Apr 15, 2025
Balancing Disposition Criteria in Contract Law: When is the Agreement Binding?
In Norwegian contract law, the question of when an agreement is binding often arises. Even if one has identified relevant discretionary criteria, it can be challenging to determine which outcome these lead to when they pull in different directions. This article highlights how Norwegian courts weigh different discretionary criteria to determine whether an agreement has been concluded or not.
When Multiple Discretionary Criteria Meet
The Issue of Conflicting Criteria
In many disputes over contract formation, there are several discretionary criteria that can affect the question of binding. If all the criteria pull in the same direction, no problems arise - the result then naturally follows from the criteria. The challenge arises when relevant criteria conflict: some argue for contractual binding, others against.
In such cases, a balancing or harmonization must be done before determining whether an agreement has been concluded. The question is which criteria should be given the greatest weight in the specific case.
Interpretation Versus Balancing
The process from establishing the relevant discretionary criteria to the outcome of the binding question can be described as interpretation. However, it is important to clarify that this form of interpretation - which aims to determine whether an agreement has been entered into - is something fundamentally different from the interpretation undertaken to determine the content of an agreement.
The Central Role of the Expectation Principle
Justifiable Expectations as a Guideline
Norwegian legal practice shows that the expectation principle plays a central role in the weighting of discretionary criteria. What often matters is what the promisee could reasonably infer from the promisor's statements or actions - whether the promisee has obtained legitimate expectations that an agreement has been concluded.
This is well illustrated in the Gate Gourmet case (Rt 2001 p. 1288), where the Supreme Court stated: "I remain of the view that Gate Gourmet, by remaining passive in response to PEAB's letter of May 22, 1997, acted in such a way that PEAB had reasonable grounds to believe that the company had received the contract."
Likewise, the Supreme Court stated in Rt 1991 p. 1171: "What is decisive, in my opinion, is that the appellants, under the circumstances, had reasonable grounds to understand Scania's letter as a binding offer to purchase the property."
Party Intent Versus Objective Impression
In several cases, the Supreme Court has stated that intention to be bound is a necessary condition for contract binding. The realistic view must, however, be that the intention to be bound will normally be decisive if the promisee was aware of the promisor's intent.
When the intention to be bound stands against the promisee's perception, what often matters is how the promise - considering all circumstances - can reasonably be perceived by the promisee. The promisor’s subjective intent is not decisive if his statements, actions, or omissions reasonably lead the promisee to believe otherwise.
Practical Example of Balancing - The New Life Case
To illustrate how the balancing works in practice, let's look at an example:
A woman, Kari, contacts the insurance company New Life after her husband's death. The husband had previously been employed in a company that had taken out life insurance for all employees but had left before his death. The insurance premium was paid for the whole year. Kari asks in the letter if she is entitled to a payout "even though Peder was not employed at Tastad when he died". New Life responds: "The insurance applies regardless of whether the insured was employed at the workplace." The company informs about the insurance amount and requests necessary documentation. Later, the company discovers that Peder was not employed at the time of death and refuses the payout.
In this case, several discretionary criteria must be balanced:
The Wording: The company's letter has partly the character of pure information, partly a promissory character.
The Parties’ Assumptions: The company likely thought the question was whether the insurance covered death outside of the workplace, while Kari meant to ask if it covered after employment ended.
The Blame Sanction Moment: The company knew that Peder had left and should have formulated the response more precisely.
Kari’s Good Faith: She did not attempt to create any confusion with the company.
Overall, much suggests that Kari had reasonable expectations that an agreement was concluded. If the company has also paid out the insurance amount before discovering the "error", this subsequent circumstance would further strengthen the conclusion of binding.
Balancing in Negotiation Situations
Agreement as a Decisive Criterion
In situations where the parties' statements cannot be clearly identified, such as in negotiations, the courts show a pragmatic attitude. The central question becomes whether, considering all relevant circumstances, it can be said that there is agreement between the parties.
As the Supreme Court stated in Rt 1984 p. 154: "if one must rely on the siblings [...] both having come to a different understanding of ownership than that agreed upon in writing, it can itself be legally constituting, without requiring any special 'step'".
Agreement on Main Points or All Details?
An important question is how much is required for it to be said that sufficient agreement exists. Must the parties agree on all details, or is it enough that they agree on the main points?
In simpler contractual relationships, it will often be sufficient that agreement on the main points has been achieved, allowing the courts to fill in the rest with declaratory legal material. In more complicated, composite, and long-term contractual relationships, stricter requirements for agreement may be set.
Other Central Points in the Balancing
The Importance of Form
The more extensive obligations an agreement imposes, the stricter the form requirements. An oral agreement on the transfer of an enterprise will less likely be deemed binding than a written agreement on the same matter.
The Importance of Content
Even if a disposition is made in writing, it takes a lot for it to reasonably be said to obligate the offeror if the parties have only reached agreement on insignificant matters.
Subsequent Circumstances
The actions of the parties after the alleged agreement has been entered into can be significant, especially where other criteria do not provide sufficient grounds. If the parties have acted as if an agreement was concluded, this can be given considerable weight.
Real Considerations
Considerations of reasonableness and fairness may play a role, particularly in unclear cases. The Supreme Court has explicitly referred to "considerations of reasonableness" as part of the reasoning for its result in several cases.
Conclusion
The balancing of relevant discretionary criteria in the question of contract binding is not a mechanical process, but a concrete overall assessment. The expectation principle is central: what is often decisive is whether the promisee could reasonably perceive the situation as such that a binding agreement was concluded.
In this assessment, both the wording of the parties' statements, formal requirements, the content of the agreement, the subsequent conduct of the parties, and real considerations may play a role. Although none of the elements alone is decisive, collectively they can provide a basis for concluding whether a binding agreement has been established.
For parties seeking predictability, it is therefore important to ensure clarity regarding contract formation - either through an explicit declaration of when one considers oneself bound, or by using conditions of signature if one wishes to postpone the binding point until a final contract is signed.
