCITRAL Model Law on Automated Contracting, adopted in July 2024, provides a framework for contracts formed by automated systems. And the EU's eIDAS regulation already distinguishes between signature types and requires clear attribution for electronic seals (the mechanism most likely to apply to AI agent signatures).

If you do business internationally, the compliance picture is even more complex. But the principle is the same: clear authorization, proper audit trails, and human oversight for important decisions.

Where signready.co Stands

At signready.co, we believe AI should help with documents, not replace human judgment on legal commitments. Our platform is built around clear authorization chains: every signing action is tied to a verified human decision, every document has a complete audit trail, and every integration uses scoped permissions.

We're designing for a future where AI agents and human signers work together — with proper boundaries that protect everyone involved. Because the question isn't whether AI will transform contract workflows. It's whether we build the guardrails before something goes wrong.

Browse our templates or read our NDA guide to get started with secure, transparent signing.