Criteria for Disposition in Norwegian Contract Law: When is the Agreement Binding?

Norwegian contract law is largely based on the model of the Contracts Act with offer and acceptance. But what criteria are actually crucial for determining whether a contract should be considered bindingly concluded? This article provides an overview of the main criteria considered by the courts when deciding whether a binding agreement exists.

Freedom of form and contractual freedom

The Norwegian starting point is the principle of freedom of form - a contract can be concluded in many different ways, not just through express exchange of offer and acceptance. This is anchored in the expectation principle: The decisive factor is whether legitimate expectations have been established that a contract has come into existence.

Party-defined criteria for binding

In some cases, the parties themselves define the criteria that should be decisive for binding:

1. Signing reservation: The parties may agree that none shall be bound until both have signed a contract document. This excludes gradual binding during negotiations.

2. Asymmetric binding: The parties may agree that one party will be obligated for a longer period than the other, for example through order confirmations or standard terms.

Statutory form requirements

In certain cases, legislation imposes form requirements that must be met for a contract to be considered binding:

• Share subscriptions must follow the form requirements of the Companies Act

• Guarantee agreements must be concluded in writing according to the Financial Contracts Act

• Termination of tenancy and employment contracts must be in writing

Other relevant criteria for disposition

Party intention and wording

The intention to commit - what the parties have intended in terms of binding themselves - is one among several relevant criteria. This intention often manifests through the wording in the party statements. In Rt 1983 p. 716 (the Reksten case), the Supreme Court found that a "Statement" had to be perceived as a binding guarantee declaration based on its content.

The wording must be assessed in its linguistic context. In Rt 1991 p. 1171, the Supreme Court stated that when the letter "is read in conjunction," it did not express that it was an options agreement.

The contract's form

Although we have freedom of form, courts attribute significance to the form of the contract in the issue of binding. The more important and far-reaching the contract is, the more the courts demand in terms of formalities.

In Rt 1995 p. 543 (Selsbakkhøgda housing cooperative), the Supreme Court emphasized that the agreement had a simple form and stated that "it goes against the presumption that an agreement with this design contains obligations of such magnitude and duration".

Form can also have significance in terms of evidence. The Supreme Court has in several cases required strong evidence to accept a claim of a binding oral agreement regarding the purchase of real property.

The content of the contract

The content of the contract can influence the question of binding. In negotiation agreements, the Supreme Court emphasizes how far the parties have come towards agreeing on the terms. The more elements on which there is agreement, the greater the reason to consider the contract concluded.

In Rt 1991 p. 1171, the Supreme Court stated that even if there remained unresolved issues, this "in the circumstances did not prevent the parties from nonetheless concluding a binding purchase agreement. The unresolved issues must be resolved through interpretation of this agreement."

Subsequent conduct

The actions of the parties after the alleged conclusion of the contract can shed light on whether they themselves consider themselves bound. In Rt 1978 p. 702, the payment of a large sum to an architect was considered significant in determining whether a contract was concluded.

In Rt 1987 p. 1205 (the Hotel case), it was emphasized that the party who was considered the buyer had made preparations to sell their previous property to raise the purchase amount.

Real considerations

The courts also emphasize real considerations in the form of reasonableness assessments. In Rt 1992 p. 1430, the Supreme Court stated that "reasonableness considerations also suggest that this view should be adopted".

In Rt 1997 p. 1922, the court emphasized that it would lead to "an unreasonable imbalance" if one party was bound while the other was completely free.

Actions as a criterion for disposition

The principle of freedom of form allows for actions to also create promise effects. This applies not only to mass agreements (as when one parks in a pay parking lot), but also in other relations.

In RG 1998 p. 338 (Borgarting), the question was whether the cashing of a check should be considered acceptance of a settlement offer. The minority, which in my opinion had the best arguments, believed that the action (cashing of the check) had to be seen as acceptance when the offer letter clearly specified the legal effects of cashing the check.

Passivity as a criterion for disposition

The starting point in Norwegian law is that one does not become bound by remaining passive. However, where reasonable consideration for the other party's interests suggests active action, binding may occur.

In Rt 2001 p. 1288 (Gate Gourmet), the Supreme Court concluded that passivity towards a tender, combined with active action in another relation, gave the tenderer reasonable grounds to believe they had secured the assignment.

In Rt 2015 p. 1157, passivity over 18 years was considered to have resulted in the loss of ownership rights to a cabin in co-ownership. One co-owner had, at their own expense, undertaken a complete rehabilitation, and the others had remained passive and not used the cabin. The majority of the Supreme Court found that the active co-owner should now be considered the sole owner of the cabin.

Fault sanction

Contractual binding may also occur as a sanction against undesirable conduct. The more blameworthy a party has acted, the more likely it is to react with binding.

In Rt 1987 p. 1205 (the Hotel case), the Supreme Court stated that "Mrs. Kleve Nilsen at least must have been aware of Stenberg's perception without distancing herself from it," which was emphasized when the court found that a contract was concluded.

The sanction element can also argue that binding does not exist. In Rt 1998 p. 761 (Kina-Hansen), the Supreme Court stated that "if Hansen should have perceived it as [the bank had bound itself], it must be considered negligent of him".

Risk considerations

In very special cases, binding can occur after an overall assessment based on pure risk considerations. This can happen even if there is no statement binding the party, if the person "with open eyes" has taken the risk of entering the particular area.

This is behind the rule in the Insurance Contracts Act § 12-2 third paragraph, which is based on the principle that the insurance company, not the customer, should bear the risk for its handling of cases.

Conclusion

The question of whether a contract is bindingly concluded must be decided based on a comprehensive assessment of all relevant criteria for disposition. The expectation principle is central: The decisive factor is whether one party has given the other reasonable grounds to believe that an agreement is concluded.

Although the principle of freedom of form gives parties great freedom in how they conclude contracts, it is not coincidental which criteria are emphasized. Case law shows that courts emphasize party intention, wording, the form and content of agreements, the parties' conduct, real considerations, actions, passivity, and not least loyalty in contractual relationships.

It is important to be aware of these criteria when negotiating and entering into contracts. In cases of doubt, one can reduce the risk of ambiguity by being explicit about when one considers oneself bound, or by agreeing to a signing reservation if one wishes to postpone the binding point until the final contract is signed.