Who is a party to the agreement? On party relations and contractual binding in Norwegian law

In contractual relationships, it is crucial to determine who is obligated and entitled as contractual parties. While the Contracts Act is based on a bipartite system with a promisor and a promisee, the reality is often more complex with multiparty agreements and unclear party positions. This article reviews the legal principles for identifying who the contractual parties are and what exceptions may be considered from the main rule.

The Main Rule: The Contracting Party is Personally Liable

The starting point in Norwegian law is clear: The contractual obligation rests on the contracting party unless there is a legal basis for something else. This principle has two aspects:

• The positive: The person who actually enters into the agreement is bound as a party

• The negative: Obligations for others do not automatically arise from the contract

The Fekete Case: A Key Clarification

The Supreme Court's decision in Rt 1980 p. 1109 (the Fekete case) illustrates the main rule that the contracting party is personally liable as a contracting party. The case concerned a shipping company's liability for payment of bunker supplies contracted by a management company.

The Supreme Court held that there is a presumption that the person who contracts is personally liable. It was not considered decisive that the supplier knew that the order was intended to benefit the shipping company. The management company was therefore deemed to be the co-contractor of the bunker supplier.

Companies as Contracting Parties

Limited Company or Shareholder?

A common issue is whether it is the limited company or one of the shareholders who is liable as a contracting party. Is it the fish and game trader Peder Ås personally who is liable, or Peder Ås Fish and Game AS?

The starting point is that if the business that the co-contractor has actually contracted with is indeed a limited company, then the co-contractor must direct its claim against the company. This follows from the main rule that it is the actually contracting party who is considered the contracting party.

For a limited company to be considered a party, it must be disclosed in connection with the contract formation that the agreement is made with the company. Otherwise, the owner risks being personally liable. As the Supreme Court stated in Rt 1993 p. 954: It must be made clear to the co-contractor that the agreement is entered into with the company, if the owners are not to be held personally liable.

Participants in Joint Ventures

The Tøttavang case (Rt 1983 p. 1401) sheds light on the issue of liability for participants in a joint venture. The Bondeungdomslaget was a co-owner and participant in a café that was organized with an independent board and was held liable for deliveries to the café.

The ruling is based on a corporate legal standpoint: Parties that jointly engage in commercial activity will be considered fully liable for the business's obligations. A consequence is that limited liability for the business the cooperation relates to cannot be achieved in any other way than through the corporate form.

Group Relationships: Parent or Subsidiary as the Party?

In group relationships, there may be uncertainties about who is the contracting party - the parent company or the subsidiary. If it is unclear, it is incumbent upon the contracting party to clarify which company they are entering into the agreement for.

It may come into consideration to "assign" a parent company the obligations under a contract as a sanction against undesirable behavior: If the intention was for the subsidiary to be the contracting party, this should have been specified at the conclusion of the contract.

Obligations of the Parent Company

Even when the subsidiary is formally the party, the parent company may have acted in a way that obliges it to pay the subsidiary's supplier debt.

In Rt 1999 p. 353 (Specialized Europe BV-HTS AS), the Supreme Court held that a Norwegian company had committed itself to pay for deliveries to a Swedish sister company. It was emphasized that such an "assignment" appeared as a natural solution in the present situation, among other things, because the deliveries would then have been secured under the credit insurance the Norwegian company had taken out.

Subsequent Circumstances

When assessing who is the contractual party, subsequent circumstances may have significance. This is illustrated in several appellate court rulings:

• In RG 1996 p. 785 (Agder), an assessment of the subsequent circumstances revealed that the contracting party was a different legal entity than the one originally party to the loan agreement

• In LE-2006-141816, an agreement was considered to have been made between two limited companies - not between the owner groups personally - among other things because the exchange of correspondence regarding the agreement after its conclusion was carried out between the companies, not between the owner groups privately

Exceptions from the Main Rule

There are several exceptions from the main rule that the actually contracting party is considered the co-contractor, but for this, a special legal basis is required.

Special bases for imposing payment liability on a non-contracting party may be:

1. Third-Party Agreements - agreements that grant rights to people who are not parties to the agreement themselves

2. Representation Rules in Corporate Law - regarding the authority of a managing director, board, etc., to represent the company externally

3. Contract Formation Through Intermediaries - agent, broker, commission merchant, etc.

Differences Among Various Intermediaries

Whether the principal or the intermediary is considered the contracting party depends on the type of intermediary involved:

• Commission Merchant and Freight Forwarder are normally personally liable as parties to the agreements they enter into because they act in "their own name"

• Agent and Broker act in a third party's name and are therefore not parties to the agreement themselves - unless there are special circumstances

• Under power of attorney according to the Contracts Act Chapter 2, the principal is the party to the agreement, not the attorney, because the attorney acts in the third party's (principal's) name

Summary

The main rule in Norwegian law is clear: The person who actually enters into an agreement is bound as a party as long as there is no legal basis for something else. To avoid misunderstandings and potential disputes, it is therefore important that the parties clarify which legal entities (individuals or companies) are to be parties to an agreement.

In corporate contexts, it is particularly important to clarify whether it is the company or the owner/shareholder who is the contracting party. The same applies to group relationships, where it should be clear whether it is the parent company or the subsidiary entering the agreement.

The rules about who is a party to an agreement balance the need for clarity and predictability with the need to prevent circumvention and abuse. Through negligence sanctions, parties who act unclearly or disloyally can be held liable even if they are not formally the contracting party.