We model the evolution of contracts and of the legal system to compare the role of precedents and contract standardization in supporting market development. In a setting where more resourceful parties can distort contract enforcement, we find that the introduction of standard contracts reduces enforcement risk relative to precedents,exerting two effects: i) it statically expands the volume of trade, but ii) it hampers commercial and legal innovation by crowding out the use of innovative contracts. We show that the legal system can crucially shape not only the static working of markets but also the joint development of markets and the law, and offer a rationale for the large scale commercial codification that occurred in Common Law systems in the XIX century during a period of booming commerce and long distance trade.