'Trust' or Law? Towards an Integrated Theory of Contractual Relations between Firms

Socio-legal studies of business contracting have profoundly affected our understanding of the form and functions of the law of contract. Empirical research has shown that firms frequently dispense with formal planning and make little recourse to the law to resolve contractual disputes, preferring flexibility as a basis for long-term co-operation.2 The orthodox or 'classical' model of contract law, in which contracting parties completely 'presentiate' their future obligations in the agreement and legal remedies for breach of contract provide full protection for their respective expectation interests, appears irrelevant to such a world: effective contractual performance rests less upon the strong assertion of legal rights than upon a set of diffuse and open-ended obligations and assumptions which may be summed up in the idea of 'trust'.3