What is Memorandum of Understanding (MOU)?
The concept of Memorandum of Understanding is considered as a noncommittal written statement specifying the introductory understanding of the parties who think or plan to enter into a contract. The expression Memorandum of understanding means mutually agreed set of statements for the understanding. The abbreviation of Memorandum of Understanding is MOU.
In simpler term, MOU is an agreement between two or more parties. The MOU can be presented as an effective and technical tool for establishing clear objective and targets.
Act Governing Memorandum of Understanding (MOU)
In India, the MOU is governed under Indian Contract Act 1972. As we have discussed that MOU is an agreement/contract. Such an agreement is enforceable in eye law.
Though there is no straightforward definition of MOU, it can be considered either as an agreement or a contract as it prescribes. MOU is often considered as the first stage of the contract.
Legal Binding of Memorandum of Understanding
The MOU can be of binding nature depending upon the object of the Agreement or contract, and the suitability and intention of the parties entered into the MOU. It will be decided by the court of law.
Enforcement of Memorandum of Understanding
Enforceability of MOUs depends upon the intentions of the parties. If the MOUs agreed by the parties fulfills the conditions prescribe under the Indian Contract Act, then it can be enforced. Moreover, the doctrine of estoppels can be helpful for the enforcement of the MOU.
The validity and enforceability of an MOU will change depending on the nature of the agreement entered into by the parties.
Privacy/Confidentiality in Memorandum of Understanding
There is a clause in MOU, which is known as Survival Clause i.e. whatever is stated confidentially in MOU will remain confidential in nature.
Advantages of Memorandum of Understanding
- Covers Entire Relationship
The MOU covers the entire relationship between the parties to it, covering all aspects of the contract that is likely to arise. Such an agreement is helpful to have in place before starting a long-term relationship with parties.
- Saves Time
It provides a framework to quickly negotiate agreements. Therefore, the same terms need not be repetitively negotiated for deals that are very similar to each other.
It is now clear that the MOU is, though, prima facie is not legally binding, it solely depends upon the intention of the parties and negotiation takes place between the parties. It can also be said that it is partly binding and partly non-binding in nature. Moreover, whether MOU will be binding or not can be decided by the Court by looking into the contents of the contract.
Frequently Asked Questions
The Indian Contract Act 1972 acts as the Governing Law for the Memorandum of Understanding.
The term “Memorandum of Understanding” denotes a noncommittal written statement, which specifies the introductory understanding of the parties, who think or plan to enter into a contract.
Yes, a Memorandum of Understanding is binding in nature. However, the same depends upon the object of the Agreement or contract, together with the suitability and intention of the parties entered into the MOU.
No, there is no need to pay any Stamp Duty on MOU if the amount of the immovable property is below Rs 100.
The main benefit of paying Stamp Duty on an MOU is to provide evidentiary value and admittance in the court of law.
Any company, organization, government agency, individuals, trusts, entities, and countries can use a Memorandum of Understanding.
The main advantages of an MOU are, it acts as proof of the contractual relationship between the parties and provides quick negotiation.
The essential components of an MOU are objectives, responsibilities of each party, manner of meeting and reporting, technical and financial support, the Person responsible towards Management, Duration of MOU, Confidentiality Clause, Conditions for Termination of MOU, Possibility of Extension, Modes of Communication, Severability Clause, Arbitration Clause, and Indemnity Clause.
The term “Survival Clause” denotes that whatever is stated confidentially in MOU will remain confidential in nature.
Enforceability of MOUs depends upon the intentions of the parties. If the parties fulfil the conditions prescribed under the Indian Contract Act, then it can be enforced.
The Doctrine of Estoppels assists in the process of enforcement of an MOU.
The main purpose of an MOU is to collect all the terms and conditions that are mutually accepted between the parties.