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The Signicat Blog

When handshakes go wrong

You might have a nagging feeling you should have had a contract for "that thing". And a signature of course. But that's not always easy to handle. Besides, verbal agreements are legally binding in Norway. Right? Well…not really.  

"Good morning! A coffee latte, please," you say. 

"Coming right up," says the barista and starts grinding the beans. While waiting, a message pops in from one of your employees. Something is "on fire" at the office. As it always is. But this time it's a bit of an emergency so you have to leave. Like: Now.

"Hey, sorry, I have to take care of some stuff, just forget about that coffee," you tell the barista who already has the cup in her hand.

“I'll see you in court”, she says, without flickering a smile.

You think we're joking. But she is not, and neither are we..

According to Norwegian law your favorite café on the corner can sue you for this interaction. And win. Why? You have entered into a verbal agreement. And it's as binding as a contract carved in stone.

In theory.

“No. It doesn't always go well”, says Kjersti Malvik, associate lawyer at Prétor Lawyers in Trondheim.

# The law on oral agreements is from ... 1687

There was once a king in Denmark, Christian V, who on his birthday decided something like this: "You are obliged to keep what is promised, whether by mouth, handshake or seal". This rule was introduced into both Danish and Norwegian law immediately on this day in the middle of April way back when. 

A seal was a kind of personal stamp they used back in the days, a type of signature. In other words: Agreeing to anything with "invisible" words that hit the air between you and another person is just as valid as writing your name on a contract!

Perhaps you knew that? And maybe that's also why you can't be bothered to ask someone to sign contracts?

The thing is, this law dates back to 1687. And even though it still applies, society has evolved - and new rules around the laws of contracts have been added. This has to do with "offer and acceptance".

In courts today the judge wants to see evidence. The more evidence, the better. "But I told you so!" or "but, what I meant was!" is not enough. If someone has been offered something, and someone has accepted, it must be possible to prove it.

 

# It doesn't always go well, even if you trust people

Many Norwegian people run small or medium-sized businesses. Workplaces where we trust each other. Because trust is kind of “the glue” in Norwegian society. Some people may feel a bit "rude" asking for signatures. We mean: Maybe you're even related to your employees or manager.

So you might think: Relax, everything will be fine.

“No. It doesn't always go well”, says Kjersti Malvik, associate lawyer at Prétor Lawyers in Trondheim.

She works with corporate- and contract law and discusses contracting - or perhaps rather the lack of it - with many Norwegians who come to her for help on an almost daily basis. She can tell you that many simply ignore the gut feeling that a contract "might be a good idea". "Many people underestimate how important it is to be clear.

“Things can get really bad without a contract. You can potentially lose everything you have," says Moholt, who have seen entire families that have been split up, and many tears.

"The worst cases are the ones where the conflicts take a toll on the relationships with people you care about," she says.

# No contract? You could go bankrupt

If you've agreed with a colleague, an employee, a shareholder or a business partner about something with your "mouth or a handshake", you'll struggle the day you might need to get back the investment you were smart and nice enough to “give” to your friend's company. Over lunch, for example.

A company that maybe didn't turn out so well after all ("many business partners are friends from way back", says Moholt).

Or, for example, you've given a new employee an offer to buy shares in your company?

”This is very popular at the moment, but can be problematic without a so-called share incentive. Because what happens if the employee leaves? You never know what might happen in the future, no matter how much you trust the people you work with," says Moholt.

You can also struggle if you don't draw up an employment contract that is well specified:

Let's say one of your employees think it's a good idea to buy the most expensive machine or tool out there. Then it turns out he or she doesn't have the authority to do so. And they do it anyway?

“Once the say multi-million dollar machine is bought, it's bought. You're the one who has to pay for it. So perhaps you should have been more detailed in the contract about the employees' leeway," says Moholt.

# Should have, could have

Few companies have millions of extra cash lying around. So a slip in a contract, or a non-existent contract, can in the worst case end up in bankruptcy.

“If someone is worried about this, I guess in principle they can just point to the current law from Christian V?”

“It's not really much of a help. Because you have no chance of proving what has actually been agreed," says Moholt.

“Are people surprised when they realise that the agreement was not as bullet proof  as they thought?”

“Yes. That I can confirm”, says the associate lawyer.

# Most digital e-ID contracts are secure

It's good to agree. "You work for me and I'll give you money". Or "I'll invest in your project, you promise to pay me back with interest". But even if the contract is simple - or if it exists at all - it's just as important what it contains.

What terms and conditions apply?

“Yes, what have you actually agreed to? What happens if all sorts of unforeseen events arise. Things you didn't imagine could happen. That's where the challenge is. What happens if or when this happens," says Moholt.

All possible events should be included in all types of contracts. So that there is no doubt in the future. And the minds of people included. 

“And it should be done with pen and paper?”

"Anything written down is good! I always want to see that. Written text messages, emails, notes, that's important. Otherwise, it's one word against the other," Moholt says, adding that you can't always be sure that the other party was actually the person they claimed to be.

"And 'you' never know what 'I' might add to the agreement if you signed it first and I received the paper afterwards," says Moholt.

“So how can people insure themselves the best way possible?”

"In Norway you can protect yourself with an e-ID that uses secure Bank-ID," says Moholt.

Like: Using trustworthy digital, verified signatures where both parties have access to see any changes to the contract as time goes on.

“It doesn't get more secure than that?”

“That's right. That has to be the very best way," says Moholt.

# Everything that could go wrong with verbal contracts

Misunderstandings: Memory is harder than we think. Over time, you and the person you enter into an oral contract with may remember the terms differently. Without written documentation, it can be challenging to prove who was right, what was correct, and it could lead to disputes and misunderstandings.

Lack of evidence: In the event of any dispute, verbal agreements are much harder than written ones to prove in court.

Incomplete terms overlooked: Important details may be overlooked or assumed, leading to conflicts later on.

Changes in circumstances: Over time, the circumstances of the parties involved in a verbal agreement can change. Without a written record, adding terms or adapting to changes can be complicated and create conflict.

Trust and ruined relationships: Even in cases where parties have a strong relationship either in personal affairs or in business, disputes over verbal agreements can lead to mistrust and damage relationships. Sometimes irreversibly.

Missed details: Complex agreements with numerous terms and conditions are difficult to thoroughly detail and confirm in a verbal format. Misunderstandings around these complexities can lead to significant problems.

 

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