This article has been written by Pruthvi Ramakant Hegde, pursuing Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution and has been edited by Oishika Banerji (Team Lawsikho). 

This article has been published by Sneha Mahawar.​​ 


‘From buying vegetables at the market to installing and using apps on our mobile’ we often do thousands of agreements in our day-to-day life, don’t we?  But we couldn’t recognize them; apparently, some of those are not even legally enforceable in nature also. In order to legally bind such an agreement it should be enforceable by law. In that regard contract law serves a stagnant role. On the other hand, we live in a society. Hence one needs to abide by the societal norms which are unwritten and are accepted and practised by groups of people. Sometimes it is codified into rules and laws. On the other hand, success and the growth of any firm, organisation, or any institution depend on the trust, promise, and cooperation between them. 

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This paper will discuss contract law, and how it will serve a significant role in maintaining the long-term relationship between the parties. Further, demonstrate about the modern approaches to the contract about how it is different from the traditional approaches as well. Further discussion about the social contract theory as well as the social norms and how it is well served with inter-firm cooperation. Opinions of the international countries about how firms will maintain better cooperation and trust which would help them to maintain the attention of the customer on a business percept.

In the end marked with criticism and some difficulties as in today’s scenario, those construed rules and practices are not up to the mark as the way it is expected by society. Reasons for this issue would be numerous.  It is somewhere affecting inter-firm relationships. Cooperation serves an important key role in the success of the firm whether it may be between or among. Instead of having long-term agreements, it would be better to have long-term relationships between the parties. That aspect has to be reflected by executing those agreements.

Contract law and inter-firm cooperation  : conceptual issues

Generally, social norms are not in scripted form. Those are generally accepted by groups of people. Norms can be internalised, which makes an individual conform without external rewards or punishments. Perhaps it needs to be stricter in nature because it can lead to a violation of what we view as moral and ethical behaviour. In order to maintain morality, trust and cooperation in inter-firm as well as between the firm contract laws pays pathway in this regard.

Inter-firm relationships are the key to maintain the reputation of the firm as well as its growth of it. Cooperation serves a major role in keeping their relationship properly. This is what social norms expect too. Without the codified rules and laws, it is not possible to meet their expectations. In that behalf parties often opt for making such contracts for underpinning their commercial relationships, trust for the long duration. 

Role of the contract law in keeping cooperation and relationships infirm

  • In order to maintain long-term relationships between the firms as well in the firm itself;
  • By making a legally binding agreement the parties can maintain their relationship accurately,
  • The contract serves the rights and responsibility as well as it puts the obligation on the parties.
  • Which will also have the option for breach of obligations as well as how to settle amicably by opting for alternative dispute resolution methods. This would help to rebuild such relationships.

Modern approaches to contracts 

Traditionally companies have contracts as protection against the possibility that one party will abuse its power to extract benefits at the expense of the other—for example, by unilaterally raising or lowering prices, changing delivery dates, or requiring more-onerous employment terms. In 2008, Oliver, together with economic theorist John Moore, revisited his work on contracts. They have realised the fact that if one party is not cooperative then it ceases to be proactive. At the same time Oliver and others decided to shape up a new methodology to curb these issues by adopting formal contracts called the “what’s in it for we” (It’s called vested because the parties have a vested interest in each other’s success.) Written contracts that are legally enforceable (this is why we call them formal). In my view if this methodology is adopted in the inter-firm it would be better for parties to cope with their commercial relationship, all together can achieve their targets. Cooperation is the sense of owners of different inputs working together.

Social contract theory and inter-firm cooperation : conceptual issues

 Social contract theory has different approaches by the authors-

  • According to Hobbes (Leviathan, 1651), the state of nature was one in which there were no enforceable criteria of right and wrong. People took for themselves all that they could, and human life was “solitary, poor, nasty, brutish and shorts”
  • Locke (in the second of the Two Treatises of Government, 1690) differed from Hobbes insofar as he conceived of the state of nature not as a condition of complete licence but rather as a state in which humans, though free, equal, and independent, are obliged under the law of nature to respect each other’s rights to life, liberty, and property.

By comparing both different views we can develop the opinion that social contract theory is demonstrating social values and human behaviour to be in accordance with those societal norms. If one goes through with the conceptual analysis of both the term social norms as well as inter-firm cooperation,  if any firm means its owners likewise human beings one who is running it must embed the social norms, values i.e., morality, trust, cooperation it will add high value to that firm.

Criticism about social norms

“Eric Posner” argues that social norms are sometimes desirable yet sometimes odious, and that the law is critical to enhancing good social norms and undermining bad ones. But he also argues that the proper regulation of social norms is a delicate and complex task, and that the current understanding of social norms is inadequate for guiding judges and lawmakers. What is needed, and what this book offers, is a model of the relationship between law and social norms. The model shows that people’s concern with establishing cooperative relationships leads them to engage in certain kinds of imitative behaviour. The resulting behavioural patterns are called social norms. An empirical study on social norms has divergent opinions, because of its informal way of expressing its contents, and moreover, it is as simply as applied and accepted by a community or group of people. But in order to add value to it must be metamorphosed in a formal manner, i.e., it must be codified into rules and laws. Those laws must be equipped as per the needs of the society.

Interfirm cooperation position in international countries

A commonly expressed view was the success of the firm is not dependent upon the form of long-term agreement but instead upon long-term relationship on how well the exchange proceeded from the point of view of the party.

  • UK mining suppliers expressed that ‘we don’t have long term agreement but have long term relationship’.
  • Italy mining suppliers held that ‘long term relationships are spontaneously established, if both parties are satisfied’. The majority of the firms expressed the view that long-term relationships are principally well and good to get opportunities from the customer point of view.

Dispute resolution and legal enforcement

In the modern era ADR methods are having most demandable methods which try to resolve the disputes which may arise in the contract meanwhile parties are in the contractual relationship. Role of dispute resolution in maintaining long-term relationships in firm:

  • Because of its amicable settlement of the dispute where parties can rebuild, restore as well as maintain their long-term relationships.
  • Compared to court proceedings which is time-saving and cost-saving- in business risks are uncertain terms hence if any possibility of disputes it is better to resolve them by opting for these methods otherwise owner has to bear long-term loss. 


In the end, it is submitted that this paper has highlighted the interlink between contract law, social norms and inter-firm cooperation. Inter-firm cooperation depends upon the various senses of the parties working in the particular area. Cooperation hence plays a very significant role in maintaining the long-term relationships of the party. This is possible through trust between the parties. In order to build such trust there shall be some binding contracts that protect the trust and long-term relationships also.

It is not easy to maintain such long-term relationships as the way it is expected by the parties. Due to some disputes, conflicts are often common in any business. But in order to protect those relationships it is better to curb those disputes by adopting some dispute resolution methods, in the modern day’s scope of dispute resolution is increasing. Due to these possibilities nowadays every commercial contract ends its dispute by opting for this methodology. Either by opting for arbitration, negotiation, as well mediation clauses in their long-term agreement. Here parties can afford to have mutually agreeable solutions. Hence long-term relationships will definitely be protected here. And dispute resolution is the perfect example that interlinks term contract law, social norms  thus maintaining cooperation in inter firms also

Finally, this topic can be concluded by stating that even though there are practical difficulties in maintaining cooperation between the firms or in inter firms, the contract laws codify some of the social norms which seem to be informal but by converting them as formal agreements by making legally binding and enforceable contracts as well.

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