The Role of Remedies in The Relational Theory of Contract – A Preliminary Inquiry

Abstract

The article addresses a puzzle. The puzzle is the neglect of the vast literature on relational and long-term contracts to explore a seemingly key aspect, namely: How, if at all, should the relational nature of a contractual transaction affect the basic rules governing the award of remedies for breach of contract? The authors argue that contrary to a widely held assumption, formal rules of remedy do play a significant role in the relational context. Furthermore, understanding the function of formal remedies in the relational context is crucial for the development of a full-scale relational theory of contract. In light of this basic assertion, a theoretical model of relational remedies is then introduced. The model offers a number of guiding principles, which should be taken into account by courts (or legislators) when awarding remedies for the violation of contractual rights in a relational setting.