Memorandum Of Understanding (MOU)

A Memorandum Of Understanding (MOU) is a non-committal formal agreement executed (in writing) between two or more parties. A Letter Of Intent (LOI) is the same as a Memorandum Of Understanding, and it is sometimes referred to as a Gentleman’s Agreement. It states the intention of a party or parties to come together to enter into a future contract. An MOU serves as an agreement for establishing a business relationship with the intention of the parties to execute a contract in the future. An MOU is done when parties have agreed to enter into a contract, but the formalities (such as terms and conditions) of the contract are yet to be negotiated. MOU’s can be kept confidential by the parties, if desired.

Who Uses A Memorandum Of Understanding?

The following is a list that makes the use of MOU’s:

• Companies or organizations can use a Memorandum Of Understanding to establish partnerships with each other or individuals.
• Individuals or parties can execute a Memorandum Of Understanding.
• A Government Agency can execute an MOU with another agency within the same Government or another country’s Government.
• Countries can independently execute an MOU with another country/other countries.
• Entities, Trusts, etc.

Legal Validity Of Memorandum Of Understanding

Any agreement executed between parties that are able to contract of their own free will are contracts under Section 10 of the Indian Contract Act, 1872. In order for a Memorandum Of Understanding to be legally binding, a binding agreement (offer and acceptance, consideration and intention of the parties) should be inferred from the terms of the MOU based on the intention of the parties. Thus, any Memorandum Of Understanding with a clause that enforces the parties against a breach in contract will be considered a contract and is enforceable.

Enforceability Of Memorandum Of Understanding

In order for the Memorandum Of Understanding to be enforceable, the following two conditions apply:

• If an MOU fulfills conditions under the Indian Contract Act, 1872, then the performance of an MOU can be enforced under the Specific Relief Act, 1963. Specific relief is granted when compensation cannot be ascertained in monetary terms.
• If an MOU does not fulfill conditions under the Indian Contract Act, 1872, then the MOU is not a legally valid contract. A party can enforce such an MOU with a court of law based on the principles of promissory estoppels and equity.

How To Draft A Memorandum Of Understanding?

At LegalDesk.com, we undertake drafting of Memorandum Of Understanding for individuals and companies. Customers can now sign documents electronically from LegalDesk. This is a new feature added couple of days ago.  The added advantage of using eSignDesk (a product of LegalDesk.com) is that parties can sign an MOU remotely from any location in India. An MOU can be drafted with the intention of creating a legal contract (which can also be drafted by us). Based on the requirements of the parties, the contents and nature of the MOU can be drafted to specifications (the enforceability and legality of the MOU depend on the wordings in the agreement).